Power Lunch - Retail rotation, gaming debt and your power playbook 10/6/22

Episode Date: October 6, 2022

Retail investors are dumping stocks. A new report from JP Morgan shows what they’re selling and what they’re buying instead. Plus, as rates rise and a recession looms, which highly leveraged gaming stocks are at risk? And your biotech power playbook for the fourth quarter. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Melissa, thank you and welcome everybody to Power Lunch. I'm Tyler Maths and along with Contessa Brewer, and here's what's ahead today. Retail investors, they are bailing on stocks. According to J.P. Morgan, they haven't sold this much in individual companies since March of 2020. We will tell you what they're selling, what they're buying, what they're getting rid of, and they include some well-known name. Plus, rolling the dice, corporate America binged on cheap debt. Now the gaming sector, no exception. Now that rates are rising and a lot of money. recession may be looming which companies are most at risk. You know who's going to tackle that in just a few minutes, Contessa. Well, hello, Tyler, and hello everybody. Stock's moving lower this afternoon. The Dow down 283 at the lows right now sitting down 223 points of three quarters of a percentage

point and the S&P 500 off half a percent. Nasdaq composite roughly flat. The only positive sector right now is energy. The energy ETF on pace for its best week since late 2020. Marathon, Occidental, APA, leading the sector higher today. There you're seeing Occidental up 4.5%. Utility stocks are under pressure, though, a number of names hitting new 52-week lows, including Duke Energy, Dominion, and Eversource. There you're seeing Dominion off by 4% on the day, tie. All right, Contessa, the volatility in the market centered around what the Fed may or may not do.

In the past hour, Fed Governor Lisa Cook said restrictive policy is necessary. Minneapolis Fed Chief Neil Kashgari said, quote, until I see some evidence that underlying inflation has solidly peaked and hopefully is headed back down, I'm not ready to declare a pause. I think we're quite a ways away from a pause. And the Atlanta Fed president, Rafael Bostic, agreed, but also gave a nod to the doves about a potential pause. Ideally, I'd like to reach a point where policy is moderately restrictive,

somewhere between 4 and a 1⁄2% by the end of this year, and then hold at that level and see how the economy and prices react. All right, our next guest says he would prefer the Fed to slow down the pace of rate hikes, which would lead probably to a big market rally, if nothing else. Jim Tierney is CIO of U.S. concentrated growth at Alliance Bernstein. Do you think this is the way the Fed is going to go, Jim? I mean, we've heard an awful lot of Fed speak over the past 10 days or so, And it does not seem as though they are ready to take their foot off the brakes, not one bit.

I think the Fed is going to talk tough until they move and until they moderate their policy. That said, what we're seeing, whether it's home prices rolling over sequentially, whether it's rents finally coming down a little bit, whether it's used car prices coming down, we're seeing a lot of indicators that the economy is starting to slow. And if that does play out over the next two months, It lets the Fed take their foot off the gas. And as you said, I think the market would respond very favorably to that. And so maybe just maybe we're seeing some of the tippy tops of those data points

and maybe some things are rolling over just a little bit. One of the things that I thought was interesting in my note is that you're going to have your eye on in the fourth quarter the pace of buybacks. You think that might be some fuel for the bulls in the market. explain why that is an important indicator for you. So with the tax changes that were instituted, starting on January 2nd, any stock that a company buys back, they're going to be subject to a 1% tax on that buyback. If I'm the treasurer or the CFO of a company, it would be in my best interest to speed up the

buyback, get as much done as I could in the fourth quarter, lay down my cash balances, and then rebuild them naturally. So I think you could get a supercharged rally if things start going in the right way where you have companies competing with investors for their underlying shares. One thing that is really striking me is that it seems largely to be maybe not irrelevant, but expected on the part of these Fed speakers that we are seeing some pain in the markets. It's as though they're saying, look, no pain, no gain. You've got Neil Cash Carrey saying, I fully expect there are going to be some losses. there are going to be some failures around the global economy as we transition to a higher rate environment. That's the nature of capitalism here. So what do you think the markets should

prepare for through the end of 2022, Jim? I think the biggest part is the labor market. We've already seen the good side turnover. We need to see the labor market slow. And what I've seen so far this week with whether it's the Joltz report or the jobless claims, we're starting to move in the right direction. That's the key. That's what we're really looking at. And if that starts to moderate, it does allow the Fed to ease up here. Yeah, that Joltz report where they said a million jobs. A million fewer. Openings. They're just, they're just gone. Boom, poof. Interesting. Let's get to a couple of the stocks you like. It is an eclectic mix, beginning with Cooper companies, not the tire company. Moving on to automatic data, the payroll company, and American Tower.

Why these? What do they have in common, even though on the surface? not much? Sure. There's a real theme here, which is I want to see companies that can put up great earnings growth in 2023. Regardless of the Fed scenario, we're going to have a slower economy next year. So those companies that can buck the earnings downtrend and the earnings pressure and grow right through it, I think are going to be rewarded given the PE compression that we've seen. So the contact lens business, most people, if you have a slower economic environment, are not going to stop wearing their contact lenses. Likewise, with ADP, if you're working, you're still going to get a paycheck. And certainly no one's ready to give up their cell phone.

So American Tower has a persistence to their business and to their earnings that we really think is valuable in this kind of environment. Interesting thesis. Thank you very much. Jim Tierney, we appreciate your time today. Thank you. Retail investors are just dumping stocks at the fastest pace since the start of the pandemic. According to J.P. Morgan, retail traders were sellers of equities for a second straight week, exiting $2.4 billion worth of stocks that even sold into Monday and Tuesday's rallies. Retail investors were ditching some widely held names like Apple, Alphabet, Meta, Microsoft, and NVIDIA. And as they were selling single stocks, they were rotating into ETFs, inflows totaling about $1.4 billion.

Here to talk more about the retail investor rotation is Herb Grainberg, research editor with Empire Financial and our own Bob Bassani joining in as well. Bob, let's start with you. What are you seeing? Well, look, the important thing is we are continuing to see rotation into the ETF business and the passive business because the evidence is overwhelming. Active fund managers don't outperform their benchmark. That is the single most important thing.

We have known this for 50 years, but it's only in the last decade that we've had vehicles that make it very easy. ETF vehicles to make it very easy for people to invest. That's the single most important thing. We can debate, and I can debate about whether some of these ETFs are necessary. I have my own thoughts about them, but overall, this business is meeting a real need, Consuel. Herb, can you give me a sense here of what the catalyst has been for the retail investor? I mean, they're dumping a lot of names out of companies that they know and like and use their products. Well, Contessa, I think that if you're a trader, not an investor, but a trader, you know, in this kind of a crazy market, I guess ETFs are the easiest way to go.

But there's a bigger issue here. And the bigger issue, which is something I wrote about the other day, and which Bob and I talked about 12 years ago when I was at CNBC full time was the question of whether what we're really seeing is something. that's posing somewhat of a systemic risk to the system. Now, I raised that question back in the day, and I think I was probably wrong. But then we only had 1,000 ETFs. And right now, we have almost 9,000 ETFs. They had 1 trillion in assets, now 10 trillion. And what you really are seeing is this large, you know, just the impact of passive investing where you wonder, and I sit here, I obviously deal with individual stocks in my current go-round on the long side. And you see so many companies that aren't part of the passive influx

because they don't get some algorithm and some headline that gets them swept up in the trade of the day. And that creates great price dislocations and great opportunities. But meanwhile, we get back to this issue of ETFs. Have they exaggerated the move in the market? Well, I want to ask you that. I mean, what do you think, Herb, number one. And number two, when you think of ETF, and you describe them as passive, some are and some aren't.

Well, most still are, and the issue of the role of, you know, of the role of passive investing, which is what I think you have to focus on here is, you know, when you have that kind of power in the market, what is it really doing? And I would suggest, look, you have different types of ETS. You have the issues, obviously, with leveraged ETS. You have the issue with single stock ETS, like those that trade say derivatives of Tesla. You have, you know, so many different things going on right now that you have to raise the issue of what influence do each of these have in the marketplace? And do any of them or do all of them sort of are they the tail wagging the dog, which Bob, when you and I were talking about this a dozen years ago, that was the issue.

I mean, a SPAC is it, a SPAC isn't it, is it, Bob, is it kind of cousin to an ETF? As Herb was saying, they're single-stock ETFs. I mean, a SPAC is kind of like that. Yes. So here's an interesting question. Most of the market is invested in passive indexed ETFs. There are a small percentage of ETFs that are in different things, 2%. And Herb mentioned leverage and inverse ETFs.

Do we really need three times leverage inverse oil ETFs? I don't think so. But the market, you know, to the extent that there is some people that do fine. as long as it's not a systemic risk, and here, Herb and I are in complete agreement on this, as long as it doesn't, and I don't see a lot of evidence of that. Single-stock ETFs, I'm not a big fan of that. Do the world need three times inverse Tesla ETF? I don't think so either, but the industry is changing and it's evolving,

and now that it's been saturated with so many ETFs, they're looking for new business opportunities. I say fine, as long as I don't see evidence that it causes weird gyrations, either individual stocks or the overall market, I haven't seen it. that yet. And what kind of signs would you be looking for to indicate that's the case, Bob? Well, for example, we did have a problem with some volatility ETFs a couple of years ago, and they had to change the ETF. They had the tightened bands of some trading levels, and that's how the market evolves. The important thing here is we have to keep supporting some kind of financial innovation that's out there. And these are financial innovations.

We know historically, Herb knows this, he's a great chronicler, the history of this. Sometimes things go wrong. There's greed that gets in the way of this. People bring in stupid products that we don't necessarily need. I told you, I just tipped my hand there. Some leverage and inverse products, I don't think we particularly need them. But the industry, as long as they think they can possibly make some money off them, they're pushing them.

Fine, as long as we don't see a lot of problems around them, and you'll see that if that happens. By the way, they kept saying for 30 years, and Herb, you know this. 30 years ago, they said, who needs ETFs? Nobody wants to bet with the market, and it turns out they were wrong. 20 years ago, they said, you know what? Oh, wait till these things start seeing volatility. They're not going to be able to trade the underlying stocks. They're not going to be able to price the ETFs.

It's all going to blow up. They were wrong on that, too. They've been wrong for 30 years, and the people who hate them are the active managers. Well, but right now, Bob, I would argue this is the test. This has been the big test. And the other question I'd have to ask, though, did ETF score? cause an exaggeration of, and have they continue to cause an exaggeration of what we've seen in this market and what role have they played? And I can tell you, when you go back and you look

at stories and studies that have been written about ETFs, and one of the great lines from Amundi's report was that the whole growth in ETFs was during a period of market calm, not that it was calm in the sense that it was calm, but it was the market that was just going up. There wasn't such great disruption. And now you have this disruption, and you have this growth of these products, and you talk about them. Some people are just putting in problems. out there. They're wrapping anything into them. Think about this. Illiquid names in liquid ETFs. That's another issue. Herm Greenberg, Bob Pisani, it's almost like you guys should have a podcast and just duke it out right there. That's a great idea. I'll be your executive producer.

That's a great idea. And on my spare time. We do you hear out the title of Pazani's book that's coming out in a couple of ways. It's one of the great titles, Bob, of all time. I'm going to save it as the ultimate tease right there. All right? Okay. He's like, please. Please, please don't. Please just go ahead and say it. No, I want to save it. Thank you, guys. People are going to love it. All right, coming up, some gaming companies are more leverage than others. Well, that's spelled trouble as interest rates rise.

Plus, the biotech ETF getting off to a strong start this quarter, but it's facing one major headwind. Our power playbook looks at the names that could power hire by year end. And before the break, let's take a look at shares of Costco. Top gainer in the NASDAQ 100 after reporting a 10% rise in September sales. Were you there? Last month? Every month?

Welcome back to Power Lunch. Shares of Penn Entertainment on the rise today up more than 2%. They were, at least, now backtracking a bit, after Canacore Genuity initiated coverage on the stock with a buy rating, saying that there's real potential in its digital gaming platform. I happen to just speak with Penn CEO ahead of a panel that we're doing next week at the Global Gaming Expo in Las Vegas. And he told me that even with recession looming, rate hikes. and access to capital shrinking, he thinks in spite of these headwinds,

he thinks Penn is well positioned with moves it made last year, paying down debt, sitting on a pretty pile of cash. My next guest says, not every company in the sector is so lucky. Let's bring in Joel Simkins. He's managing director at Hulahan, Loki, in charge of investment banking there. Joel, good to talk to you a little bit. Talk to me a little bit about these gaming companies,

where they're coming from and where they're heading into in 2023. Yeah, as we look backward right now, fundamentals in the sector are actually quite strong. I was in Las Vegas last week. You know, you wouldn't know there's any recession coming in Vegas given some of the strong convention and sort of lingering leisure demand we have. The industry has obviously benefited in the last couple of years from the surge in demand post-COVID, a lot of cost-cutting measures. But right now we're obviously paying attention to sort of the look ahead in the industry and how, you know, the potential impact of rising interest rates are going to affect the sector. that's really grown over the last decade or so, largely through debt financed acquisitions. You know, last year when I was at this same conference, the theme sort of was massive amounts of mergers and acquisitions that consolidation was going to be the name of the game. If you're looking at the price of debt and refinancing that debt, if you're looking at the access to capital, how will that affect what will happen with M&A in this space? Yeah, and it's a great question. So if you look at the cost of capital in the sector, call it December 31st, 2021, you look to about an average borrowing cost of around 4% for high-yield gaming debt. Fast forward 10 months later, you're over 8%. So the bottom line is that's going to really cause folks to potentially pump the brakes on making significant acquisitions ahead of a potential slowdown in the sector.

Joe, who? You know, well, I think every one, buyers are waiting to sell if they don't have to sell. There are certainly folks that we've spoken to over the last few months who were contemplating, monetizing one of their casinos, and they're like, listen, if we don't have to sell our business today, given where evaluations are at, maybe a smaller pool of buyers are going to wait. I do think there are certain folks in the industry who have made acquisitions for the last year or two. Perhaps they haven't integrated those acquisitions fully, and they're thinking, okay, how do these assets fit in my portfolio longer term and do I want to be involved? So that could be on

the Brits and Border side. That could be on the digital side, given all the growth and deal flow we saw on the sports betting and online gaming side. So those are just a couple things you want to think about. We pulled the debt to assets ratio of some of these companies. We've got Caesars on here, draft kings, Penn, and Bally's. Are there any companies that you think are particularly well-situated, to manage rising rates coming down the pike and any that are particularly vulnerable? Well, I mean, you've pulled up a couple of interesting names here. I think one that you didn't actually list is Boyd gaming. Boyd is right now three times levered roughly, which is the strongest balance sheet position I've ever observed this company to be in in the 20 plus years I've

been in the gaming industry. So I would look actually Boyd as a company that owns all of their assets principally, has taken a lower risk strategy to sports betting and online gaming and really could play offence. So I think from my perspective as investment banker, should certain assets on the Las Vegas strip become available or regional gaming markets? And again, somebody has to sell off an asset to create additional liquidity or really wants to get rid of a non-core business. They might be better positioned and move more quickly than others. The one other factor that you have to contemplate particularly when it comes to M&A in this space is the rise of the gaming reits in the last couple of years. MGM growth properties was acquired earlier this year from Vichy, which is really the 800-pound

gorilla in the sector. You also have gaming and leisure properties. Other folks in the real estate sector have realized that, hey, gaming is a very stable and predictable business. It fared relatively well in the more recent COVID slowdown once the casino is reopened. So I think there's a lot of folks who find gaming as a very scarce asset. a very good business of then day. And because you've got the REITs involved, that ultimately has raised sort of the, you know, the buyer universe material. It's also probably helped the industry from a valuation and the underlying multiple perspective long term. One more company that I want to ask you about, Draft Kings has been under a lot of investor

pressure to show its cost of profitability. And it just has been prepared to invest in customer acquisition until it can turn a profit. What does that do to it? in this current environment? Yeah, and draft kings, I think, listen, they are definitely mindful. They've got to slow the rate of burn. They need to accelerate the growth of high gaming and some of the markets where they have it. Obviously, there's a number of new jurisdictions set to launch in the near term, such as Ohio, such as Kansas.

All eyes right now in the industry are paying are really on attention for California. You've got Proposition 26 sponsored by the Native American tribes, Proposition 27 by the commercial gaming industry. The industry really needs a big state like California to come in. That is going to be a significant and massive market. It's really a tipping point for other dominoes to fall across the country, whether it's Texas or Georgia. So we'll see how that shakes out. I'd say right now the consensus is that California is not going to be happening. So again, we'll see what happens come election season. But the punchline is, you know, particularly if we go into a recession. Gaming has always been a way for states to capture new tax revenue. In the past,

the notion was, let's build a casino. Right. That's harder to do. As I mentioned, that's more expensive, harder to finance, takes a long time. So sports betting, online gaming, these are a much quicker solution for states that's happened to those tax dollars. The industry's got the infrastructure in place, can move quickly. And I think this is going to create opportunity, particularly if we go in a recession for more expansion. Although we are seeing Chicago, of course, building its first integrated Resort Casino, and same thing in New York that will happen as well. Joel Simpkins, thank you so much for joining us. I appreciate it.

Thank you. Right ahead on our program, corporations feeling the economic pressure, General Electric laying off 20% of its renewable energy team. This adds a major industrial firm to the long list of tech firms that have been cutting staff and Peloton slashing jobs again in attempt to return to growth. We will dive deeper into both stories. When Power Lunch returned. All right, welcome back to Power Lunch, everybody.

Shares of GE lower today, down 30% this year. And the company announcing job cuts. Sima Modi joins us now with the details. Hi, Sima. Tyler, I'm told General Electric is laying off 20% of its U.S. Onshore Wind Workforce or hundreds of jobs. Employees were notified here in the U.S. yesterday as the company examines its workforce in Asia and Europe.

GE Renewable Energy spokesperson telling CNBC, quote, we are taking steps to streamline and size our onshore wind business for market realities to position us for future success. Now, energy shortage may be wreaking havoc on citizens and countries right now and certainly accelerating the need to reduce dependence on fossil fuels. The rollout of wind energy, though, has been rather challenged by inflationary pressures, ongoing supply chain challenges, not to mention for GE competition from the likes of Siemens Energy. The tax credits also tied to the Inflation Reduction Act, they certainly help, but some experts we spoke to say it's going to take time for those incentives to pay off.

We've seen shares of GE trailing the broader industrial sector down about 8% in the past month compared to the XLIETF, which is down about 6%. Contessa. All right, Seema, thank you for that. Let's get to Leslie Picker for our CNBC. news update. Hi, Leslie. Hi, Contessa, here. It's your CNBC News Update at this hour. A number of robotics companies are pledging that their products will not be used as weapons. The companies say they're robots and they will not add weapon technologies to be working with customers to ensure that

robots are used only as intended. Boston Dynamics CEO also called on policymakers to create laws to promote the safe use of robots. Swedish officials say that their investigation into the leaks into the Nord Stream pipelines is pointing towards signs of a, quote, serious sabotage. The Swedish security agency says detonations caused the leak in the pipelines and that the investigation continues to look at additional evidence. And the Mexican government is planning a lawsuit against U.S. gun dealers to try and stem the flow of weapons into the country. Mexican officials say 60% of guns seized in Mexico were sold in just 10 U.S. border counties

and smuggled into Mexico. This comes just days after Mexico's lawsuit against U.S. gunmakers was dismissed by a federal judge. Back over to you all. All right. Leslie, thank you very much. Leslie Picker. All right, still to come, the fourth day of our week-long power playbook. Today, we look at biotech. Many of those names were front and center during the COVID outbreak. But with 2022 effectively marking the end of the pandemic, we hope, what does the future look like for these stops?

You love calling it end of the pandemic, right? Not the lows of the market, but the end of the pandemic. like holiday humdrums, 80 days left until Christmas, Target and Coals already kicking off deals. But could early discounts be assigned retailers or expecting lower sales? We'll do right back. Well, we got a little less than 90 minutes left in the trading day. Get you caught up now on the market, stocks, bonds, commodities, and our biotech power playbook. Let's begin with Bob Pizzani at the NYSE.

Tyler, we were briefly in positive territory at the open, but for maybe three or four minutes and haven't been able to stay there. any convincing length of time at all. And the problem is there's not a lot of direction right now. See, there you see the S&P 500. Had a great start. Monday, Tuesday, Wednesday, not so great. And you see today really not a lot of energy. The problem is we're not buying enthusiastically in the groups that were buying enthusiastically earlier, which were more risk on stocks. So tech stocks are doing okay but not amazingly well today. So we see Chevron Big Gainer in the Dow. Of course, we've got oil at $88. Matterpillars holding up. Sales Force has been very good so far this week and it's flat today.

So that's been a little bit of a problem because that's been a great performer. Laggards are tend to be consumer stocks and industrial stocks. So for example, Coke is flat, not doing much. Honeywell's been down. 3M has been a terrible performer this year for some very stock specific purposes. And the banks have been a little bit weaker. J.P. Morgan and Goldman Sachs is a very, very big cap name with a very high price. So as it is on a down day, that will have a big investment. on the Dow Jones Industrial Average. Tyler, we're going to be waiting for the jobs report tomorrow.

250 to 275,000 are the estimates, and we're in that bizarro world again, where we want lower than expected job growth because that will support the Fed's idea of a slightly slower economy to combat inflation. Try explaining that to your mother, Tyler. It's very hard. We want lower job growth, Robert? Well, no, but the stock market does. It's hard to explain. It is Allison Wonderland. Thank you. Bob. Let's get to the bond market where yields a slightly higher ahead of tomorrow's jobs report, just talking about it. Rick Santelli has the news. Hi, Rick. Hi, Tyler. Indeed. You know, we can question a lot of the direction and reasons why markets are moving, as Bob just described. But when you have jobs, jobs, jobs in the morning, that may be reason enough. Consider,

we're up 29,000 initial jobless claims. We're up 15,000 in continuing claims. But if you look at a two-year, we made our lows at 830 Eastern, which means that Fed speak trumped a rise in claims. Because even though we want claims to be low and we want employment to be good, we have to play this Fed game where, of course, bad news is good news, good news is bad news. As you look at intraday of tens, you'll see the same dynamic. Basically, 830 Eastern, we made our low yields, and we have moved up. And maybe what's even more important is you consider a 10-year note right now is that the highest yield since Friday of last week. We have crept back. It wasn't that long ago. We were in the 350s.

Ranges have been large, whether it's in the fixed income space, the sovereign space in general, or in the foreign exchange space. Just look at the dollar yen today. At current levels, the dollar yen is on pace for another fresh, 24-year low close against the dollar, going back to the first week in August in 1998. And as to that dollar, index? Well, it's had a nice bounce today, but maybe the most important thing as you look at the dollar index is yesterday's high was 11-73. The minute we climbed above that, it accelerated. A close above that should give us a green light, at least technically, to see higher dollar index levels going into tomorrow's non-farm. Back to you. All right, Mr. Santelli, thank you very much.

Let's talk about oil closing up for the day, up slightly around $88 a barrel. There you see, West Texas crude, 8850. That's about 8 tenths of a percent in gain. One day after OPEC Plus members decided to cut production targets by upwards of two million barrels a day. And look at some of these one-week moves. Oil up about 9 percent, heating oil up about 13 percent. R. Bob gasoline up about 7 percent. And there you see the energy ETF, the XLE, on pace for its best week since November of 2020.

Remember about a month ago we were saying this was that 90th consecutive day of falling gasoline prices. That's in the rearview mirror, folks. Now to our power playbook. Today, the focus is on biotech, which saw a bit of a bounce back this week, but the ETF is down 20% this year, led lower by names like Moderna, Bluebird Bio,

and immunogen here with his fourth quarter playbook, is Les Funtlighter health care portfolio manager at E squared capital management. Les, we're here. We're supposed to be talking about biotechs, but it seems from your list of picks that you like biotechs a lot less than you like other portions of the health care world, including big pharma, managed care, hospital companies, and the like.

Why? Well, when you make it sound like that, you make me sound bearish. Well, I'll say this. We've all actually become rates traders, interest rates traders in the last quarter. And a biotech tends to be inversely correlated to rates. So even though we've had a nice bounce back, the last, going to say half a half year because of some great data, I think that biotech is going to have a hard time going up until we see the end of the rate cycle. It's really the same argument that a

lot of people make about why technology shares are inversely correlated with technology like, I'm thinking of the apples and the metas and so forth, right, that they're inversely correlated to interest rates, correct? That's exactly right. Well, the tech and biotech is technology. Yeah. So, yeah. Yeah. So, yeah, so while there will be some winners and there's going to be some M&A and it's going to be some good stuff in biotech. You know, I think you get more of your leverage in the mid-cap, smaller mid-cap biotex than you would have in the big caps, which tend to drive the index performance. So, yeah, again, I hate to use the cliche stock pickers market, but biotech is where you're syncratic. You know, you pick one and you can have a, you know, a five-ex.

And if I'm- If I'm- If you're going to lose 90 percent. If I'm reading you right, you think that, It may be a while before some of these smaller and mid-cap biotechs are ready to move. Right. And, you know, as a way to play it, we would suggest, you know, some of the helping companies like a Sytech or an alumina, for example. But just going into the fourth quarter, you know, managed care, we have good visibility on the numbers. Pharma probably should be okay, you know, as a yield play substitute.

you know, med devices like Boston saw again, probably waiting for 2023, but they're doing fairly well. And then, you know, as an interest rate hedge, we're in health equity, which does well when rates go up. But I'd also point out there's a number of very cool private companies in biotech, like Valo and Synthigo, that if the IPO window ever opens up, they're representative of some very exciting things that can come. Again, I think, though, that's more of a 2023 story than, you know, fourth quarter. If you're paying so much attention to rates right now, how are you feeling about the stronger dollar and its impact on biotech and the other ancillary fields? Well, biotech mercifully, if there's any good point, they're not really exposed to the strong dollar, but pharma is, big pharma is, and the big, larger mid device companies are. So they will almost certainly see an impact. I think they've sort of been re-rated a little bit to reflect that.

Managed care isn't, so that's a good thing. And also hospitals and some of servicing companies here, the states are not. So again, I think some of it's been priced in to fundamentals, but I don't think we've seen the magnitude of the dollar move. I think there's going to be some very, we're going to switch from rates traders to currency traders for third quarter reports. We're going to learn about the strong dollar. It's like being a jack of all trades, isn't it? Less.

Right. Well, I want to go back to just sort of watching health care companies. I don't really want to know interest rates or currency, but it comes with the territory, I guess. For sure it does. Les Fentlider of E-squared capital management. Good to see you. Thank you. Thank you. Up next, are retailers expecting the worst from this year's holiday season? I mean, inflation remains high. There are concerns over the economy. That's not going away. Consumer cracks are beginning to show. dive into the latest reports on what we can expect. And then as we head to break,

throughout Hispanic Heritage Month, we're celebrating our CNBC teammates and our guests. Here's Charles Schwab Investment Management's CEO and CIO. Spanics in the US represent a powerful economic power with $1.9 trillion in purchasing power. But most importantly, we have a great culture and a great set of traditions. We are very proud of our past, but we're also taking very serious our responsibility for the shape of the future of this country.

Hope you can join us to celebrate Hispanic Heritage Month. I am sure you will learn a lot about our traditions. And who knows, you may be able to pick up a couple of dance moves. Welcome back to Power Lunch, 80 days until Christmas. Oh, the pressure's on. Already some retailers are starting to worry inflation could take a bite out of the holiday spending. Courtney Reagan joins us now with those numbers. Hi, Corr, nice to see you. Hi, Contessa, good to see you, too. So both Target and Coles actually kick off early holiday sales events today. This comes ahead of Amazon's second prime day sale this year, which is next week. And while the American consumer is holding up pretty well in the face of macroeconomic pressures, there are signs it could be a ho-ho, humbug holiday season. And while Target and Amazon are aiming to hire the same number of seasonal workers this year as last. Walmart, Macy's, and Dick's sporting goods are among those looking for fewer temporary

workers this year. Why? Well, possibly due to concerns about holiday sales. Deloitte, Alex Partners, and MasterCard spending pulse all expect holiday sales to grow less than the current rate of inflation, effectively a decrease year over year in real sales. Consumers are also expressing concern about the economy and their financial health as inflation remains high. 57% told shopping traffic counter-sensurmatic. Finances will play a role when they begin holiday purchasing. That's up from just 14% that answered that question that way last year. About a third of shoppers plan to spend less this holiday than last year.

Only 17% plan to spend a little more, according to Alex Partners, with 40% planning to buy more affordable brands due to inflation. Contest on Tyler? All right. So, Courtney, number one, I'm always skeptical about this, because if somebody asked me how much I'm planning to spend on the holidays, I'd be like, I have no idea until I decide that I'm going to buy the stuff. So good for these people for knowing how much they're going to spend. Secondly, we've talked so much about all this inventory

and how the retailers are starting to discount. Is Black Friday just dead because we've already seen all of these sales happening online? Such a good question. I wouldn't say Black Friday is dead. And I also ask this question every year. But it definitely has lost sort of the volume of sales importance. It's still, though, Contessa, expected to be the number one shopping day of the entire year, according to Sensormatic, which does count traffic in stores.

And they actually say that when you put the top 10 busiest shopping days together, it will account for 40% of all holiday sales. But to be sure, sales are stretched out. We just talked about Target and Coles are already starting some early shopping events right now. Black Friday is sort of a blurred line anyways between what? It starts Wednesday night, Thursday, goes into Saturday, Sunday, Cyber Monday. But it's still a big day. It just might not be as big as it used to be.

I kind of, I'm skeptical that Courtney's saying this because I feel like she's setting the scene so that there doesn't need to be a Black Friday reporter up at 3 in the morning and out covering the waiting lines outside Walmart or Best Buy or whatever. Courtney, nice to see you. Thanks. I love it. I live for that stuff. Ketka, you know it. Yeah, yep. Absolutely.

Tyler. Thanks, Cort. All right, coming up, we've got three stock lines, folks, and we're going to run through some of the biggest moves of the day. And get our trader to give their picks as the Dow falls right now to session lows. All 3343 points, S&P off a percent as well. All right, time for three stock launch. We're going to look at three stocks making news, making moves. Peloton cutting 500 jobs as it races to turn itself around.

TransOcean shares higher after Barclay said the stock could surge nearly 70 percent. Pinterest, get it. getting a bid after Goldman said its shares could have 25% more upside. Jeff Mills is the CIO at Brynmar Trust. Let's start Jeff with Peloton. As people may know, I am an owner of a Peloton. I like the Peloton. They're cutting jobs.

Are they going to cut some of their instructors? Or are these basically back office manufacturing sales jobs? Yeah, I think it's basically some of the back office stock. And look, this is a COVID-Darling, but it's down a ton. So the question is, is there value here? And to your point, I think you hear a lot about sort of restructuring contracts, cutting costs, the announcement today. So I don't know that the news is good. And I don't think the stock is particularly cheap. And I think that's the key when a stock has moved this much. It's not supposed to be profitable out to 2027. So if you take today's stock price at 2027 earnings, it's still trading at 230 times. So I just think there are better places to put your capital right now. That's a nice way to say it. TransOceans next. So we go from cycles to the seas. Yeah, a big difference here. This is kind of a complicated one. I mean, the stock got whacked. It was down 40% last month. And it was really due to some liquidity problems that I don't know necessarily go away. There may be some more shareholder dilution in the near term. But if you were looking to catch a pop as a trade, the stock is now up 40% just in the past couple of weeks. Now, longer term, I think there is a case to be made. You have some of these rig rates going higher. You can make the argument that you're at the beginning of this up cycle and offshore drilling. So there could be

upside in this name, just know that at this point, given the problems with their balance sheet, you are making a speculative trade. We have another name that begins with P, Pinterest, and look at the similarity between those logos there, Peloton and Pinterest. Look, oh, well, we got rid of it. But talk to us about Pinterest. Yeah, Tyler, this is one that I actually kind of like. I mean, I think about a bad market and a good chart. And this falls into that category. It held 18, which I think is a pretty important level. The 50 day is now hooking higher. It's now above the 200-day moving average

for the first time in a year. So there's some momentum in the stock. And relative to the business, sure, you're seeing some slowing growth, but user growth is now stabilizing, which I think is important. And maybe most important in this market, it's a money-making business.

They have improving free cash flow margins, really important in this kind of market. And, you know, the new CEO seems to have a clear vision, really capturing more commerce related to some of their users. He has that background from his time at Google. So this is a stock that I think there is some pretty decent upside. Let's come back to that Peloton thing. It's selling at 200 and some times what year's earnings?

So it's not going to be profitable until out to 2027, right? So if you look at that way, way out your earnings and you put today's price on it, you know, you're assuming that it hits profitability out in 27. You're still talking about a pretty lofty valuation. Five years to profits. Jeff Mills, thanks. Up next, how leaders and investors solve key ESG challenges. We hear from some of them.

And look at the market right now. Boy, are we losing some steam here on the Dow Jones Industrials. Off now, 1.2% down 368 points. We'll be right back after this. Okay, welcome back to Power Lunch, everybody. We close with this. The state of Louisiana pulling nearly $800 million back from BlackRock funds. The issue here is BlackRock's ESG mandates.

The state says it's going to cripple the answer. energy sector in Louisiana. So balancing climate goals with financial needs. That was a key topic at today's CNBC ESG Impact Conference. Let's listen to a little bit of what was discussed. Here's a soundbite. We think the market is ready to have a conversation about economics. And so we don't need political theater on either side. We need to actually work with the biggest public companies in America as the capitalist system was set up to do to take material impact areas into account. And if you think about it that way and you think about it as aligning how the companies have higher value over time, as well as how they can quantify and address their major impact areas, it becomes extremely constructive. We do it because we think it's right, but we also do it because we think it's going to be the better business.

I don't think there's any question for a modern company, a forward-thinking modern company that we need to decarbonize. In fact, when I speak to our most important investors, whether they're European investors or American investors, they're telling us go as fast as you can. And that's what we're trying to do. The policymakers, they set the framework, but then let the market do the market do the magic. He was answering a question from Jim Kramer about, you do this because it's right, right? And he said, yeah, we do it because it's right. But we do it because it's good business and because that's where you have to go to be in. a good business 15 years. And by the way, I talked to Houston's mayor, who was part of this panel and talking to him about their big ESG plans for Houston. And he said the energy sector in Houston and in the surrounding area is partners in making this go forward, much to the direct opposite of what we're hearing from Louisiana. And you think, I think he mentioned the Houston mayor said how the percentage of renewable sources that they're going to have like 80% by 2030

or something like that. By the way, you can see more. More from the Mercedes-Benz CEO tonight on Mad Money at 6th Easter. That does it for Power Lunch. Thank you for being with us. Closy bell starts right now.