Power Lunch - Record Rally Losing Steam? 5/17/24

Episode Date: May 17, 2024

Stocks are off of their record highs, but the Dow is still higher for the week. While the S&P 500 and Nasdaq are also setting records.We’ll discuss whether or not the rally still has legs with our guest host for the hour, Michael Farr of Farr, Miller & Washington. 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. Glad you could join us on this Friday afternoon. Stocks are off their record highs right now, but the Dow is still up for the week. The S&P 500 and NASDAQ also setting records. The NASDAQ up more than 2% this week and we'll have much more in the markets with our friend Michael Farr, of Far Miller in Washington. He is with us for the full hour. Michael, welcome. Thank you. No chat with Michael here. We have to wait. We have to wait, they say. We'll do our best to try. We want to start. with AI because it's been a busy, busy news week and much more to come next week. Google and Apple both up about 4% since Monday and Reddit soaring today on news that OpenAI will use Reddit content to train chat GPT could be a great revenue stream, Tyler, for a lot of these companies.

Let's start, however, with Microsoft because it's next on deck for the big AI event next week. Our Steve Kobach will be there, and he joins us now with more on what we might see and hear from Microsoft, Steve. Yeah, Tyler, we got two AI reveals down so far with two more to go. This week, we, of course, got the latest from Open AI in Google, and starting Monday, it's Microsoft's turn with its build developers conference. Expecting a slew of AI announcements, of course, including new AI computers with Qualcomm's first-ever PC chip, plus plenty on the software side like AI features in Windows 11. And, of course, then there's co-pilot Microsoft's more key AI assistant.

Microsoft has been making a huge push to sell it to businesses this year, but it's not cheap. It's 30 bucks per user per month. For now, investors, though, they have little clarity into how well Copilot is selling, despite all that hype from Microsoft. I spent some time over the last few days catching up with CTOs and other execs who decide to buy tools like Copilot to see how it's being received. And the answers have been pretty mixed. No one we spoke to is really ready to deploy Copilot widely.

they're still testing it with just a couple hundred employees at a time. They say it's too expensive, while they can't quantify the benefit. But it's not all bad. Almost everyone said they love how co-pilot works with video meetings in the Teams app, and it keeps that transcript handy. It can summarize everything to happen. Also useful for catching up on piles of missed emails. Microsoft has given some data on co-pilot performance recently,

announced Coca-Cola is testing copilot internally, and the IT company Cognizant recently bought 25,000 Coca-Cola. co-pilot seats for its employees. You can do them out there to see how much Microsoft is making. As for next week, expecting improvements to copilot to address some of those issues customers have been having, guys. All right, folks. Let's thank you, Steve. Stick around as we bring in Michael Farr here. Steve talking most especially about Microsoft. Why don't I get you to sort of react to Microsoft and what you think of that company's performance and prospects, but also the idea of how critical it is for, individual investors to understand AI in today's environment. One, I like Microsoft, and I've owned Microsoft for years.

I think, you know, there's also a buzz about this Microsoft build conference that's coming up, I think it's next week. All the other sort of big tech companies have been having their rollout, so we're looking to hear more from them then. I think there are more ways to win in the AI space with Microsoft than virtually any other company out there. Azure and their cloud business, their generative AI, and that they're moving to subscriptions there, I think, just looks strong all the way around. It's really hard, I think, Tyler, to understand what the effects of AI are going to be. If you explain what chat GPT could do, and ladies and gentlemen, if you haven't signed on to chat GPT and asked it a question or to write

an essay or a letter or anything, it's going to blow. your mind if you haven't done it. Perplexity is the same way. It's another, it's another version. Perplexity, yes. So, you know, this is a technology that adds to that equation of productivity. If GDP

growth is the addition of your workers plus the productivity, productivity can explode. We've been in a productivity recession for years. It changed last year. It started to tick up, and it wasn't AI, but AI I think can move the needle big time.

One of the most exciting things going. So it can be a, it can change growth by a factor. And I think that that's what you can see in Microsoft. In the portfolios that you oversee, do you have a corner dedicated to AI stocks or AI players? Or do you, or is your, is your way to play to say, okay, no, no, no, I'm going to go with the Microsofts, with the Googles, with the, with the, with the, with the ones that are in the space, but are not purer plays? We look at kind of all. of it throughout our portfolio. For instance, I've mentioned Valmont here before, and the stock has done very well lately. It's an infrastructure play, but they build the stuff for data centers.

And data centers are increasing. So I can look at a company that's got agriculture and infrastructure and go, but wait, these people are supplying data centers and the demands going through the roof. So lots of different companies, Accenture has a whole lot of data mining and mining lots and lots of miles of data deep that can be used for clearer reporting through AI. So it's not just the Microsoft. It's not just the apples. It's not just Amazon.

There's an aspect of this in pretty much every bit of everybody's portfolio. Well, and Steve, I do think it's interesting what you're saying, that perhaps that initial burst of productivity from using co-pilot is not, you know, immediately tangible with a lot of companies, how much do you think that might slow investor excitement for Microsoft, if at all, at this point? It was that people who are looking at co-pilot or experimenting with co-pilot, they want to see what the return on investment is. They put out this, they meaning Microsoft, put out this report last week. It's called their annual work trends index. And that was one of the number one topics that Microsoft is talking about, helping people understand that what the

productivity benefits are. I talked to one CTO who basically told me it's too subjective. right now to really understand if it's worth paying that hefty price. Again, $30 per user per month, multiply that by a couple 10,000 employees. It's really got to be able to prove itself. It's a significant bump up from what many customers already paying for their standard tools like email and Teams chat. So that is one thing or likely going to be a theme going into the build conference on Tuesday is what's new with co-pilot?

Is there any kind of elasticity in that pricing to get people to sign on now? because right now we really, there's just so much minimal disclosure for investors on how, this is their main product, Kelly, you got to keep that in mind. They just hired a new CEO of Microsoft AI to run that division for user-facing and consumer products, specifically co-pilot. So a lot of effort behind it, but still not a lot of proof there yet that it is all it's hyped up to be. Yeah, no, what you said about the teams called the ability to do transcripts is great, but you don't know if you need, you know, 30,000 licenses for that or maybe a few less than that.

Thanks very much. We appreciate it, Steve Kovac. Let's stick with AI and talk about a number of executive moves and big hires across the generative AI startups this week, including at the two biggest darlings in the space, Open AI and Anthropic. Dear Jabosa joins us in today's tech check for more on what this means we'll see next out of these startups, Deirdre. Hi, Kelly, I've been following your conversation. Microsoft has already grown up, but these gen AI startups, they're starting to grow up now and also going a little more corporate. A number of the most well-funded, highly regarded startups. They're moving from an all-out focus on building that core technology to turning that technology into products and with a sense of urgency, I should add. There's Anthropics hire of Instagram co-founder Mike Krieger. He'll be the startup's new head of product, focused on getting the tech into users' hands and finding business uses.

There's also French open source darling Mistral hiring a new GM for North America who has held chief revenue officer roles at a number of other tech companies and answer engine. Tyler just mentioned this, perplexity. It added three new advisors who have held senior roles or helped build key products at Uber, Android, and Bing. Guys, for all the hires, though, there was that very notable departure this week as well. Kelly, we talked about it. Ilya Setskiver from OpenAI, known for pushing the ethical and safe development of GenAI. We'll see what he does next, but that is one less voice in the monetization.

and commercialization drive. We round all this up and more. Be sure to check out our weekly deep dive publishing today at cnbc.com slash tc weekly. And to your guest, Michael, I would say, if chat GPT blows your mind, check out this piece because it's all about the AI agents that can do even more in real time.

And it's really amazing what we've seen this week. I can't wait. Are they already doing it, Deirdre? I know a lot of these announcements, are these about technologies that are still yet to come, or is this stuff live? Good question. Parts of it are being made live. This was the demo, and that's a key distinction, because there was even some fits and starts with it. But, you know, what Senator Pichai, the CEO of Google told me earlier this week is that they want this technology and aim to have it into consumers' hands within the next year. So it's all moving very, very quickly. And the key difference is that it can emote, it can rationalize, it can remember. So a leap forward than what we've already seen with chat, GPT.

You know what's interesting, Michael and Deirdre, to me, is I think back decades ago, I grew up in the publishing business. So did you grow up in the publishing business. And there was, at that time, maybe a conceit that the legacy publishers were going to own the world of online information and online journalism. And in truth, that has not been the case. It has been other companies that have come in and been the winners here. So I wonder in this new breakthrough world of artificial intelligence, whether it's a little too convenient to say that the winners are going to be those legacy tech companies, the metas, the Microsofts, the Googles, the oracles, and whoever else, Amazon, Apple, whoever else you want to say, or is it going to be these smaller startups like Anthropic? There are obviously lots of different facets here. There are the data builders and so on and so.

But the people that really do generative work, I wonder what do you think about that? I think your answer is going to be both. Because as we look through kind of every evolution of every industry, the answer has been both. We can look back to the insurance industry or the big blue chip companies and say every portfolio, 25 or 30 years ago, had to own AIG and had to own General Electric and had to own, what? Whatever. And you were supposed to sell Corning until they figured out that they could take that bakeware stuff and turn it in the fiber optic cable. True. Right? I mean, so. And the glass on the screens.

The glass on the screens. So you really need to say some of these smaller companies are going to have it right and some of the bigger companies won't. But content really has proven king and publishing and will with this. That's the only thing I was going to say about this. I think the Reddit deal, I would love to know the terms, perhaps are already out there. But, Tyler, to exactly your point, if you're a Reddit, if you're a Wall Street Journal, if you are a sort of repository of information and language that the large language models can train on without violating the law and being accused of stealing down the road,

and they're going to pay you for that privilege, could those companies become the winners? So, Dee, you know, I mean, you've covered this a long time. I think back to the days when who dominated the digital space, a company called AOL did, okay? Everybody that was going to be AOL's world. They gobbled up the company that I won. Google only came along later.

Pardon? Google only came along later, right? There was AOL. There was Yahoo was going to own it. Yahoo was going to own it. And where are they now? Even those guys, they're all but dead in the water. And when they came along, I was I was guest hosting, I was guest hosting on CNNFN and we interviewed these two new kids.

Oh, you're dating yourself, I know. But the two new kids from this company called Google and we were in the middle of the dot com craze. And I looked at, I looked at Ronda Schaffler and I said, are they calling this company, what? Google? I thought it was like a name like Yahoo or something that they just made it. You know, it's, and it, this is a company that. Go ahead, Deirdre. It's a really good point. And it's not like Google came in and reinvented the wheel. They just had like a better user interface, basically. And began to dominate the market for search for the next two decades. So in this moment, there's a similar, very fierce.

debate going on. I think the difference is that the mega caps that we know now are so well capitalized. They're the biggest companies in the world and they're moving pretty quickly. I mean, we talk about the regulatory red tape, but Google was able to acquire deep mind years ago and that was really essential for them leading the technology. There are startups though like perplexity, an anthropic and some others that are making Google and Microsoft move a lot faster and certainly an open question, but I probably agree with Michael. It's going to be both. All right, Deirdre, thanks very much. All right, all this AI buildout is going to require chips,

and that's going to require money. The U.S. government has already handed out $33 billion of money from the Chips Act. But another $6 billion remains, and Megan Kassella has more on that. Megan. Tyler, hundreds of companies are still vying for a piece of that pie that's remaining from the Chips Act. Most of the $33 billion that's been allocated has gone to leading-edge producers, like Intel and Samsung.

And Mike Schmidt, who leads the Chips Office at Commerce, tells us the focus now is on sending smaller awards to dozens of smaller companies along the supply chain. The goal is to provide grants for equipment and material suppliers on one end all the way to packaging facilities on the other. Our goal, when we're evaluating an application, is first and foremost to assess the benefits of the application for our economic and national security, and then second, to negotiate as good a deal as possible for taxpayers. Now one company competing for a chips award is IQE.

It's a UK-based company that produces what's called compound semiconductor wafers for companies like Apple. Its CEO says he recognizes the interest in funding AI chips, but says it's also crucial to fund the materials that help them work. Our conversation with the chips office is about capacity and new technologies, and we are having very constructive conversations. I'm pleased to see them looking at the industry as a whole. Now, industry experts say funding these suppliers is key to making sure that chip manufacturing in the U.S. can last for the long term.

Guys. Megan, thank you. And I guess I would turn Michael Fart to you and just say Intel was seen as the clear beneficiary of these handouts. Is that a stock you'd stick with? Are there others? You know, Intel has gotten beaten up. I mean, they've come way down off the highest. Is Megan still here?

Probably. Is she still? Because I was just going to ask about the capacity because this was a big part of the supply chain problem when we couldn't get chips to put in new cars. I mean, we stopped production lines, right? So I think you have to look at who can actually deliver the chips that we need. And Intel's okay, but it's still, in my opinion. It's still Invidia's world, and it's still Taiwan Semiconductor's world, which brings in a huge political conflict. And if something happens in Taiwan, Doesn't that even make Invidia even more exclusive, more of the gaming and high-tech stuff? Getting these high-tech production facilities up and running and tooled in the U.S. is a multi-year process. You just can't come in and say, we're going to produce these highest level of chips.

It's the low level of chips you can get, and they're cheap. And maybe to put it differently for all that Intel has benefited from these handouts, the stock is nothing like at Nvidia. Although, obviously, it's done much better of late, but I think there's still a ways to go in that story. But a contrarian and a fundamental investor, I think Kelly, would look at it and say, and I haven't jumped in that intel water yet, but probably they've got the tools. They've got the experience in the balance sheet that, yes, they can get there. All right. A quick power check as we head to break. On the plus side today is Robin Hood, the online brokerage soaring on a double upgrade to buy at B of A, who cites increased activity from retail investors. On the negative side is Cracker Barrel, plunging after cutting its dividend to just 25 cents from $1.30 per share. and forecasting lower sales and profits ahead. Power Lodge will be right back. Welcome back to Power Lunch, everybody.

A day after the Dow kissed, as Bill Raftery says, kissed the 40,000 level. Stocks are mainly flat today, though the major averages are on pace for a strong finish to the week with the Dow up a percent. And on track now for its fifth higher week, or week higher, I should say.

The S&P 500 up about 1.5 percent. The NASDAQ up about 2 percent. Michael Farr of High Tower Advisors with us for the. hour. And Michael, we want to spend some time here talking markets with you. Momentum typically begets momentum, doesn't it? It does. New highs typically... Until it doesn't. Well, until it doesn't, until momentum reverses the other way. And that's no fun either. And it's been a long time since we really remember those lower lows every day. But yeah, I mean, if you think about it this way,

every brand new high we have ever made in history except for yesterday's has been succeeded at some point by higher high. So this is the trend. This will creep up. And these are psychological numbers, and it's great reason to celebrate capitalism, the American way, and the good work and information that comes from CNBC. So I shouldn't feel bad if I'm a viewer, and I say, well, you know, I've been ahead of my money and cash. I was worried. I didn't trust this.

It's still, with reason, a good time to put money to work if you are going to dollar cost average in. Sure. I mean, yes, you never want to stop your discipline. So if you have a discipline, you stick with your discipline. My longtime partner, John Washington, said the best time to buy stocks is when you have money, and the best time to sell stocks is when you need money and otherwise pay no attention to the levels. There's a lot of wisdom, actually, in that and of just holding through various cycles for the long term

and letting your money grow and compound tax deferred. I want to mention one of the catalysts this week really seems to be the CPI report. A little bit softer than expected, enough for people to be off to the races saying, okay, great, maybe we can have rate cuts after all or what have you, have you seen bond yields drop. But even today, the market has given up its gains after the Fed's Bowman said she'd still be open to hiking if needed. She's been a hawk. This isn't exactly a news flash. But do you think the Fed's going to try to push back here a little bit and maybe try to say, okay, we need both options open? Yeah, it's exactly what the Fed's doing through these various jawboning and folks and governors coming and saying we might be open to a raise. Do I really think they're open to a raise? No. What I think they had to do is they had to say they were open to a raise because stocks took off. I saw that number. saw futures take off and then they pulled back and I said, well, that was just, you know,

that was the bots trading. That was the algos that just ran up on. But they've got ahead of itself. And markets have been doing this to the Fed for two years now. Every time the Fed comes out and says, look, we're going to be data dependent or we're going to do this or that, fine. And then markets go, oh, no, they're going to cut. Oh, no, we're going to have seven or eight cuts this year. No, you're not. The Fed never said it. And then the Fed comes back and- I love the Fed because they give us, I almost said something else, stuff to talk about. They give us plenty to talk about. But I want to turn it because we spent the last year maybe worrying about what the Fed was going to do and what it wasn't going to do.

We've been to the last worrying about inflation. But now more and more people seem to be worrying about the consumer. Are you? Sure. You have to worry about the consumer. The main fundamental support for the entire U.S. economy is the consumer. And if you read Home Depot's earnings report that they are seeing smaller tickets and fewer tickets and that consumers are deferring big purchases a lot because maybe home sales aren't at the same pace

and they're going to focus on pro and everything else, you're also seeing this from even the fast food restaurants, some of them saying that consumers aren't spending as much when they're going in and they're getting pushback. Are we finally reaching that point where the consumer is running out of wallet? They had a bunch of money on their balance sheets. We know that wages have kept up. But we need to watch this consumer, the strength of the consumer and their ability to spend will dictate whether these companies can continue to have top-line sales.

Yeah. All right. On that note, be sure to tune in to CNBC's Financial Adviser Summit. Wednesday, May 22nd. You'll hear from more top investing experts about the current bull market. Answer all of your questions, give you a whole lot more. Scan that QR code to register or head to CNBCEvents.com slash FA. We'll be right back on Power Lunch.

Welcome back to Power Lunch. Now it's workers at a Mercedes-Benz plant in Alabama voting today on whether or not to unionize. Phil Aboe is tracking that story for us. Phil? Kelly, as we speak, the NLRB are counting votes at two plants for Mercedes-Bns in Alabama to see whether or not the members there have voted to unionize. We expect the results sometime this afternoon. And for the UAW, this continues a pattern that they laid out the strategy for, some time ago. After they wrapped up the big three negotiations last fall, they said,

look, we're going to target the foreign automakers as well as EV final assembly and battery plants. And the whole idea here is you've got to reverse the membership decline if you're the UAW. They're down to roughly 370,000 members. We've talked about this for weeks, if not months, that this is a decades-long decline in membership. And the only way you're going to reverse it is by organizing non-union plants. And there are 21, non-union plants in the United States. Most of them are owned by foreign automakers. Most of them are in the southeast. And that's what the UAW is doing. They were successful last month at VW in Tennessee. We'll see what the outcome is here for Mercedes-Benz in Alabama. What happens after that?

A couple of possibilities have been mentioned. A Hyundai plant in Alabama as well as a Toyota plant in Missouri. Those are two areas where the UAW believes it could be successful turning those plants into UAW shops. But first, they've got to organize Mercedes in Alabama. And again, the NLRB counting the votes, we should have the results sometime this afternoon. Guys? Phil, you know, the other way that the UAW has been trying to increase membership

is by being active in organizing, believe it or not, workers on college campuses. Wow. True. Right? A big part of the UAW membership is outside of the auto industry. Right. I know that sounds strange, but that's been a big part of what they've done over the last, I'd say, 15 to 20 years.

And they had to, Tyler. Look, a lot of the decline in membership at UAW is because the big three have eliminated so many plants over the last 50, 60 years. And that's just a function of the fact that they've been losing market share, obviously. But manufacturing has become much more efficient. You simply do not need as many people in a final assembly plant as you did 20 or 40 years ago. So if you're the UAW, you can try to organize plans like they're doing with Mercedes-Benz, or you could say, where else can we take our union message and get members? Hey, Phil, it's Michael Farr. It's nice to see you again always.

We saw what happened with that Volkswagen plant in Tennessee. And, you know, from the old guy's perspective, you'd look at a union and you'd say, all right, they're going to go out and they're going to sell better benefits, better salaries, they're going to make a better package for the workers, and then they're going to add that through and increase car prices and product crisis, and it's going to create a certain level of inflation that they pass on. Is that still the sale? Is that the sale they made in Tennessee? Is that the sale they're trying to make in Alabama? Well, that's not the sale. How are they making? Well, the sale they're making, Michael,

you're right about the message, and the message is a pretty simple one. If you are a Mercedes line worker in Alabama, you're looking at people up for General Motors in Michigan and saying, wait a second, they got a 25% raise. and they were already making more than me, I want a piece of that pie. That's a pretty easy message to sell. In terms of your other point that you're making in terms of higher prices means more inflation and makes these plants less competitive, that's what we're hearing from governors of southern states. Kay Ivy, the governor of Alabama, has been emphatic along with other governors saying, don't do this, you do this, you're not going to have a plant that is as effective as cost effective

for the automaker. And someday that automaker is going to have to make some choices about where to cut costs. All right, Phil, thank you very much. Phil Leboe reporting for us and we'll know the results of that vote sometime, as he says later today, probably. All right, let's get to Kate Rogers now for a CNBC news update. Kate. Hi, Tyler, the man convicted of attacking. Representative Nancy Pelosi's husband with a hammer was just sentenced. David DePopp received 50 years total on two charges, but the sentences will run concurrently. It amounts to 30 years behind bars. DePop fractured Paul Pelosi's skull when he couldn't find the then-speaker at their San Francisco home in 2022. He goes to trial on state charges for attempted murder later this month.

Actor Alec Baldwin could see charges dropped against him in the deadly on-set shooting of his film Rust. His attorneys just made their arguments. The judge is expected to rule next week. It follows the manslaughter conviction of the film's armorer Hannah Gutierrez, who loaded the live round into the prop gun that went off killing the Russ cinematographer. And it could be the most famous napkin in history. The napkin inscribed deal signing a young Lionel Messi to Barcelona sold today at a British auction house for about $965,000. The agreement to bring on the 13-year-old Messi was written almost 25 years ago at a Barcelona tennis club.

Tyler, back over to you. Best deals get done on a napkin. Thank you, Kate. Appreciate it. Thank you. Did one of my own that way. Still ahead, we wrap up our anatomy of the consumer series. For our finale, we're going to dig into the psychology of spending. We'll be right back.

Welcome back all week long on Power Lunch. We've been breaking down the health of the consumer in major sectors from retail to restaurants and travel. Today we wrap up our series looking at the most complex part, the one often hardest to understand, the brain. We're diving into the psychology of the consumer. The latest reading on consumer sentiment from the University of Michigan showed the index falling to a six-month low, largely on inflation fears. But for the most part, the average consumer is still spending. So what would have to happen for them to start really cutting back? Here to discuss is Joanne Schu, director of the surveys of consumers at the University of Michigan.

Joanne, it's great to sort of meet you. Welcome. My pleasure to be here. What do you think? Some people say, you know, the drop in consumer sentiment, well, the reality is consumers are still spending and there's some kind of, divorce there. Do you think that's the case? Or what do you think your survey is telling us? Not at all. Well, it might have surprised some people that consumer sentiment is so low, considering that consumer spending overall is quite robust. Consumers are not at all disconnected from reality. What we've seen over the last two years is that consumers have noticed that inflation has softened. They are perfectly aware that labor markets remain strong. And as a result,

you know, they really do have a good sense of how the economy is going. However, it doesn't feel the consumers that they are thriving. And really the main thing that's supporting consumer spending right now is strong labor markets and strong incomes. And, you know, labor market strength appears to have softened a little bit more than expected in the most recent readings of the labor markets. And so that's a bit of a concerning sign because, again, this is the one thing that's really supporting consumer spending. What's so interesting to me about behavioral economic is that it is so often counterintuitive. And you talk a little bit about how consumers may be feeling today a little bit defeated,

defeatist about high and sort of intractable housing prices, food costs going up, so on and so forth. One might think that if consumers feel defeated, that they would pull back. But you say they may do exactly the opposite and just say, ah, the hell with it, let me spend it anyway. Yeah, I think what we are, we have to look to the data. and what we are seeing is a combination of negative attitudes and positive spending. And this positive spending is not a reflection of, you know, some sort of internalized, secret sense of confidence that consumers have. And instead, my interpretation is that consumers see that a lot of aspirational goals

that we talk about as part of the American dream, you know, homeownership, paying for college, paying for college for your kids, having a comfortable retirement. With high prices and high interest rates right now, those aspirational goals, just feel increasingly out of reach. And as a result, I think consumers are not really, they've kind of given up on saving for those things and with strong labor markets that enables them to spend now. And I think that's what we're seeing in the consumption patterns.

Dr. Shoe, hi, it's Michael Farr. So when you've looked at these patterns before where the consumer attitudes perhaps are getting a little bit weaker, how do these kind of cycles end? I mean, we still have inflation, we still have higher prices, inflate the rate of those higher prices, of course, is decreasing. I mean, so that's a good thing. We have now real interest rates. Is there a point where the consumer runs out of wallet, or do they just run out of attitude or both? I think the wallet is going to hit earlier than the attitude, but it really depends on how labor markets are going.

Again, the reason why consumers can even afford to spend in spite of their dower attitudes about the economy is because of strong labor markets and their incomes are strong. And what we see in our data is that consumers broadly have been expecting strong labor markets to persist. Now, in our most recent reading in May and our May preliminary data, consumer expectations of our labor markets have softened a little bit. So, you know, that's an early, possibly an early sign of oncoming weakness for consumers. But as of now, strong incomes are supporting consumer spending. Joanne, I think the conclusion from every part of the consumer we've checked in on this week is that it's really down to the labor market. Yes. I think that's perfectly consistent with what we are seeing. And so I think people who watch the economy should be paying very close attention to labor market expectations because I do think that's

going to inform how consumers behave in the year ahead. All right, Joanne Shue, thanks for joining us today. We appreciate your time. My pleasure. And coming up, we've got our eye on AI. A special AI edition of three-stock lunch is ahead on Power Lunch. We'll be back in a minute. Welcome back, everybody. today as investors continue to digest this week's inflation data. Let's get to Rick Centelli for an explanation. Hi, Rick. Hi, Tyler. Indeed, what a week. You consider PPI?

It was all about the downward revisions to last month, even though this month was hot. CPI, it was cooler, but significantly higher than the Fed's 2% target. Retail sales was weak. And today, leading economic indicators is not a top-tier statistic on the economy, but an important one, minus 6%. Six-tenths, worse since October, 25 out of the last 26 months have been negative. Look at an intraday of two-year note yields. Boy, we've popped up today.

And right around 11 Eastern, you notice that line that popped up. Well, if you put a two-day chart, there's your explanation. It's momentum technical trade on a Friday. We traded above yesterday's just shy of 480 high, and it accelerated to the upside. Tens were just the same. And if you look at twos and tens on the same chart week to date, you can clearly see at current levels, yes, we're up on the day and two's up four, and tens we're up four, but on the week, we're down five and twos, we're down eight and tens,

which shows that two's tens is a little bit more inverted. Long end rates are surprisingly low considering. Kelly, back to you. That's an interesting point. Rick, thank you very much. Have a great weekend, Rick Santelli. We're celebrating Asian-American, Native Hawaiian, and Pacific Islander Heritage all month long. Here's our own, dear Trebosa.

Asian Americans own an estimated 3 million businesses in the United States, while Native Hawaiians and Pacific Islanders own nearly 90,000. Collectively, the group employs close to 5 million workers. The U.S. Small Business Administration says that's just under $200 billion a year paid to their workforces. For Asian American Native Hawaiian Pacific Islander Heritage Month, I'm Deer Jabosa. Welcome back. It's time for today's AI-focused three-stock lunch. Here with our trades is Gina Sanchez, Lido Advisors, Chief Market Strategist.

She's also a CNBC contributor, Gina, welcome. And we're going to start with Reddit. Those shares were up big today after announcing its Open AI partnership, 11% gain an 85% increase so far this year, rivaling NVIDIA. I think it's a super cool idea and potentially lucrative one for Reddit. You say it's artificial ignorance. Talk to us about that. Yeah, so if you think about the business model of Reddit, it is really dependent on a whole lot of free contributors. in fact, an army of free contributors that are putting information,

and this information isn't necessarily well fact-checked, great information. Sometimes it's just information. It goes into the echo chambers and becomes accelerated through a feedback loop, and that gets picked up by artificial intelligence. And like doctors say, you are what you eat. The same is true of ingestion into AI. This just becomes bad information, be getting bad information. So I think that it's not just artificial ignorance.

It's also artificial inbreeding of information. Interesting. Memorable phrasing there, Gina, thank you. We also asked you to give us a big cap play in AI, and maybe not surprisingly, you chose Nvidia. Yes, this is the biggest of big cap names in this space. It is really, really firing on all cylinders, and that is because the AI race is very clearly on.

Adoption of AI is happening everywhere. So if you think about tech eating everything in the 90s, now AI is eating everything in tech, and it's showing up everywhere, and it is driving revenues for this stock. And if you look at its trailing PE, which is 78 times, that becomes 34 times on a forward-looking basis, which is really attractive for the kind of growth that we're expecting both top line and bottom line from this company. Down a good bit today, Michael, but very close to an all-time, may have hit an all-time high yesterday the day before. Your thoughts on Nvidia? It's the 1,000-pound gorilla.

And as Gina said, yes, it's expensive when you look at it on a multiple basis, but if you look at it on a growth basis and remember that Peter Lynch says that earnings growth is the most significant indicator of stock price performance over time, this company has earnings growth and they're at the forefront of AI. They're really tough to bet against them, really tough to bet against them. All right, let's turn then to a very different way to play AI, Gina, which you came up with as Midtronic. Explain. So Medtronic is one of the device makers.

And you think about AI, like I said, it is eating everything, and health care is no exception. Medtronic has gotten regulatory confirmation for five AI efforts, that AI products that they are, that they are doing, including an AI generative system for diabetes, which is mini-med, and they also have an AI product for endoscopy. And so lots of ways to do it. And in fact, just last quarter, you heard about Medtronic talking about the adoption of its AI surgical planning for spinal surgery that has been shown to improve outcomes for spinal surgery. So this is one of the plays where you see an industry where, you know, demand is nearly unlimited. Resources are very limited. AI could actually have an enormous impact on driving demand.

And quite frankly, if you look at this stock on a forward, you know, PE basis, it's trading at 16 times. It is very attractive with strong and stable margins. Michael, what do you think about Medtronic? It's a stock I own, and I've owned it for a long time. I like that they've had consistent and positive sales growth. Once again, I agree with Gina. And I think that you're going to see not only Medtronic, but a lot of other companies, particularly in the MedTech space, that really do benefit from AI. All right.

Gina, thank you very much, Gina Sanchez. We appreciate your time. And remember, you can always hear us on our podcast. It's your podcast, too, everybody. Be sure to follow and listen to Power Lunch on your favorite streaming service. We'll be right back. All right, welcome back to Power Lunch. We've got about three minutes left in the program.

Several more stories we're going to talk about right now. Beginning with GameStop. Shares tumbling more than 20% after revealing plans to sell additional shares and a year-over-year drop in first quarter sales. In a filing, the company's, said it expects net first quarter sales between $872 and $892 million down from $1.2 billion a year ago. GameStop and other meme stocks more than doubled in value earlier this week, thanks to those Roaring Kitty tweets. I am always beware of stock trip tips from roaring roaring kitties.

I think you need to get them early and often and know when to get out afterwards because those things that can go up really fast can go down really fast. They say they're going to sell and bring a stock offering when the stock's making new highs. Well, that's right. Bye-bye. Bye-bye. Bringing new shares to the market as profits go down or I guess the profits are going down, not usually a good sign.

No, and that's what the company wants, as more investors to come in and take advantage of that. Meantime, new data from the New York Fed found roughly one in seven. Gen Z, that's the young ones. The credit card borrowers have maxed out their credit cards. That compares with less than 10% of Gen X, less than 5% of the boomers. The New York Fed defines Gen Z as being born between 1995 and 12. My question is, is this different from historical norms?

You'd always expect the younger ones to be a little bit more cash press than the older, wealthier generations. That they don't seem to understand the consequence is always chilling, right? That they've got to figure out, that they've got to figure out you've got to pay this money back one of these days. I truly, I actually had a friend in college who said, I can't be out of money. I still have more checks in my checkbook. That's absolutely God is my witness true. You learn the hard way. I think my roommate.

I may have been my roommate. All right, and finally, one of the wildest stories we've heard in a while, the number one golfer in the world, arrested and charged with assaulting a police officer, among other charges. Scotty Schaeffler trying to get around a line of traffic at Valhalla Golf Club near Louisville, the site of this week's PGA championship. According to police, an officer trying to stop him was dragged to the ground and injured. Result, Schephler arrested, there's the mug shot, and then released.

He made it back to the course for his. 10 a.m. T time, and he shot 400 par today and moved into fourth place. He birdied the first hole, Michael. I don't know. I mean, how he made it to the first hole after being in the jumpsuit, and then he birdied the first hole? This guy is a lot more to learn here. There were apparently lots of dash cams, lots of body cams involved here. There had been a fatal accident earlier in the morning that was backing up traffic, and I believe he drove around onto the media. He claims that there was confusion as to what he was supposed to do, and the officers say, no, there was no confusion. He interfered. But we'll see. Let's talk a little bit about the markets.

You say, watch three things, Fed, consumer, and earnings. Quickly, take us through it. You know, all of these things seem to be in a bit of conflict in that the Fed is saying we're not going to do anything. The consumer might be getting a little bit weaker. And earnings are still okay. So I just caution investors, a line from my favorite poem, whether or not it's clear to you. you. No doubt the universe is unfolding as it should. We've been through this before. Everything's reasonable. Stick with your long-term plan. You'll be fine. Michael's been great having you with. Thank you so much to both of you. Thank you. Great to be with all of you. Thank you for watching, Power Lunch. See you on Monday, but don't go anywhere. Closing bell starts right now.