Power Lunch - Regional Banks Under Pressure & Apple's Potential AI Supercycle 6/24/24

Episode Date: June 24, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, welcome to Power Lunch, everybody, alongside Kelly Evans. I'm Tyler Matheson. Nice to be back together. Has Apple done it again, despite a perceived slow start with AI? Is the company's new Apple intelligence enough to drive an iPhone refresh cycle and make it an AI leader? Plus, we'll get a check on the regional banks with the CEO of Woffed. That bank and several others put on downgrade review by Moody's this month. Before that, let's get a check on the markets without more than 200 points, getting a boost from Goldman and a couple of healthcare names, Amgen and United. health. The SMP, though, is down five points, and the NASDAQ is lower by three quarters of 1%. Invita, as you might have guessed, is weighing on the tech stocks. As its slide continues,

it's down nearly 15% now from the all-time intraday high of 140 that it hit on Thursday. And check out Bitcoin down 9% in a week to just over 60K. Are Nvidia and Bitcoin two signs that speculation and momentum are losing favor? And if so, what does that mean for stocks as we enter the second half of the year? Let's ask none other than Michael Santoli. What do you think? Well, Kelly, definitely the momentum trade is exemplified, mostly by NVIDIA and some other semis and Bitcoin, has broken stride right now. I think the question is, can the rest of the market kind of prove that it doesn't always need those upside leaders? So far, so good in the last three or four days. Even today, there are twice as many stocks up

as down in the New York Stock Exchange. You mentioned some of those laggard names that have been doing better today. That would also include regional banks and some consumer staples. I do think you have to hesitate before you give full credit to the market for being able to execute this kind of perfect rotation before it's done. I do think the market still craves reassurance that we are more or less on track for a non-hard landing. That means both inflation and growth coming in the acceptable range. I think you can't really dismiss the idea that lower bond yields in the last few weeks didn't really give full benefit to smaller stocks and other cyclicals because there is a little more sensitivity to the idea that we're decelerating in the economy more than we expected or hope to.

I don't think it's a really loud alarm. So far, the market is behaving in a pretty orderly way as we get to the final week of the first half. All right. Mike, stay right there. We appreciate it. We want to continue our conversation and our next guest says last week's mixed data on the economy. Michael, kind of referencing it there. Supportive still, though, however, of relatively good growth. And when it comes to the semi-sector, she says you've got to pick your

your spots. Let's bring in Stephanie Link, chief investment strategist and portfolio manager at Hightower and a CNBC contributor. Hi, Steph. Good to see you. Let's talk about the semiconductors. They seem to be taking a little bit of a pause. Is it a pause that refreshes or a pause that concerns you? Yeah, I mean, I think it's a pause that refreshes. It could take a little bit of time, though, Tyler, because the SMH is actually up for 52%. And there are many, many semiconductors beyond Nvidia that are up 40, 50, 60 percent. So that's not that normal, even though AI is very powerful, and we are in the early innings. And it is a $2 trillion total addressable market by the end of this decade. And it's really impacting so many different industries. So I think it just

takes a pause. What I find really interesting is that the last week and even today, you're seeing a broad, you are seeing a broadening out into other sectors. And I think that's healthy. That's healthier than having NVIDIA account for 5% of the S&B 500 and 35% of the gains year to date. So I'm looking at sectors like financials, energy, industrials, where I think earnings are still going to be good. And that's why we pay attention to what the overall economy is doing. And if I think we're running at about 2, 2.5%. I think you're going to see very good earnings and, again,

supportive of some of these lagging sectors for the time be. So since we must always discuss NVIDIA, Let's, why don't we just get it out of the way? How do you explain or is there an explanation for its pullback 15% since it's high on Thursday? Or is the explanation what I think you were just hinting at? And that is some prudent rotation away from a sort of an, not overvalued, but an overplayed sector. Yeah, I mean, this stock, Nvidia is very overowned. 90% of the sell side have buys on it.

it's had a heck of a run and it's kind of hard to explain just how fast the velocity of the move. But like I said, there are other semiconductors that have also done really well. And I just think, look, these are great trends, a great, this great company. But if you're going to see better earnings elsewhere, well, why not pick up the banks that are at one times book value? Some of the industrials at 14, 15 times, and you have this huge tailwind with regards to onshoreing. in energy. I mean, the sector's down and out. And yet the executives are scrambling like mad to do M&A because they see value. We've seen almost $500 billion in energy M&A in the past year. So I kind of like these other sectors at this point in time. I don't own NVIDIA, but I do own Broadcom. I've actually

been trimming Broadcom. I was just going to ask you what you were doing with Broadcom. I'd be curious to hear kind of the broader take on that. Yeah. No, look, it's, Cal, it's had a great run. When I bought this stock two years ago, it was trading at 14 times forward estimates, and it yielded 4%. Wow. Fast forward two years, the stock is now at 34 times, forward estimates, yielding a lot less, of course, because the stock has moved so much. I love it. I do. I really think what they're doing is tremendous. I think VMware is a game changer because it gets them more software exposure, which is higher margin business. I think their AI component is going to grow 35% plus, I think non-AI has actually troughed and can grow maybe three to five percent or so.

So I like it for the long term, but I got to take profits. I mean, this is, I would kind of hit myself over the head if I didn't take some gains. It's still a pretty big position. Mike, talk to us a little bit about the broadening of the market, specifically the opportunities that Stephanie sees in some of the energy stock. Yeah, I think initially what you see is a somewhat mechanical return to the laggards in an attempt to say, okay, we've gotten enough out of the big leaders like NVIDIA, the pile up of superlatives on NVIDIA's gains,

I think just got to be too much too unstable, too much insider selling, all the rest of it. So the first move is, well, it's still a bull market, the economy's fine, we'll buy the rest of it. I think you have to be on alert for the idea that there's some slippage in that process. It happened in March. The rally broadened out after NVIDIA had a little bit of a hiccup in early March.

Everything else did really well, and it didn't immunize the overall tape for a pullback in April when yields rose, and there was some questions about the soft landing and the Fed and all the rest of it. So not predicting the same thing, but I see what's going on right now is a little more of the kind of way that the market's choreography operates right now with this very, very heavy trade betting on index com and a lot of divergence below the surface. That can worth in both directions, either Nvidia's going up to the exclusion of other stuff or vice versa. Stephanie, a quick last question. I do think the stuff you're talking about in tech,

where you're focused the PC refresh cycle, where even Apple could be playing a role. Just speaks to how, where do you think we are in terms of how much longer that has room to run? I think we're in the second or third innings on the PC refresh. I think we haven't even seen it on the consumer side. We've seen it on the enterprise side. You saw it from Dell, HPQ, AMD. So you're looking at pockets within technology that have kind of lagged. They've done okay this year, but they've lagged some of the semiconductors.

I think they play catch up. I mean, when you have AMD saying that their chip is five times as fast as their prior chip, that is really, really powerful. So I definitely want to have exposure to CDW, C-Gate, obviously Apple, too. All right. Well, thank you both. Stephanie Link, Michael Santoli. Always a pleasure.

Some Fed speak to tell you about now from San Francisco Fed President Mary Daley. Let's get to Steve Leasman with those headlines, Steve. Yeah, good afternoon, Kelly. Fed, San Francisco President Mary Daley, saying the economy is closer to a point where the benign outcome could be less likely. So she's the second person today, second Fed official to worry about possible weakness in the economy. She goes on to say inflation is not the only risk we face. And then she offers two different scenarios, which are not perhaps surprising to our viewer. She says the Fed can stay higher for longer if inflation falls more slowly than expected,

but lower rates would be necessary if inflation falls more rapidly or the labor market softens more than expect, and very much using a construction used by the Fed chair, Jay Powell. She goes on to say the Fed is still fighting to bring inflation to 2%. So here's the normal talk about still fighting inflation, saying we've made progress on inflation, still more work to do, goes on to say the rise in unemployment so far has been modest when you look at the decline in inflation. And she's not yet confident enough to cut rates because of the bumpiness of the recent inflation data.

And she says it's hard to know if we're on track for price stability. One other thing, which is interesting, she says restrained demand is now needed to get inflation down. So, Tyler, another Fed official who's the idea of working in this idea that there is some weakness they're concerned about, but not yet definitively offering new guidance about how monetary policy would respond to that change in the outlook. Interesting, that last point you made there. Restrained demand is going to be a key part of getting inflation under control. That sounds like we've got to have a slow. lower economy with higher unemployment?

You know, I put that in there, Tyler, because it was a little bit perplexing to me in the sense that she's at the top of the remarks we noted she's concerned about a weakening economy. At the end there, we talked about how she's saying, well, look, we need a weaker economy to get inflation down. So I'm not exactly sure what maybe the reaction function is of the Fed here, too, weakness. Would they cut rates or would they welcome a slower economy? Yeah, exactly. Steve, thanks. Steve Leasman.

All right, coming up, reports say META and Apple are in talks for an AI partnership. Those details in Tech Check next. Apple reportedly in talks with a longtime rival to team up on new AI offerings. That says Apple also works to fend off a new charge under the European Union's Digital Markets Act. Julia Borsden joins us with more in today's Tech Check. Hi, Julia. Hi, Tyler. Well, as Apple pursues its new AI strategy of partnerships, it's in talks with Meta about potentially integrating Meta's Lama AI models into Apple intelligence,

this according to a Wall Street Journal report. Now, this would be a notable pivot from a traditionally contentious relationship with meta as the two companies clashed over privacy and ad targeting, and it comes after Apple partnered with OpenAI to bring its chat GPT to phones. The company also said they'd include Google's Gemini, and Apple is also reportedly in talks with anthropic and perplexity. Now, while no money would change hands for these deals, Apple would serve as a gatekeeper and would take a cut of subscription revenue from premium services that AI companies could sell,

just like Apple takes a cut of App Store revenue. Now, speaking of Apple's App Store, regulators are now charging Apple with failing to comply with its Digital Markets Act, which focuses on large platforms that are gatekeepers. The EU's case, which is the EU's first enforcement of the DMA, accuses Apple, of not allowing developers to steer consumers to cheaper alternatives outside of the App Store. And unlike past regulatory threats, which did not pose much financial risk, the EU could find Apple as much as 10% of its worldwide revenue. This stricter regulatory oversight in Europe is impacting Apple's strategy.

Just last week, Apple said it would not roll out new generative AI features in the region because of regulatory concerns. Kelly? Julia, we appreciate it. Thank you, Julia Borson. Sticking with Apple, our next guest believes the AI-driven super cycle is about to get underway for the mega-cap giant. Joining us to discuss Dan Ives as managing director of Equity Research at Wedbush. It's good to see you. Great to be here.

So a lot of things going on to sort of unpack there. But I guess before we jump into the super cycle, what do you make of these two specific events? Number one, the issues in Europe. Number two, the partnership with META. I mean, Europe, I mean, it's like getting a cappuccino for Apple in terms of these fines. So I don't really view it. 10% of revenue is a cappuccino. But realistically, what's going to happen?

We're talking probably maybe a billion or two in terms of what they're going to have to pay. And I think the stocks telling you that, you know, I think for Apple right now, they're at the top of the mountain because it's their castle. And we can have the EU issue and a lot of regulatory. And that's going to continue to be something that we see in the U.S. as well. But right now, they play chess. Others play checkers in terms of where they ultimately. own the Apple ecosystem. So what about the EU's claims?

Do you think they are more legitimate than not? In other words, is Apple restricting or otherwise impeding individuals from leaving its app store and going to other providers? Yeah, and I think Cooks talked about that. I think there is a plan where they could have some business model tweaks. But just like we've seen with the epic lawsuit, and ultimately we'll see with some of the issues in the Beltway, I mean, Apple, it's a tightwire act that they're trying to walk. But it's their business model. They're going to continue to defend that, and they're not ultimately going to give in to the EU. They'll tweak around that. And I think the important thing here is that this is their ecosystem. The golden install-based Apple is not changing. And now you look at AI, the reason that red phones, ringing and it's Zuckerberg on the other end because for Cook they recognize now Apple intelligence they have the keys to the castle and I think it took in our opinion Apple does Apple does because

they have the installed platforms the installed base well they have 2.2 billion iOS devices they have the app store so any developer me and you decided that we want to build an app where we building it and it speaks I think that's worth 30 to 40 hours per share and this is the start of a renaissance of growth. I still think the street is underestimating this. A year from now, I think we're looking at a $4 trillion mark cap for Apple. So why do you think the phone is ringing again kind of as it relates to META and Mark Zuckerberg? So let's kind of remind me where Meta stands.

They've developed LAMA. They have leaned into AI. But in terms of its applications, it's seeing what? That its LLM is just valuable enough to plug into Apple's devices? Or what exactly is the strategic group here? Because the golden goose for them is that they, want to get into Apple intelligence. They want to get into this Apple layer where just like what Chad GPT would open AI did, I mean, they're at the top in terms of for consumers, you got 1.5 billion.

But because it would point back to meta's products or because they simply want to ultimately when they maybe be able to monetize that relationship? Because that's going to be, that's going to be a highway for consumers to go back into their ecosystem in terms of meta. And that's just more monetization, more engaged. Because right now you're on the outside of this party that Apple is really going to run. And when you think about the AI revolution where we are, it's still, despite soft and a video, it's 9 p.m. in an AI party that we see going to 4 a.m. So let's talk a little bit about Chat GPT and their relationship with Apple.

What's going to happen there? I mean, that is a win-win because for them, that's giving them all the Open AI developers. Developers, we talked to this is exactly what they wanted. And for OpenAI, it's just going to give them more ability to monetize within that Apple install base. But it comes down to the privacy. Apple owns that data. It's a lockbox. And just being at Apple Park, that was the big thing that Cook continues to show that they don't have to worry about privacy.

Open AI needs to come to Apple. Apple need open AI. And that's why it's interesting you call it a win-win because it seems like a win for Apple, maybe a short-term win for Open-AI, but maybe not a lot. longer term one, right? Because Apple can broaden these relationships, as we're seeing, with other LLM providers, and Open AI gets pushed into the kind of white label provider role for the consumer. No, because if Google's calling, they're going to call as well, and meta, and every other tech plan, despite just going back to what we see with EU, Bellway, Brussels, the scary headlines, you know, I view this is really just background noise in a broader

story in the AI consumer revolution. There's the godfather of AI. on the enterprise, that's, of course, Jensenavidia. On the consumer side, could be cook. So let's talk about the stock a little bit. Right now, what is it, 209-ish or thereabouts? You said, and that's roughly $3 trillion, you think it can go up by 33%. I think $275 to $300 is where we see the stock going.

Because, Tyler, right now, you have, what I view is really little to know, AI technology or monetization that's built. And this is going to be an AI-driven super cycle It starts with iPhone 16. It's a get-out-the-popcorn moment. 270 million of 1.5 billion iPhones having upgraded. This is the start.

Talking Apple with the man with the golden-delicious blazing. Golden-dalous. Good to be here. Thank you. Thanks, man. Let's check out shares of Al-Nylam quickly, which are soaring after positive data for its heart drug. Angelica Peoples is here with more details. Angelica.

What's the story here? Yeah, Kelly. El-Nylam is having a huge day after its drug for a serious heart drug, condition succeeded in a clinical trial. The drug cut the risk of death in cardiac incidents by about 30%. Anilum is planning to file for approval later this year using a special voucher for a faster review. Now, these results should be enough to get the drug Voutreseran approved for ATTR cardiomyopathy. It's already available for a related nerve condition, but there are about 10 times as many people with the heart condition. Analysts see this becoming a

blockbuster, and you're seeing that opportunity reflected in the stock today. But there are still some questions about how anilinolum's drug will be used versus one from Pfizer that's already available, and another from Bridge Bio that should be approved in November. I spoke to a cardiologist at Stanford who says that these topline results are very impressive, but he needs to see more details before deciding how he would use this drug versus the others. El Nylon plans to share the full data at a medical meeting later this summer, and we'll be speaking with El Nilem CEO of Von Green Street later today on Fast Money, and we'll ask her about these results. Kelly?

I'll pick it up there. Angelica, we're also getting some news from Novo Nordisk. Tell us about that. Yeah, Tyler, Novo Nordisk is saying that it'll spend $4.1 billion to build a new GLP manufacturing plant in the U.S. That brings the total investment in production up to $6.8 billion this year. This new plant will focus on making Magovi in future drugs for obesity and other chronic diseases.

Novo says this is one of the largest manufacturers. investments in its history. We're seeing an arms race between Novo and Lilly as they try to make as much of their GLP drugs as they possibly can. There's just a ton of demand here and they're trying to catch up to it. Novo telling CNBC.com's Anika Cam Constantino that about 35,000 people in the U.S. are starting with Govee every week. That's up from 27,000 in May. But it's important to remember that these sites take years to get up and running so we won't see this investment have an effect right away. Guys. All right. Thanks very much, Angelica. We appreciate it. Thank you. You got it. All right, still to come, the EU, adopting new sanctions against Russia.

Russia, even on LNG. That story is next. Welcome back with another round of European Union sanctions against Russia. This time, it's targeting the country's LNG, liquefied natural gas business. Pippa Stevens here with more. Is this a big deal, Pippa? Yeah, so this is the 14th round of EU sanctions against Russia. now for the first time they're targeting that LNG business. And what it specifically does is it bans re-exports of Russian LNG through Europe. So what that means is the EU can still accept and use Russian LNG, but an EU port cannot be a stopping off point for Russian LNG on route to its final destination.

Now, Susan Sackmar over at FlexLNG, she's on the board there, and that is an owner and operator of LNG fleets, said that this is another progressive ratcheting up against Russia by the EU, but it's not going to hit the European Union in any significant way. But for Russia, about 25 to 30 percent of their LNG that enters Europe is then re-exported. A Belgian NGO put the number at about 3.4 billion euros in revenue each of the last two years. So it's not a major blow to Russia, but it's another, you know, headache in these very complicated supply chains. So where will these transshipments then stop? Where will they go?

So one option is to go from the Northern Sea route. And so for a destination like Yamal for Russia to go all the way over and then stop over in Asia, the problem with that is it takes a lot longer. And then the other option is that they could conceivably take their Arctic tankers and just go the entire way to Asia around Europe. However, that's much more expensive. Also, those big Arctic tanker ice-breaking ships that they operate in the Arctic Circle, those are few and far between. And so they don't really want their tankers to then be tied up, you know, going through the Suez Canal on route to...

What a waste of an Arctic icebreaker. Exactly. The Suez Canal where it's 108 degrees. Yeah, exactly. What they're built for. Exactly. But now that there's less ice up north, they can also now, you know, that northern sea route is an option. You just wonder if this round of sanctions is going to have bigger impact.

Because by all accounts, you know, Russia is in a better position than anyone thought it would be by now. And while this aims at one of their biggest things you could continue to clam down on, they're still taking LNG shipments for all of Europe. And it's just kind of another change at the margin. And each round, you know, says, okay, now we're going to, this time, we're going to, you know, target the shadow fleet of tankers and they add more individuals. But to your point, so far, you know, they haven't really been able to hit Russia in a major way. Yeah, PIPA thanks. Pippa Stevens. All right.

Let's get to Contessa Brewer now for CNBC News Update, Contessa out. Tyler, the federal judge overseeing the classified documents case against former President Trump is hearing arguments this afternoon on whether to issue a gag order. it would bar Trump from public comments that prosecutors argue could endanger the lives of federal agents working on the case. Those arguments are part of a three-day hearing to deal with several unresolved legal issues. The trial itself is currently postponed indefinitely. Major music companies are suing two AI startups, Suno and Udio, alleging they infringed on copy rates by creating tools that allow users to make new tracks with text prompts and generate sound-alike recordings of many hit songs.

Universal Music Group, Sony Music, and Warner Music Group are the biggest plaintiffs in the suit brought by the Recording Industry Association of America. And the Disney Pixar movie Inside Out 2 collected another $100 million, according to Compscore. That is a new record for an animated movie in its second weekend. The previous best was $92 million for the Super Mario Brothers movie last year. Inside Out 2 is now the highest grossing movie of the year, with $700,000,000,000. $24 million worldwide. I think the emotion might be pride. I don't know, just guessing. All right. Tyler. Contessa, thank you very much. Coming up, regional's at risk, the K-R-E-E-T-F,

down 10% this year. Commercial real estate proving to be a primary fear factor there. We'll speak to a key regional player in the banking business. What power lunch returns. All right, welcome back to everybody to power lunch. Regional bank shares under some pressure as higher for longer interest rates and commercial real estate challenges way on the sector. The S&P Regional Banking ETF, the KRE, is down nearly 10% this year and earlier this month. Moody's put six banks on its downgrade review list over commercial real estate exposure. Let's bring in Brent Beardall, President and CEO of Wafed Bank, which is one of the banks on that Moody's list. Brent, welcome. Good to have you with us.

Good to be back, Tyler. Thank you. Let's talk a little bit about your commercial real estate. loan exposure. I note that I believe it was last week. You closed on the sale of $3 billion in commercial real estate loans to PIMCO. But I also note we'll show a chart here that among a group of, I think it's four mid-sized banks, you still have 45% of gross loans. So according to our information in commercial real estate. I assume the sale was to bring that percentage down. It certainly was, and I'm, as you know, I've been telling the world for a long time that the fears in commercial real estate are overblown, in my opinion. I like to tell people I'm out on a mission to kill Chicken Little that say the sky is falling, because that simply is not happening in our point of view. And it's easy to talk, but now we have substance. The transaction we closed last week was the largest sale of commercial real estate ever to one of the most sophisticated buyers in the world. Temco, and really they saw no credit mark, so we were able to sell that $3 billion portfolio at no loss.

So you were selling basically at, I don't know, at par is the way to put it, but you were selling at a good price. You were not selling a distressed asset. And of course, commercial real estate loan, but back to the point, you do want to reduce your commercial real estate exposure? Well, I wanted to prove the market, the liquidity there. Everybody says they see these. you know, office sales in cities that are at 30, 40 cents on the dollar, then they conflate that with multifamily and other categories of commercial real estate. And that's wrong in my opinion. You need to understand the category of commercial real estate and the amount of equity in the deals. So to have a third party come in and look at our portfolio and really say it is of the highest

quality and we're going to be able to sell it at no loss to Woffed, that gives us options. So in the short term, that takes our commercial real estate down, as you point out. But it gives us options. We can re-lever and go back into more commercial real estate loans. We can pay down debt or we can repurchase our shares. These were largely residential loans, am I right? They were apartment loans. Apartments.

Multi-family residential. Right. Let's talk about the Moody's credit watch issue. Does that concern you? How do you feel when you get news like that? You know, it's hard not to get defense. I have a great deal of respect for Moody's and the job that they're doing, but I think they're looking out in aggregate over the entire country. And as you know, real estate is local. You have to understand the location. You have to understand the category, as well as the amount of equity the borrowers have in that.

So I've had several long discussions with Moody's and put it this way. I see the world differently. I had a feeling they had stepped on a live one, Brent. So spin this forward for us about 12 months time. And what position do you think the bank's going to be in and the broader economy? You know, I look forward to proving Moody's wrong, quite frankly. I don't see a large amount of losses coming in our commercial real estate portfolio at all. The naysayers have been saying the losses are coming. The losses are coming. And clearly, there are some asset classes that are weak.

Office in large metropolitan areas, that's an issue. But for us, office is only 4% of our portfolio. And today, as we sit here having this conversation, we don't have a, single delinquency. And we have it's estimated to be 35% equity in those deals. So it's a mistake to paint everyone with the same brush. That said, your bank shares are down 18% this year. And they're down significantly from kind of the pre-Silican Valley moment. So what would you tell investors who might say, okay, put that to the side, but we want, you know, better performance? Well, you can't, you can't fight against the market. The market is the market. You know, we've been

around for 107 years, and I look forward to proving to investors that are buying our stock today that it's going to make sense for them and we'll pay a reasonable return. On top of commercial real estate, the other thing that's a challenge for Woffett and for all regional banks and banks in general is the inverted yield curve. We make the majority of our income off of our spread, and with an inverted yield curve that's now 24 months, that's the longest we've ever had an inverted yield curve. So the real catalyst to having better performance for bank stocks will be when the Fed starts cutting rates. A lot of people are talking about the inevitability of consolidation in the mid-end regional banking sector.

You have done some acquisitions. Will you be doing more? Do you think you will be a buyer here? Yeah, yeah. We did just complete a transaction. We purchased Luther Burbank savings in California, an $8 billion bank that took us to about $30 billion in total assets. And really, I think a lot depends on what happens in November. We were 18 months in our approval process to get Luther Burbank approved.

And that's a really tough thing to go through. So there's all kinds of discussions in terms of the approval process and what that looks like. But if the current administration stays in place, I don't think there will be much consolidation. But if there is a change in administration, I can see the potential for a lot of consolidation. Brandon, it's a final question then as we debate how many rate cuts we might get from the Fed and some market guests think zero and others, you know, think maybe a cut. You talked about how it's a challenge with the inverted yield curve. If we start to get rate cuts, do you think that will perk up your shares? You feel much better about prospects or is one or two or three at the margin not going to make that much of a difference?

No, I do think it makes a difference because it's all about the perception of the market. And I think once you start getting rate cuts, you'll see investors start to pull their money from some of the money market funds. funds and some of the government funds and pull it back into banks, which will help the deposit flows to banks. So I think just the action, whether it's one or two cuts, I think that will be good for all banks. Brent Beardall, CEO of Wafed. Thank you. Good to see you. Up next, Target is striking a deal with Shopify, opening paths to new customers and new products. Target shares up nearly 3% on that news. We're back at a moment. Welcome back. Shares of Target are hired today after reaching a deal with Shopify to bring new

sellers and products to its online marketplace. This is an area Target trails way behind rivals Walmart and Amazon. CNBC Retail and Consumer Reporter, Melissa Repco, joins us now. Okay, so what new is going to be available through Target now? The idea is this will be a whole new funnel of products that Target can discover and then add to its website. The aspect that it would help with is picking up on products that go viral on a social media type platform. And so that would be a place where you could very quickly get that product, like a detangling hairbrush that was very popular. Target told me they used that.

They used that. Exactly. And then the other piece of the deal is that Shopify has a lot of insights into how those items are doing. So you almost have a little bit of banked in success because you know that that product has done well on its website and then might do well on yours. So that's why Shopify is so important to target in this case. because they have the inside track on these, let me call them, obscure-er products. Yes, exactly. So they would have more analytics.

And then the companies they work with tend to be more up-and-coming-type brands. They use Spotify for its website. So those brands might be ones, yes, things like that, that might go viral on TikTok. And then Target may not know of them because they don't have that large supplier base. That's not their pipeline. Exactly. And so Target's been long known for the Target run. going to the store and ending up with a bunch of items you didn't expect.

That has been a formula that, frankly, has not worked in this environment. And Target wants to get back to that, not just in stores, but online. So it's hoping to discover customers of Shopify bring them not just to its website, but ultimately to store shelves as well. Is Target going to be the one promoting these items to me, the end customer? So if I don't have the time maybe to figure out what's gone viral, it can suggest to me, hey, look at these cool products, you might like them. Or is it the opposite?

And I'm only asking because if I'm discovering these products, through something like TikTok or Instagram, what have you, then I can still go using the Shopify platform and buy those without needing to go via Target. That's a very good question. And that's really become the holy grail for a lot of companies, not just Target, to be better at personalizing.

And I didn't hear exactly how Target plans to be top of mind, but I spoke to Kara Sylvester, who's the chief guest experience officer for Target, and she said this has a halo effect. If you do add that TikTok product and people discover it on your website or maybe, you know, just accidentally kind of get an eye-catching item, then the idea is that it lifts traffic, not just for those viral items,

but for targets web traffic all around. What does Spotify get? That's a good question. So we don't know the financial terms of the deal, and we also don't know the length of the deal. But for Shopify, their stock has not been doing well either. In fact, it's down today on, and the news did not change that. So both of these companies have been having a rough year

compared to the rest of the market. And for Shopify, they could say, hey, if you join our platform and our customer, you can then apply to be part of Target's marketplace. So it could be a way for them to kind of market themselves as well. I love using anything on Shopify. They make it so easy. But I just wonder if as the dollar shrink, I believe that's what's happening with e-commerce broadly. Post-pandemic, we've seen price declines, volume declines there. And perhaps that's just a headwin.

I don't know. Yes, I think that the challenge is just a lot of the things they sell are also in that discretionary space. And it's been a tough game. So if they can maybe use this to market themselves, that could be a lift for them. But it's worth noting that Target has a very different approach when it comes to its marketplace. It's invitation only. And so just because you apply to join as a shop-by-fight customer doesn't mean that Target will accept you. Compared to Amazon and Walmart, where if you look on their websites, they usually have the same item from multiple sellers.

So it's a very different approach. Wow. All right. Melissa, thanks. Appreciate it. Thank you. All right. Still to come. Microsoft is currently one of the most overbought stocks on Wall Street, but it's not the only one.

We'll take a look at some others next. As we head to break, CNBC celebrates Pride Month throughout the month of June. A couple days left. Here is Eric Fanning, Aerospace Industries Association President and CEO and former U.S. Secretary of the Army. I grew up believing I couldn't be a public servant and an openly gay man. And as I worked my way up the ladder at the Department of Defense, ultimately serving as the Secretary of the Army, What I found with each new job is more support, both inside and outside our community. So anyone contemplating coming out during this Pride Month or at any other time in fearing backlash, don't underestimate the support that's on the other side.

Welcome back, everybody. Time for today's three-stock lunch. Today we asked our trader to pick three stocks from a CNBC stock screener looking at some of Wall Street's most overbought stocks employing the 14-day relative strength index. here with our trades. Courtney Garcia, Senior Walth Advisor, Payne Capital Management, CNBC contributor. First up, Courtney, TjX companies' returns of 125% over the past five years, up 18% this year. According to our stock screener, it's 14-day RSI is a 79, suggesting it is overbought. What should trade on this one? Yeah, I would actually be a buyer here of TJX, and the retail space has been really tough because the consumer has remained stretched right now with higher inflation. is kind of coming across all-income cohorts. What's happening is they are willing to spend at the

right price and the right inventory level, which is where a T.J. Max, who's a lower-price retailer, is able to benefit. And especially as all of those big retailers have too much inventory right now, this is also something that they can benefit from where they're able to buy up a lot more inventory right now and pass on that savings to their consumer. So though retail is tough, the reason that retail is actually struggling is all going to benefit something like a TJX. So it's done really well. It just at some 52-week highs. It also is trading at a premium to its historical averages. But I think in the environment we're in, it's likely going to continue in the short term here. I think it's something you want to make sure you're taking advantage of. She's taken TJX. What about Walmart? We keep

hearing about it. Shares are up 31% this year. The stock screener puts its RSI at 74, so a bit extended. But you heard Simeon Gutman last hour or Melissa just now talking about how it's category leader, AI can help it. Would you be a buyer? I would. And Walmart here has been somewhere who typically has not been something for a higher income consumer, but they continue to gain market share in your higher income consumer as they're starting to trade down. So currently about 60% of their sales is groceries. And that's actually what's bringing in a lot of new customer base. But they're really that one-stop shop for all of your goods. And as they're building out their e-commerce business, you're starting to see it more and more of that go across their business. And what I

really like about them in the long run is when you look at things like their advertising, things like third-party fulfillment, things like subscriptions. These are higher margin businesses than their core business, and also growing faster than their core business. So add in things like AI, which can additionally cut costs for them. I think for all of those reasons, is something that's going to continue to do well over the long run here. And next up and last on our list of the overbought stocks is Expedia.

Stocksreener says it's 14-day RSI is 74. Your thoughts on Expedia court? Exped had actually stay away from here, at least in the short term. Some of the things that you're looking at are you're seeing a consumer who is stretched. And when you're looking specifically at travel here in North America, that has actually been lower than expectations. And they're primarily here in North America. So when you're looking to compete with something like a booking.com's network in Europe,

it's going to take a lot of extra spending in order to meet that. And they do have a lot of pros in the long run. I mean, they have a $5 million buyback program. They're cutting costs quite significantly about $750 million since the pandemic, plus some AI implementation, which should boost that further. But I think short-term, some of the headwinds you're seeing when it's travel here in the U.S. And the fact that they're really not yet internationally where they need to be, it's probably going to continue to be there. And it's not yet far enough in the rearview mirror that I'm ready to jump in Latufe, A you. All right. Clear answers. Courtney, as

always, thank you very much. Courtney Garcia, for more on some of Wall Street's most, you got it. Most overbought and oversold stocks, be sure to visit cnbc.com slash pro. But before you do anything, go follow us on our podcast. You can find power lunch on any platform you use, and we'll be right back. Welcome back to Dow up nearly 300 points. The S&P 500 just turns positive. The NASDAQ, however, still lingering in the red, Kelly. And we only have about two minutes left. Several more stories you need to know. Let's get right to it. Starting with Bitcoin tumbling this week below 60K today with some reports showing billion point two of outflows from crypto ETFs over the past two weeks. All of this, Tyler, goes back to the FOMC meeting. interestingly. Yeah, it's interesting to see. I mean, that Bitcoin has risen a great,

great deal back above 60,000, I guess it's got above 70. Kind of rising and falling with Nvidia as well, which is interesting. Very interesting. All right, let's talk about Paramount global, planning to raise the prices of its flagship streaming service, Paramount Plus. The option, including Showtime, will increase by a dollar per month, and the essential plan will rise by $2. Of course, Paramount involved in courtship talks with several variety of different suitors. But it has not come to pass. So now they're going back to their business and raising prices. Yeah, we'll see if that does anything to turn around the ship at this point. Yeah.

All right, and finally, holiday traveling is booming. So then why are the airline stocks doing so poorly? It is shaping up to be the busiest summer season ever in the U.S. and about as strong as 2019s over in Europe. This according to airport passenger data, U.S. airline stocks, however, down roughly 40 percent over five years. The reason is the ever-increasing costs, which are so high. It makes being a low-cost airline nearly impossible these days. Pilot shortages are another reason. And speaking of airlines, don't miss our first on CNBC interview with Delta's CEO, Ed Bastion, tomorrow. That's at 2.30 Eastern Time.

We'll talk to Mr. Bastion of Delta, one of the best in the business. Exactly. I was going to say you've got to stick with them. Those are the names to own in this market. They've done quite well. All right. Thanks, thanks, everybody, for watching Power Lunch. Glad you could join us. Go get my lemonade jacket on.

Yeah. Closing bell starts right now.