Power Lunch - Risk-On Back On?, Buy or Bail, and Tech-Tonic Shifts 2/2/23

Episode Date: February 2, 2023

Tech stocks are going bonkers again, led by Meta and helped by both earnings and the Fed. Can the rally keep going when Apple, Amazon and Alphabet report tonight? We’ll tell you the key things to watch. Plus, Ray Dalio warns we’re on the brink of economic war with China. But one of our guests says if you’re looking for opportunity in equities, China is the place to be. He’ll reveal what he’s buying. And, on-shoring supply chains, and off-shoring talent. We’ll look at how technology is changing how companies work, who they hire, and where their workers are with XPRIZE Foundation Founder Peter Diamandis. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everyone, and welcome to Power Lunch, along with Kelly Evans. I'm Tyler Matheson. Coming up, two big buzzwords of the day, disinflation and efficiency. After spending like mad on the Metaverse, the company formerly known as Facebook, is now focused on efficiency. Will we hear similar themes tonight from Apple, Amazon, and Alphabet, the three big A's? What happened to growth at all costs, by the way? Plus, today's rally really kicked off around 2.30 yesterday when the Fed Chair said the disinflationary process is underway. Is the Fed really winning the war against inflation? And if so, how many more battles remain? But first, let's get a check on the markets as the Dow's about to go

positive and the NASDAQ is flying. All right, but let's move over now. We've got Christina Ports in Evelas and Dom Chu all over these moving markets for us. Dom, you go first. All right, so the Dow is now green on the day. So session highs right now. We are watching some action in a couple of big drug companies and then one automaker as well. Let's start. with shares of Merck right now, down about 4% right now after the Dow component actually reported better than expected results for both profits and revenues. But its full year outlook for profits fell shy of those expectations due in part to what it sees as a sharp drop-off in sales of its COVID treatments. Now, sticking with that pharma trade, shares of Eli Lilly are down. You can see here

just about 6% on the session more so than Merck after it had mixed results. Profits beat estimates, but revenues disappointed do in part to weaker than expected sales and some of its key diabetes-related drug franchises. Lily did, though, by the way, raise their full-year-profit guidance. Still, Accent 20 the negative right now there. We're going to end on Ford. Those shares right now up pretty decently, up about 5.5%.

The automaker is up on the day after reporting January vehicle sales that grew over the same month last year, driven by more sales of its F-Series pickup truck, also Bronco SUVs, also electric vehicles as well. Remember, Ford reports full quarterly results after

the closing bell today. So those shares, up ahead of that earnings report. So that's the trade there. Christina, what are you watching from the NASDAQ in that big tech heavy trade today? Thank you, Dom. What I'm seeing is risk appetite, and that's driving the NASDAQ above its 50 and 200-day moving average. Meta, of course, the dominant theme shares are up by what, over 25% of topping revenue estimates and announcing a $40 billion stock buyback plan. It's on track for its strongest day in a decade, and the shares are actually 27% higher. Meta vying for top NASDAQ, 100 winning spot, but Align Technologies is really putting up a good fight on the NASDAQ,

up over 27% as well, so they keep going back and forth. The orthodonics company also launching a $1 billion buyback program over three years. EV makers like Dom mentioned reaping the benefits by a Fed slowdown and risk on mentality right now. So you've got Rivian up over almost 9% Lucid Group, up over 6% Tesla, over 7% having its best month in two years. And last, Lastly, chip results haven't been as bad as feared, and that's rewarded in today's market, pushing the SMH ETF up, what is it, fifth week in a row of straight gains. So I just want to point out to Qualcomm, we'll be right out at 4 p.m., so we'll have those earnings after the bell. Christina, thank you very much.

This is where we start. The Tech Titans in Focus, meta kicking off what it calls its year of efficiency, setting the tone now for the 3A's on deck, hopefully not spoiling it for them. Amazon, Alphabet, and Apple are all about to report. We've got the tech titans of our own breaking this down. Julia Borsten dissecting meta, Deer Jabosa, watching Amazon and Alphabet, and Steve Kovac is live from Cupertino on Apple. Julia, let's start with you.

And again, this maybe meta front ran everything here because these stocks are all green, some pretty high expectations now. Yeah, I mean, it's really interesting. If you look at what Meta's performance has done to some of these other social stocks, I mean, snap, its stock was way down. It has rebounded today, I believe, was up 11% last time. I checked. And the same reason is the reason, the same

fact is the reason why Pinterest is up over 8% right now. And that's this idea that maybe the ad market has stabilized and there's more upside potential. Because meta laid out this whole vision for how they're going to be making more money on Reels. They also have these click to messaging ads. But fundamentally

they've lapped. They're challenging interactions with that Apple operating system change, which made it harder for them to target ads. And things seem to be getting better. Getting better, does that mean returning to the original core of what Facebook was known for? Well, look, Tyler, meta continues to invest in the Metaverse. It's Reality Labs Division.

That division is going to see even greater losses this year than it did last year as they continue to invest there. But I think what Mark Zuckerberg was trying to communicate is that they're going to be more restrained, more fiscally cautious as they think about their investments and trying to do more with less. And what was really interesting is he said cutting costs is not separate from us being a smart tech company, that in many ways he thinks cutting costs will work hand in hand with being a better tech company and creating better technology, sort of seeing the advantages of that fiscal restraint. So I think they're going to continue to invest in Metaverse over the long term, but they are making progress in generating more revenue and more profits from their core family of apps.

Whatever they're doing, he's singing a song that Wall Street seems to like hearing right now. Julia Borsden, thanks very much. Let's move on now and talk Google and Amazon. So with this efficiency trend continue tonight when we hear from Amazon and Google or Alphabet, both companies have recently announced layoffs. Let's bring in Dieter Boza now for more. Dieter was something in what Julia just said, and that is the potential that maybe people are seeing that the digital ad market is sort of bottoming out.

Would you expect to hear anything like that from Google, which is so dependent on ad? So dependent, but they were thought to be in a better position, shielded more from recessionary forces, relatively that is, and from Apple's privacy changes. But it still wasn't a great result last quarter. So we're going to have to see if that trend improves and some of the commentary around there. But it is the core businesses that are in focus here.

That ad market revenue is expected to decline, as well as over at Amazon, by the way. It's core online sales. That's supposed to shrink year over year also. So these are really key things. and even some of the businesses that are providing more growth. That would be YouTube, for example, for Alphabet, AWS, for Amazon. Those are expected to be under pressure as well.

I know the word of the day you guys mentioned it at the top. It's efficiency. So investors are really looking for this from these two companies as well, but maybe a little bit less clear in how they get there. With meta, there was a list of things that Alphabet investors in the street was looking for. With these two companies, we still need to hear about how their layoffs are going to impact the bottom line. how they're going to think about those restructuring charges.

So there's a lot of detail we have to hear. And also new businesses. I know we've been talking a ton about artificial intelligence. Meta talked a lot about it on its call. But remember that Google, Alphabet, has been in this space for a very long time. And there is this thinking that they're going to do a chat GPT product very, very well. But they're taking their time. Analysts are going to be questioning that timeline, I'm sure, on the call tonight.

So let's talk one more thing on Amazon before we go. You mentioned that there seems to be a slowing in their core retail business. Is that a macro, is the reason for that a macro slowing of consumers and their spending? Does it say something or anything about Amazon's appeal to consumers or its competitive position? It's a good question. The company would probably say that there is somewhat of a macro slowdown as consumers shifted to more services from goods. But remember, in the quarters, well, they have. not only Black Friday, Cyber Monday, holiday shopping.

They also had that second Prime Day. They call it Prime Day Early Access. So that could help boost those results a little bit. But the trajectory is, yeah, there's more competition. And also the pandemic gains provide a really tough comp there. So that's why we could see it. So again, they just built too much. They expected that pandemic boost to last for longer.

Deirdre, always great to see you. Thanks very much, Deirdre Bosa. And we should turn now to Apple. The only U.S. Tech Johnson. not to have announced significant layoffs. Can the company stay efficient with its current workforce? Let's ask Steve Kovac. He's out in Cupertino to cover these earnings for us.

Steve, it's not like they haven't had their share of struggles here over the past year. No, that's exactly right. But when we talk about this theme of efficiency and cost cutting, you could argue that Apple has been operating efficiently throughout this entire pandemic. If you look at the way they were hiring slower than their peers, but they also, Kelly, they experience the same boost in sales that a lot of the other tech companies had seen as well. Their Mac business was just screaming throughout their pandemic. It's expected to drop quite a bit this quarter because of the fall in PC demand.

But look, last time we talked to Tim Cook about this, he told me saying, we're dialing back hiring. We're being more careful about how we hire. But there's been no criticism or meme around. Apple right now saying, hey, they're over staff, they're over, you know, that too many people working on too, not enough things that we have to cut. So like, I'm the odd man out here reporting on the only company in this group right now that hasn't had mass layoffs. And there's a huge question, does Apple need to do that? Do they need to cock costs? And if cut costs, rather, and if they do, where is that going to be? Right. And I don't know if people do, I mean, do,

Is that expectation out there, Steve, that they need to right size? No, that's exactly my point, Kelly. There's no one really saying that in any serious way that they're overblooded like we saw throughout. To Deirdre's point, look at Amazon, how much they increased capacity on this idea that this, you know, huge boom that they experienced in the pandemic would go on forever. We wrote the same thing from Spotify recently on their layoffs. And we saw a similar trajectory just on the sales side of Apple throughout the

pandemic, but not on the hiring side. So they did hire significantly, but not in the same levels, these astronomical levels as their peers. And that's why there's this kind of idea that maybe cost cuts don't need to happen, and if they do, not as drastically as what we've seen from the others. All right, Steve, thanks very much. Steve Kovac will be eagerly awaiting your report on Apple's earnings later today. For more on the tech rally and how earnings will and layoffs will impact the industry overall. Let's bring in Tom Forte. senior research analyst and managing director at DA Davidson. Tom, I know we're going to get to Apple. I know we're going to get to Pinterest and others. I want to begin, however, with Amazon and

something you say, simply put, we are worried Amazon is losing its soul. What do you mean by that? And if the company is losing its soul, why do you have a buy rating on the stock? So thank you for asking me that question. So the way I think about it is we've published 24 white papers and a convergence of the technology in retail space, two solely devoted to what could slow shares of Amazon, similar to what you saw at Microsoft and Walmart, and two on the future of Amazon. So the thought was that Amazon could disrupt any sector. We looked at trillion-dollar global total addressable markets, and we, like investors, believed that if Amazon made an effort, it could disrupt anything. The best example that Amazon is not disrupting is grocery. They

bought whole foods. They haven't done meaningfully better since acquiring whole foods. When you look at the 18,000 people they're laying off, they're laying off people in some of their potentially disruptive areas, think drone delivery. So a couple of that with also the discontinuation of Amazon Smile, their charitable giving effort. We talked about this notion, will there be a future where consumers may not want to shop on Amazon? And I, for one, am shopping less on Amazon on the discontinuation of Amazon Smile. So why do you have a buy rating on the stock and a price target of 114? So I think what you're seeing this year in the strength in tech in particular is that the sector was oversold. So I think we have to keep in mind,

you know, the basic elements of math and investing. My average stock down here was down 50% last year. It would need to double this year to return back to where it was before the weakness. So I think that what you're seeing right now is Pinterest is a great example. They're reporting on Monday. They're announcing another round of layoffs Thursday, before the Monday they report, but the stock is rally. So what you're seeing is here, technology companies are getting a bid, including Amazon, and the stock is doing well despite these challenges. You know, it's, Tom, I think what you're picking up on, it's almost something that we experience from the consumer side as well. You start to feel like

the years in which Amazon came out with the echo and was so innovative and kind of doing all these things just feels like they're past that. And it just, you wonder if the company really makes sense continuing to be a retailer and a cloud company and all the rest of it. I don't know if there's ever any real serious talk about a split, but it's kind of feeling less and less like the company that Jeff Bezos made. Yeah, and I think the best example, Kelly, of that lately, was when they implemented a delivery charge for consumers who buy less than $150 of grocery. So you think about the Amazon's built on price, convenience, and selection.

and now you're going after a price, making it less price efficient for consumers to shop on Amazon. So I think at some point that flywheel may decelerate, and that's also why I'm concerned the Amazon's losing its all. All right, Tom. Thank you very much. Tom Forte. We appreciate your time today. Coming up, from so-called new economy to old, tractors, heavy equipment, the CEO of CNH

industrial is about to join us. The company beating estimates, but the stock down 8% today will dig into that. Plus, the meme names are back. GameStop, AMC. Look at these gains. No, these are year-to-date gains, but the gains today are up there as well. Even Bedbath, rallying, although they missed interest payments and could be facing bankruptcy. Is this the sign of a market top, at least in the near term? We have more on that coming up.

Welcome back to Power Lunge, everybody. Let's drill down on a company that has a unique view into the economy right now. CNH, the industrial company is a global manufacturer of agriculture and construction equipment. The stock down about 9% today despite an earnings beat, but it has rallied 30% in the past three months. And here for a Power Lunch exclusive is Scott Wine. He is the CEO of C&H Industrial and the former CEO of Polaris. Scott, it's great to see you again. Welcome. Kelly, thanks for having us on.

Any market perception you want to correct here with the stock down today? You know, I'm really proud of what the results team delivered. Q4 was up 27% finished the year up 21% of top line, you know, 14% on the bottom line. you know, 14% on the bottom line. So really great results. And you know, we talked about 6 to 10% growth next year with margin expansion, you know, generating 1.3 to 1.5 billion dollars of cash flow. I don't know what I can correct about that. You know, the markets are not going to be perfect forever. We're honest about that. We don't talk about things that we don't have confidence in. But, you know, we do have confidence in this team. The products we're bringing

to market and really excited about the year we finished and the year we're getting into now. If we segment your business, industrial activities, agricultural equipment, construction equipment, all of them had revenue gains last year. As you look ahead into 2023, is there one area that you think has the brightest prospects and one that you think you're going to be concentrating on because maybe it has more headwinds? You know, Tyler, surprisingly, as we go into the year, both construction and ag are projecting positive strong growth in that 6 to 10% range. So we are seeing regional differences. We talked on the call a little bit about, you know, with the recent election in Brazil, it's called some farmers to have some angst. You know, we think it's a short-term pause there. Europe's a little bit edgy right now

with the lingering impacts of the war. But overall, our demand remains quite strong. We see, again, good top line growth next year with margin expansion. So, you know, we feel reasonably good, but both the construction and the ag business are going to deliver volume increases in 2023. Scott, you're joining us at a time when it appears as though the manufacturing sector of the U.S. economy is in recession. Industrial production peaked in September, manufacturing portion of that, maybe even earlier on.

And we've seen what the ISM indices have done the last couple of months. Can you give us a little bit of insight into what you're hearing from clients? and why you think all of the sudden activity has kind of hit a pause? You know, I'm educated as an economist. I pay really close attention to what's going on. Interestingly, what I've learned in my two years here is that, you know, we actually, our demand is much more related to the ag cycle, and that's 80% of our business, than it is the overall economy.

So it's not surprising with the Fed raising interest rates that we are seeing. a potential slowdown in many of the sectors of the economy. But, you know, with soft commodity prices remaining high based on historical norms, farm income being strong, you know, we are seeing really, especially here in North America, very strong demand for our products. And, you know, order books booked out through Q3. If we open up tomorrow, we will fill out Q4 very quickly. So really, here in North America specifically, we see very, very good demand.

I look at some, we're running some photographs of some of your equipment, mostly agricultural equipment, and I'm struck by the idea that those machines look pretty much like they did a couple of decades ago, but they're very, very different on the inside. And what seems to be so different is the use of intelligent or digital agriculture. Can you tell us a little bit about what the next frontier is within those machines to make them more efficient, effective, and helpful to farmers who are raising crops. You know, I grew up in the Shannon O' Valley, Virginia, so I've been around this equipment all my life, and I will tell you that what we're selling today is nothing like those.

Granted, I'm old, but nothing like that. And really, it is around precision and autonomy. The tools that we give farmers, I like to boil it down in simple terms. and saying this game that we're playing in agriculture is about productivity and yield. There's not much more arable acreage coming into the world, but there's more malice to feed. So the way you do that is through productivity and yield. You know, we made the large acquisition of Raven Industries in 2021. That is yielding incredible results, helping us improve our tech stack so we can put better

technology into our various pieces of equipment. We talk about tractors, but if you look at our combines where we've got truly market-leading products, there's more machine learning AI embedded into those products. And as we put on top of that better autonomy and precision tools, it just allows the farmers to get so much more out of their equipment than they could historically. You're talking to two Virginians, Scott. What town were you raised in? The large town of Dayton, Virginia, just outside of Harrisonburg. Harrisonburg, I know. Dayton, I do not know. Do you know Dayton? I know, I know Harris.

If it's not on Route 81, I don't know it. We were all four miles off of 81, so we're way out in the Hicks. Yeah, exactly. Scott, thanks so much for your time today. We appreciate it. Thank you. All righty, further ahead on the show while we continue to talk about Virginia and the Shenandoah Valley. The Fed continuing to hike interest rates, but mortgage rates falling, bringing some homebuyers back to the market.

But is the worst still ahead for housing? We will discuss that and more when Power Lunch returns. Stay with us. All right, welcome back to Power Lunch, everybody. Let's get a check on oil, which is only slightly higher, but did stage a midday reversal. Pippa Stevens is joining us now. Hi, Pippa. Yeah, mixed here into the close. We had that big inventory built, and we also had some mixed economic data. But looking ahead to this Sunday, that is when the EU's ban on Russian products goes into effect. And Eurasia group is among those saying that could ultimately prove more disruptive to global, markets than the crude ban that we saw back in December. However, the consensus seems to be that we're not going to see any type of immediate impact, and that's because the European Union has

been stockpiling diesel supplies, and also, of course, because the temperatures were warmer, so their inventory is pretty healthy. But ultimately, you know, in Q2, we could see the U.S. the U.S. starting to export more products to Europe. We also do have refineries coming online in the Middle East, Nigeria, and China. So it again speaks to this kind of rerouting of global energy supplies as these bands go into effect. How efficient are these bands? In other words, do the Russians get around them? Well, the price cap is certainly the more kind of tricky one to implement.

And, of course, on both the crude side, and then also the European Union and the U.S. And G7 are working right now to have a similar strategy of a price cap on the product side. But listen, I mean, they're hard to track. They really are. And, you know, there are some loopholes. Yeah, there are plenty of countries that are not going along with the embargo or the bands against Russia. And I think that's one thing that we've seen, you know, healthy Russian exports

to Turkey, to India, to China, Stale. And so it maybe hasn't had the impact that people initially thought it would. But once again, when you look longer term, it is this kind of rerouting of global supplies. It'll be interesting to see how that all shakes out. And what do you think is the broader message from commodities right now? Because oil's bucking the trend a little bit by being in the red today. But we've had lumber up significantly off the lows. You just heard what Scott Wine said about soft commodities, kind of still supportive of a strong business for them. What's kind of the overall landscape? Well, I think the overall landscape is one of, you know, peaks and downturns. And since you mentioned lumber, we've actually seen a huge start to the

year on that front. The prices are at more than 30 percent, but coming off their worst year on record when they lost 60 percent last year. And so it's kind of like a rebalancing of all these markets, it seems, when you fluctuate in such big swings from very high to very low. And now, you know, a bunch of sawmills took production offline of lumber because they got below the cost of production just last week. Canfer took 750 million board feet, vanilla production offline. And so that has supported the markets. Now with mortgage rate stabilizing, maybe that will help lumber.

But it does feel like in the commodities market generally, it's been more volatile than usual. We were searching for direction, perhaps, in light of all of this. But I'm glad you mentioned the supply note about lumber as well, because we can't forget, there's two sides of that coin. in case we've forgotten the past couple of years. How would that be possible? But thanks. We appreciate it. Let's get to Contessa Brewer now for the CNBC News update.

Contessa? Kelly, Tyler, here's what's happening right now. Speaker of the House, Kevin McCarthy, sticking by his demands for spending cuts as part of any increase in the federal debt limit. McCarthy spoke with reporters about his hour-long meeting with President Biden yesterday and insisted there will be more talks about the debt limit. In Las Vegas, a police officer and a Good Samaritan

teamed up for a dramatic rescue. This video shows two people working to free an unconscious driver from his crashed car, and it was starting to burn, so they were under some pressure. Tried one door, then they had to switch to the driver's side. They pulled the man out moments before this car was engulfed in flames, so saving the guy. Unbelievable. Groundhog Day, not just an American tradition. In Ukraine, a groundhog and his ancestors have been making weather predictions for nearly 20 years.

Timco, the Third, has had a particularly rough winter. He survived months of Russian occupation, hiding in a village with 20 other animals and their two keepers. And apparently he's just had enough of the chilly weather. Timco is predicting in the early spring. Let's hope it comes not just for him, but for those who share his village and his country as well. Yeah, Kelly. True that. Contessa, thank you very much.

Still had on Power Lunch. Enough said from the Fed. Powell trying his best to convince markets. Higher rates are still needed despite disinflation. but investors are responding to say less. Taking the smaller hike is basically a sign of rate cuts. Is that right? We'll discuss that next.

All right, folks, welcome back to Power Lunch. We've got about 90 minutes left in the trading day, but maybe more importantly, 24 hours after the comments from Fed Chair Jay Powell that seemed to have kicked off a bit of a rally, especially in technology. Let's bring in Bob Pizzani now for a little bit more. Hey, Bob. There is some very strange rotation going on. What's happened is we've been very.

moving towards growth and away from defensive for weeks now, but it's accelerated in the 24 hours since J-PAL had his discussion and his press conference. So what most obvious is what we call speculative technology. These are stuff associated with Kathy Woods and the ARC funds. These have been moving even before that, but they're up rather noticeably again today. So Robin Hood and Roku and Shopify. There's a lot of stuff up 5 to 10 percent in this particular area. Then there's stuff, the most beaten up stocks last year, stocks that had very tough stories associated with them. Some of them are associated with meme stocks, Carvana, Coinbase, AMC, bed, bath, and beyond. You see all these moves up here. Those are clearly speculative names that are moving rather

seriously. Then you have the opposite. We have very high-quality, defensive stocks selling off. Now, the health care group, some of the pharmaceuticals and some of the other names have, very specific stories associated with them and why they're down. But that's not true with consumer staples. These have been also slumping and are also noticeably down today on a big update. So General Mills, Campbell soup, Clorox and Coca-Cola all down. What does this mean? This is a sort of sign of speculative excess. It's getting a little frothy right now. The S&P's trading for a very significant multiple, almost 19 times forward earnings. And Kelly, I have the feeling that we're very, very close to some kind of market top. The move up here, the intraday moves are just rather extreme

in the last four or five days. Kelly, back to you. Very interesting. Thank you, Bob. Let's get a check of the bond markets too. Rick Santelli. How's the action look out there in Chicago? Well, it looks like central banks are the most popular investment counselors on the planet, that's for sure. If you look at a two-day of two-year note yields and realize the knee-jerk reaction after the two o'clock Fed statement and 25 base point increase, it was a lot. at four and a quarter. Here we hover at 408, and we're well off our low yields. And if you look at what's going on with tens, well, if we settle below 337, it would be the lowest yield closing nearly five months, and we're not that far away. Big moves. And if you think they're

big moves here, look at booned yields in Europe. They dropped over 20 basis points, a huge historic move, and their central bank increased 50 basis points. And if we look at what's going on, In the UK, the 10-year guilt, closed a whisker under 3%. Down a bit over 30-3-0 basis points, huge. And finally, our Fed Fund Futures contract for June, as you see on this two-day chart, knee-jerk reaction after the Fed raised rates a quarter point, it dropped to 9504.

It's now at 9512, and the higher it goes, the less tightening implied. Listen, I can't tell you if the market Ultimately, when all the information is in, are pricing correctly. But what I can tell you is investors don't agree with the Fed in the here and now. Kelly, back to you. Thank you, Rick. Let's get more on the post-Powel market reaction.

Our market's getting too excited about the potential end of this Fed tightening. Let's ask Jerry Castellini president and CIO of Castleark Management. Jerry, do you agree with that? And also, I'm curious what you would say about Bob's comments earlier, that he thinks the market's feeling a little exuberant right now? Well, you don't get up 10 and 20 percent moves in what I would call see-me stocks without there being some exuberance. But let's think about it from the context of those are probably the most shorted stocks. Yesterday's Fed discussion was clear from the standpoint of investors that they're running out of bullets to fire.

And even if they do fire them, they're not going to hit anything. The economy, from our perspective, looks like it's, in a series of slow-moving soft landings rather than the sharp, difficult one that people have been prepared for. So now all of us have to shift to, okay, where's earnings disappointment going to be rather than economic disappointment? And I think that's where if you're cleaning up a short position, you might as well cover and then be focused on some of the names that will come out of this better.

Maybe you've got soft landings in some areas, but you certainly don't seem to have a soft landing in housing, maybe not in manufacturing, and there are others where the landings have been harder. And those are places where that's yet to come, right? That's the whole point. A year ago, remember when Walmart and Target talked about having too much inventory and the wrong product, that industry, the consumer goods industry, has now gone through that cleaning out if you want, and they're not in a position to fail in the upcoming quarters, whereas you point out, we could see housing rolling over. There's big chunks of technology that have yet to have their troths. But broadly, if you look at the kind of commentary that's coming out of the CEOs,

it's that we're ready for something, which I don't see how you can be ready for, you know, for at least three or four quarters now for a recession that hasn't even yet arrived and be disappointed by it. Let's talk about where some of the areas Jerry are that you think, dear, We've just, Ag has kind of been a little theme of this show, MasterCard Nike. Yeah. So our whole premise is because we're not done, because there's still enough uncertainty, let's at least focus on things that we know are happening. The China reopening is a great example.

That's clearly underway. MasterCard makes 10 times the profit on a card swipe in an overseas transaction that does in the United States. And that's the type of thing we can. an acceleration, and MasterCard's margins will probably go higher. Nike is a huge winner in a Chinese reopening, for example, given all the branded goods associated with their consumer economy. Deary, as you point out, where are we going to go with the ag business? Last year, they all got caught on a margin squeeze because their

pricing had an ability to adjust upwards. Now it has done that, and all the supply chain effects are actually going to serve it as a benefit or a tailwind to their margins this year. So those are the kinds of names that we want to focus on. It makes sense. Jerry, we'll leave it there for now. We appreciate it. You bet. Jerry Castellini.

All righty, still to come. Housing hysteria. Ask two different people about the fate of the housing market, and you'll probably get two very different answers. Some are expecting a crash while others think it could regain strength. Our next guest is predicting a deeper recession than most other forecasters. We'll talk about that next. Welcome back, everybody.

Falling mortgage rates seem to be bringing some buyers back into the struggling housing market. And that has spurred a rally in home builders and home-related stocks. Lenar, Pulte, KV home, all up 20% or more so far this year. And the ITB home construction ETF, which includes a broad range of housing-related stocks, seeing similar gains. But our next guest thinks maybe the market is overestimating a housing comeback. Diana Oleg, joining us now with Fannie Mae's chief economist Doug Duncan. Diana, the floor is yours. Well, thanks, Tyler, and thanks, Doug, to come in to see us once again.

Good to see you. I want to get straight to your forecast, because in the past, your forecasts have been remarkably accurate, and yet what I'm looking at now for 2023 is way off consensus estimate. So I want to start first with single-family housing starts. You are predicting that they're going to drop 25% this year compared with last year after an 11% drop last year, much wider than everyone else is forecasting. And as we just saw, the home builder stocks are rallying. How do you see 25% drop? Well, at the end of the day, two things are meeting. One is affordability constraint. So you've got first time homebuyers seeing mortgage rates,

while they've come down 100 basis points, there's still 200 basis points or more higher than they were even a year and a half ago. At the same time as you've got a supply shortage. But the builders start a house today, it's nine months or maybe 18 months, depending on their backlog, before it's actually out there as a house to move into. So you have, we still have repealed the supply issue. We have, the millennials are not at peak first-time homebuyers, but they're constrained by affordability. So we think it will take some time. The Fed's tightening is doing what housing always does, which is the Fed tightens, construction slows,

then new home sales slowed, then existing home sales slow, and there's a lag until you see that recovery comes. So why are we seeing the builders so high, not just today, but in the last month? Well, I think it's a recognition by the market that, in fact, we still haven't solved the supply problem, and it's going to be on the back of the builders. Why is that? Because the boomers are doing exactly what they said. They always said they're going to do, which is age in place. And now the Gen Xers never get any airtime, so we'll give them some air time. They've locked in mortgage rates, between 2.5 and 4%. In fact, if you look at the actual outstanding mortgages, 18% of outstanding mortgages are more than 1% and less than 2% below current market rates.

84% are 2% or more below current market rates. Those loans are going nowhere. The people that are owning those houses are not changing a house anytime soon. And that obviously is going to play into the drop you're seeing for existing home sales. You have them down 22%. this year, which is going to be a lot for the realtors in the market to absorb. What plays into that? You said it's the seller's not wanting to come onto the market, but there is demand out there. We saw it in December. Yeah, that's absolutely true. We've been behind on the supply side of the curve since 2012. We came out and said, I think our, if I remember our announcement, it was 2015, we came out and said, the problem now is supply. Because at the, from the great financial crisis,

what happened was we went from building 2.2 million homes annualized to 400,000, and we stayed there for three and a half years, destroying the supply chain. So the builders have been trying to catch up for all that time. Okay, and just one quick question on prices. You only have them down 4%. Everyone else is looking at 10, 15%. How do you account for that? Well, if, in fact, mortgage rates come back down, which we have some additional decline in mortgage rates with the slowing of overall economic activity. and you still have that pent-up demand in the millennials who are, by and large, salaried people

who are the kind of people who buy houses, each increment of price decline is going to bring some of them back into the market. Okay, Doug Duncan, we'll see. Coming next year, thanks so much. Back to you guys. All right, Diana, thanks very much, and Mr. Duncan, thanks to you as well. Up next, we're in the final stretch of the stock draft. Which teams and stocks are in the lead?

We'll take a look in today's three stock. lunch right after this. Time for today's three stock lunch. We're in the final stretch of the CNBC stock draft. It goes through the Super Bowl, and we're trading some names that have outperformed and underperformed since our contest this past April during the NFL draft. Now, Netflix shares are leading the way up 83% since the contest began. Wow, that is, is that, wow, that's shocking.

Anyway, it's propelling Team Ryan Reynolds into the lead. Amazon shares up 7% today into earnings, but they're down 23% since the draft and Chipotle is up 13% since the draft and our next guest. Top pick if the draft were held today. Let's bring in one of the contestants, Delano Sapporo, New Street, advisor, CEO, and a CNBC contributor. Delano, welcome. Let's start with Netflix.

This one's been working out pretty well, I guess. What do you do with it? Yeah, I wish I had this one for the stock draft. It's been working out really well. It's have an impressive comeback so far. I think if you look at their last earnings, they added a lot more subscribers than was projected and estimated even by their own forecast. And they're doing some interesting things. Obviously, we know the password crackdown on sharing passwords that's going to potentially add,

add more people to the platform. They've done great so far with the ad supported tier and bringing in new people to the platform that didn't transition from other tiers, but actually new people. And they had a great slate the back half of the year. So this is when you continue to hold, obviously, for a streaming play, you want to continue to hold that one. Let's move on now to Amazon. Am I correct? Was Amazon one of your picks, Delano? Yes, it was. Amazon was one of my picks. And it's one that hasn't been performing as strong as I thought. And I think a lot of that's been the macro environment. I think one good thing for the reasons why holding it potentially in the next week we see a move up after earnings is

even though growth is slowing, their sales remain robust. I think if you look at what they're doing on obviously the AWS side, that's a linchpin that would potentially lead the stock higher here, especially if we're continuing to see them gain market share in an area that's growing. They have a long track record of profitability. So I still like the stock, and I'm looking for it to continue to perform a little bit towards the end of this competition. Well, it's doing just that. It's showing you some love today. It's up almost 6% at 111 a share.

And that brings us. 100%. Well, our final name here is Chipola, I believe, Delano. So talk us through this one. Yeah, this is one that if, you know, doing the things over, this is one where I'd probably take a second look at. Performance has been really, really strong if you look at from six months. to a year to even further out. And even though right now, it's trading pretty expensive, right?

It's 41 times for it earnings. I think if you look at their growth plan, that's the thing that's really intriguing. They're planning to open more stores. They're planning to add more workers, which on the downside could potentially be something for margins. But I think, you know, if you look at the growth plan, that's a strong point for the company. It's done really, really well there. And obviously, the products in high demand, obviously everyone loves Chipotle, like Kelly. This is true.

I like, what is the new, the steak, the, it's like garlic steak or something, but anyway, it's price. Anything with garlic's pretty good. Like $18 if you get a burrito practically. Delano, thank you very much. It's good to see you. It's Delano Soporo. Thank you. All righty.

Up next, we'll take a deeper look at the blowback over buybacks. Dom Chu, putting the real numbers under the microscope. And tonight at 6 p.m., check out Jim Kramer live from the University of Miami for Mad Money's 20th, back-to-school tour. That one's on my son's short list of schools he might like to attend. Oh, boy. I am. I'll have him tune in and watch Jim tonight. He should go.

Yeah, he should just go be there. Welcome back to Power Lunch, everybody. Time now for another story catching our eye today. Chevron catching heat from the White House for its buyback plan, but it's far from the only company shelling out lots of money to buy its own stock. Dom Chu putting those numbers under his inimitable microscope. All right. So we've talked a lot about an all day to day,

starting from yesterday afternoon about this $40 billion stock buyback that meta has put up there. It's the reason why a lot of people are saying that the stock is up because, hey, they've announced this new buyback program, there's cost efficiencies. I know you guys talked about that earlier in the show. So kind of let's put this in context, right? The biggest share buybacks that have been announced so far in 2023 have been those two along with Mondalise. Now, Mondalise is a big one, number three, but as you can see there, it's only $6 billion, compared to the $40 billion and the $75 billion from Chevron. Now, what we're going to do is compare what these numbers are for META and Chevron, the two big

ones here, to typically what they've done over the course of the past decade. So just to kind of give you an idea of the trend. If you take a look at meta platforms, over the last 10 years, according to data from Howard Silverblatt over at S&P Dow Jones indices, Meta platforms have spent $116 billion over the last 10 years through the third quarter of 2022. That's the most recent data that we have. So $116 billion, by the way, means that they typically do spend a decent amount on buybacks over the course of any given year. Just to put it in context, last year they spent about $46 billion in buybacks.

Now, the reason why Chevron is getting so much attention, it's because if you look at the amount of buybacks Chevron has made over the last 10 years, it's not that massive, comparatively speaking. In 10 years, they spent $22 billion on buybacks. Not 50, not 100, not 150 billion. This is not a company that typically does buybacks. So when they announce a $75 billion buyback, that's effectively Tyler and Kelly, more than triple in one buyback announcement, what they've bought back in their own stock effectively over the last 10 years. I've been curious about buybacks. Are they open-ended in that they can take place over?

The $75 billion can be spent or not spent over? At the discretion, at the discretion of the company. It could be 10 years. It could be, but typically what they do do is they tell you every quarter how much they bought back in their stock, right? So we got to wait until the earning season is over. Dom, thanks very much. You got it? And thank you for watching PowerLine.