Power Lunch - S&P 500 looks to snap five-day losing streak 1/3/25

Episode Date: January 3, 2025

Stocks are moving higher today, as Wall Street recovers following a shaky start to the new year. We’ll cover all of the market angles for you. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome to Power Lunch alongside the Just Seen. Kelly Evans, I am Brian Sullivan, and we are watching the latest out of Washington as Congress tries to pick a new speaker of the House. Overall, your money. Stocks rebounding on this Friday, but unless we see a bigger pop than we are now, it is not going to be enough to save the so-called Santa Claus rally. The upside, the S&P 500 is likely to break a five-day losing streak. Interestingly, not much of a reaction to what looks like a failed first round on that speech. Speaker vote, we'll have a whole lot more in just a moment on that. And two of the best sectors today, once again, energy and utilities. We'll talk a lot more about energy in just a moment. One percent gains here. Take a look at Vistra. It's the second best stock in the S&P last year. And it continues. It's up 7 percent today. Look at that one-year chart. It's quadrupled. It's up 16 percent year to date, and it's only the second trading day of the year. And I'm noticing a trend on the show that I've been here two days and we've done more energy. It's amazing how that works. It's almost like we planned it. Yeah, and also this, something you will not get anywhere else, even anywhere else on this fine network. That is the winner of our annual Best City for the Stock Market Competition. And this year, the winner is, well, it's surprising. We called it a deep tease for a reason.

Here's a hint. Netara. Oh, no. What? Netara and Q2 Solutions are the two best performing stocks over the past year that are based in this city. I still was dealing with a bill from them. This is the same Natera that I'm thinking of. Call me. We've got some stuff to work out.

Oh, they'll call you. And we'll get to all that ahead. But right now, we've actually got some breaking news on let's call it two big M's. That is Microsoft and that is money. Steve Kovac on set with some breaking details on that and AI spending. Yeah, this just came out from Microsoft about two minutes ago. Microsoft says it plans to spend about $80 billion in its fiscal year, which ends this June, to build out artificial intelligence.

This announcement was actually tucked into a blog post for Microsoft President Brad Smith, who published it today coinciding with the start of the new Congress. He lays out some ideas in that blog post for the U.S. to lead in artificial intelligence. But back to the spending, this was not a surprise. Microsoft previously said to expect more than $20 billion in quarterly CAPEX spending on artificial intelligence for the rest of the fiscal year. This is, though, the first time Microsoft is sharing a hard number on how much it plans to spend. To put these numbers in perspective here, Google says,

says it's spent $49 billion, Amazon spent $65 billion, and META has spent $31 billion in the four trailing quarters that we have data for. We'll get the December quarter numbers for all of those companies when the report earnings here in a few weeks. By the way, that $80 billion number is larger than Microsoft's biggest acquisition ever when it bought the video game company Activision for $69 billion. Also says over half of this KAPX is going to be spent here in the United States. Microsoft has previously said about half of the KAPX goes to compute, that means Nvidia chips, so consider a lot of this money going straight to Nvidia, also some stuff like training for AI, server racks, other equipment.

The rest is just the land, the power, construction costs, things like that. Despite all the spending, AI is still not a big business for Microsoft. The company says it's on track to generate $10 billion in AI-related sales this year. So if you're keeping score, that means you have Microsoft planning to spend $80 billion to generate 10 billion in AI spent in AI sales. Still unclear how well products like co-pilot are selling, and Microsoft has never disclosed sales figures for that, nor does it tell us much of how much AI spending is happening on its Azure Cloud.

It only says how much AI contributes to the growth of Azure, no whole numbers there yet. As we learned last year, investors have some real concern over when all this spending on AI CAPEX is going to pay off. That's not just Microsoft. Those are the other big tech companies as well. CEO, Statenadella and CFO Amy Hood have said they can dial back the spending if demand for AI slips. But for now, they just can't meet all the demand and the spending keeps going up. There's a back story here, which is, Craig me, if I'm wrong, Microsoft was the biggest acquire of a lot of these Nvidia chips.

Exactly. Maybe twice. That's what we think. We don't know for sure, but that's financial times reported. And the stock has underperformed somewhat, some of the other big type. Microsoft has, yes, yes. So do investors want them to be spending more at this point? Or do they know? That's why I find the stock move or lack there. It's kind of interesting.

Yeah, that's what big number. This is a huge number. Again, not unexpected. They kind of signal this is where they're going, but now they're actually putting a hard number in here. And they've said the demand is there. They literally just don't have the capacity. Open AI, the hottest AI startup, maybe the hottest startup, period in the planet on the planet right now relies on all this infrastructure. Microsoft is building. So a lot of it is open AI. And by the way, Microsoft is taking on losses from Open AI. It's going to start reporting those as well. Do we know how they're going to make the money back? They're going to have to charge somebody for something. Well, co-pilot. Co-pilot is part of it. These Azure cloud services are another part of it. But again, we just don't have a clear view in how where they're spending. Microsoft has given some anecdotal, you know, this company bought this many seats.

This company bought that many seats. But it's really vague and nebulous. It's really hard to tell how well that's spending. They also made a big, Buzzi hire, Mustafa Suleiman, who is now the head of artificial intelligence. He has a CEO title at Microsoft. His job is to get MSN and some of these being in some of these legacy products, juiced up and selling more with AI and also creating that consumer version of co-pilot. But again, he depends so much on OpenAI, all those large language models that they make,

that eventually makes its way into Microsoft. So that's the real challenge here. They're almost like the product development shop. But look, it's going to be a long time. I will point out, Sighted Nadella got criticized for this early in his 10-year CEO, spending so much to build up their cloud infrastructure for what is a huge, business today. That bet paid off, and that's what he's betting on will happen this time. Makes it clear they're doubling down on this direction. A hundred percent. Let me guess,

though, get everybody addicted when it's free. Yeah, of course. Like Uber. Or cheap. And then it's $100 and you can never get one. Yeah. Little sort from that still. Thanks. Steve Kovac. Let's shift gears now to some big moves and energy with oil prices up 5% this week to nearly a two-month high. Energy did underperform, wow, by 20 points left. Yeah, wow. by 20 points last year for the S&P was only up 2%. But our next guest says this will be a better setup. Neil Mehta is an energy analyst at Goldman, joining us ahead of their big conference next week in South Florida.

And Neil, I didn't realize it was quite that bad for, not bad, but it just kind of treaded water. And this was after a couple of strong years. So you think 2025 is going to be strong again? Yeah, energy cycles tend to last a decade. And we've gone the last 50 years with two down cycles and two up cycles. We still believe we're at the beginning of the structural up cycle. It began in 2021.

We think it'll last the better part of the decade. But with any up cycle, there are periods of pause. 22 and 23 were two years of that pause. 24 does feel like it's set up better for a variety of reasons. First of all, the secular element around power demand and the growth that should drive in energy demand, including for natural gas. Second, the valuations look compelling here. We've seen the XLE, having pulled back from 97 as its local high post-election, to close. closer to 87, 88 right now, having seen the trough at 83, our implied valuations would say that

should be closer to 100 at fair value. And then ultimately, we still believe that the sector has attractive return of capital opportunities. And in the past, capital stewardship was a problem in terms of how these companies allocated capital. But one of the things that we think we're going to hear next week when we have 850 people converge here down in Florida to talk about energy is that these are much better on companies, which have a much higher probability in the future of earning returns in excess of the cost of capital. Well, it should be 851, Neil.

So we go every year to your Energy Clean Tech Utilities Conference. Not this year, but look forward to going next year. We do have some guests on for the conference, including you now, so do appreciate that. You're making a compelling case for energy. So why has energy as an investment, what's the technical term, stunk? It's underperform the essence.

when all we do is talk about how much power Microsoft and Nvidia, everybody else is going to need to power all these AI dreams, which is powering the stock market. And yet that power is not constellation, invest in some others are. But for the most part, it's not generating returns that our audience want. Yeah, it doesn't feel like a conference without you there, Brian. And I think you've made a great point in that we need to bifurcate the performance of last year. Those related to power in that power ecosystem have done tremendously well, whether those are the independent power producers, many of the regulated utilities, companies in the uranium complex, the nuclear complex, the specialty contractors like the Maztex and the quantos of the world, that AI-related power demand basket has performed well and we think will continue to perform well. What has been left behind is oil. And a lot of that has to do with the fact that there's so much spare capacity.

in the system. Right now, Saudi is producing 9 million barrels a day. They have the capacity to produce closer to 11. So that in itself is 2 million barrels a day or two years worth of oil demand. And so it's made it harder for people to get excited about the oil side of the equation and the oil

complex. That said, I do think that there is going to be a period of time in the investable future where non-OPEC supply is going to be in deficit relative to global oil demand growth. And that looks like it's a 20 27, 28, 29 story.

An oil oil market is on the precipice. We've just got to work through these two years of large projects coming into the equation. One of the challenges has really been shale and how resilient U.S. supply has been, as Brian, you've written and talked a lot about that. We do see shale maturity on the horizon. I think that's going to be a theme that should propel a better setup for energy as we think about the five-year horizon. Neil, I was just going to pile on to that and say, you know, I really, I care of about oil when gas prices are high in this country. But Nat gas is what it's all about now,

in the age of electrification, with the needs that Europe has, the fact that we might now be filling that gap, we're the biggest exporter. They have five plants coming online. Dan Yergan says the size of this boom could rival even the impact of the AI chip boom. This is a huge deal for the U.S. So I don't really care about oil anymore. The place that is very dynamic as we think about the natural resources ecosystem. system is power. Right now, the demand in the United States is 4.1 trillion kilowatt hours of electricity on an annual basis. That has basically been unchanged for 15 years. If we compound at 2.7%, which is our annual growth expectation, will be over 5 trillion kilowatt hours of demand by early next decade.

The challenges, our grid is 50 years old, and we need to invest a lot more. So I would look over the next five years for utility capital spend to be up 40 percent. versus the last five years. So there's a tremendous amount of capital that needs to be deployed to get our grid up to speed. Part of the reason we like companies like Qantas Services

and small caps like MIR Group, but we have a constructive view on the utilities complex. Utilities are not boring. Utilities are actually one of the most interesting complexes in the broader market. Totally.

Neil, it's great to check in with you today. Appreciate your time. Great to see you. I look for many more headlines next week. Neil Meadow with Goldman Sachs. And look forward to being back next year. All right, so let's talk more now about energy, gas, and America overall. Now, natural gas prices, they've been soaringly. Europe facing big problems. We've also got

here a huge polar vortex coming as much of America. Maybe this means you is going to get really, really cold very soon. And both of those things are popping natural gas and energy costs. And you just heard Neil Mehta highlight some of these names, maybe the EQTs of the world. Now, EQT, that stock has also popped. It is not only up this week. It is trading at levels not seen in more than two years. Toby Rice is the president and CEO of EQT, who'll be down there, I think, and much warmer Miami. Toby, it's great to have you on. Now, I want to bear with me for one second. You're originally from Boston. And I bring that up because right now in the New England area, we are seeing about 75% of all electricity production right now coming from

natural gas, nuclear, or imported energy, which is mostly natural gas. Only about 7% of all power, electricity right now, is being generated by wind, and a couple of percent is being created by trash or burning trees. Yikes. Burning trees and trash to make energy. We've talked about this before, Toby. We have a new administration. Do you think that 2025 and beyond will be the year we finally get?

more pipelines built in the United States so we can stop burning trees to make electricity. Yeah, Sully, what you just mentioned is something that everybody has been looking at the energy systems that have been developed over the last five, ten years in this era of renewables. And they're scratching their heads. Why are we burning trash in New England to generate our power? and we are sitting next to the biggest gas field in the world less than a couple hundred miles away. Why are people in New England paying six times for their energy needs when they could use natural gas to heat their homes? Why are we producing record amounts of energy in this country? Think of this. Over 30 million barrels a day are currently being produced right now.

We've never produced more energy than we are right now. But American energy bills are up over 30%. scratching your head, it's because political force has overwhelmed market forces when it comes to energy. And a lot of these bizarre things have been allowed to occur. But we're very incredibly excited about the setup because we believe political force will take a backseat to market forces, which will let the cheapest, most reliable, cleanest energy make its way to the marketplace. We've got more of it than anybody else in the world. The question is, can we get it to the consumer? Toby, it's great to see you again. So as I kind of game this all out, I think, okay, we're going to be exporting a ton of fuel.

If prices go up here at all, and to your point, bills are already higher, the public's going to think it's because we're sending LNG to Europe and what have you. So how quickly can we build pipelines and backyards where no one wants them to be built and try to resolve some of these internal problems so that the price can come down even as we're exporting substantially? I think it's incredibly important for the American public to understand that LNG exports does not. have a correlation to rising energy prices for Americans. You don't believe me. You can look at the history since 2016 when America began exporting LNG over the next eight years becoming the world's leading LNG exporter, and we've kept prices low. The real issue that's driving energy prices higher is the bottlenecks that have been created in between the supply and the consumer. And that's where we come back to letting market forces work. We need to get perma reform so that the market can

work. And then what we're really excited about if we really want to dig into this and move into the era of the Reliables, letting more reliable energy systems come to play, you know, incentivizing the reliability of our energy systems that we create. That means more storage to stockpile fuel, more industrial capacity to meet our needs. You know, the error of reliability is upon us now, and it's absolutely critical that we grab this. There are people at home rightfully watching, and what they're saying is, well, Brian, we care about the client. And we care about climate change and we want to reduce emissions that would mitigate climate change. And I totally understand and support that.

And the point of, I think our discussion, Toby, is that importing natural gas via giant carbon spewing ship, a lot of it from Trinidad and other places, burning trees, burning trash. That is not the way to not only accomplish not our energy goals, but our climate goals. Is it not? And so if we're going to keep using this level of electricity or even higher, as all the stuff we've talked about with AI goes, we're going to need to find it from somewhere. And it's just weird to me that we'd rather bring it in on a ship from the Caribbean than pipe it in from Pennsylvania. Sully, you know, the good news is people are getting smarter about energy. I mean, let's be honest. We've been too good at our jobs. Energy has been too reliable. It's been too affordable. And people have. naturally taken what we do for granted. But unfortunately, you see the energy crisis that Europe is going through right now. What a wake-up call for the world. You see Americans' energy bills going up 30 percent, despite historic amounts of production here. People are starting to ask questions, and they're going to start asking and looking about energy from a holistic perspective,

and that means they're going to start embracing the reliable energy systems that we have. You know, climate is a really important thing. And what's really ironic about the climate movement with natural gas is people have been blocking pipelines because of their concern for the environment. But natural gas replacing coal is the biggest decarbonizing force on the planet. And ironically, people should be supporting natural gas pipelines because of their concerns for climate. That's the reality. And in time, we will continue to see more and more Americans and leaders understand this and begin to support clean energy in the forms of natural gas. Toby, talk a little bit about the stock performance up 25% the past three months,

a little bit more muted if you take the longer view. And we have so much supply coming online that I do wonder, I mean, fortunately for us, it should keep the gnat gas price capped. But what does that mean for your company? And what are your plans either investment-wise or profit-wise? How do you plan on benefiting from this potential boom? Yeah, let's talk about the supply here, because I think your prior guest made a really great point.

You know, shale in the exploration phase of shale has unleashed and made America Energy Independent that's bringing a tremendous amount of peace and prosperity to Americans. But shale has matured. And now we believe that the cost of supply in U.S. for natural gas is around $3.50. That's the price that operators, the marginal producer needs to break even. But breaking even is not the name of the game. We need to generate some return. And we think the marginal producer needs another dollar on top of that price.

So the cost of returns is about $4.50. And that just speaks to the maturing of the base here. But put this in perspective, $4.50, that's the energy equivalent of $27 oil. Okay. I mean, it's still the most cost-effective form of energy that we have. But your supply is one thing. Look at the demand equations, whether that's continuing to lower global emissions by replacing coal, meeting this AI power boom that's taking place, or meeting our LNG export needs. We are looking at a 20 to 40 percent increase in the demand.

for this product. Absolutely. And it's heroic work that you're doing really for the world. But if I were an investor, I'd say, well, why is everybody bringing all this supply online at 350 when you're telling me I need 450 to be profitable or higher? That's a great point. And I think the question really is going to be, you know, we are coming up, I'd say, on maturing a lot of part of the basins now. You know, one of the things that's really taking place in the last few years has been Appalachia, which is the source of the lowest cost of energy production in the country. This is where we operate. It's one of the reasons why EQT is the lowest cost, one of the lowest cost operators in the country. Those low-cost energy sources have been walled off from

meeting demand because of this anti-pipeline movement. And so what that means is the marginal producer that can meet this demand has moved down to the higher cost regions like the Hainesville, which are going to be experiencing higher cost of supplies. Well, right now, natural gas, keeping the lights and the heat on. And given where things are going the next couple of days, I'm glad the heat's working. Toby Rice, president and CEO of EQT-75 in Miami. So we'll miss you guys down there. Toby, thank you. Enjoy. He's a Boston guy. He knows how that it's going to be. Coming up, we are awaiting the clerk to officially announce the results of the first roll call to elect a new speaker of the House. We've had at least three defections. So we'll bring you those details when we get them.

And before we go take a look at shares of Getty Images and Shutterstock. Both are publicly traded. They're the two providers of stock images and they're reportedly exploring a merger that has Getty shares of 29 percent and shutter stock almost 10 percent. We'll be right back. All right. Welcome back to process of voting for the Speaker of the House is underway right now. Let's get right back to Emily Wilkins in Washington with more and exactly where this vote stands. Emily. Hey, Brian, well, they were done with the first roll call vote. However, the vote has not gaveled down yet. So the first roll call vote is still technically ongoing. even though they've already called all the names, and everyone has voted.

The end of that vote saw that there were three Republicans who voted for someone other than Johnson. Thomas Massey, who wasn't just a surprise, he voted for Tom Ever. Keith South, he voted for Byron Donald, and then Ralph Norman voted for Jim Jordan. So interesting to see that none of those three were actually voting for the same member. There doesn't necessarily seem to be a concentrated effort to get someone else in. Meanwhile, you did see a number of other holdouts, including Chip Roy, Tim Burchett, go ahead and vote for Johnson. So the last thing we saw were keeping an eye on the House floor.

You saw Mike Johnson, a couple of his allies, and then Ralph Norman and Keith's self leave the House floor, go into a cloak room where they can probably continue this discussion. Now, technically, they could come out of there, and Ralph Norman and Keith's self could say, hey, we'd like to change our votes. We'd like to vote for Johnson, and Johnson would go ahead and lock it down.

You could also see them come out and ask for a motion to adjourn. Then there would need to be a vote on that. That could give Johnson some more time to figure out a path forward, or they could come out and head right into a second roll call vote. It'll be up kind of to Mike Johnson to figure out exactly which direction he wants to go in. But you did see a surge of support from Johnson just about an hour so ago. Johnson tweeted out a plan that was really meant to make sure that some of the fiscal hawks who were concerned about him were having their concerns heard and he was trying to address them. So he put forward a multi-point plan. This includes an independent working group made of folks who would want to cut government spending, and they'll be working with Doge as well as Congress to find places to cut.

He also said that that group would review the audits of numerous agencies, also looking to find areas to cut or areas to improve upon. And then he also said that he was going to be pressuring lawmakers and his committee chairs to aggressively review the agencies that they have oversight of. So putting that plan forward, getting a couple lawmakers who are on the fence to a yes. But at this point, we are still waiting to see exactly what the final outcome here is going to be. If we are going to be moving on to a second roll call vote or if there's going to be some successful arm twisting. We'll find out. Emily Wilkins in D.C. Let us know. Thank you. And ahead on the show, the Surgeon General issuing a new warning on alcoholic beverages. Stocks are moving. We'll get the details when Power Lunch returns.

All right, welcome back. I'm new on this show. So this is called a power check, Kelly. Are you ready? Check it out. Just check it out. All right. First up on the power check, JetBlue. The Fed's fining.

JetBlue, two million bucks for chronically delayed flights. This, Kelly, the first fine of its kind. As a frequent traveler, I'm sure you're plagued by these issues. Not on JetBlue. You're not a frequent. I fly an airline that rhymes with United. Okay. Or Helta.

Yeah. Got it. U.S. Steel is sliding lower. That's next on its deal with Nippon Steel as it takes another hit. The president blocking the takeover saying steel is a national security priority. Actually, they're off the lows. I mean, they're down about 5.5%. And after a monster 2024, a stock you flagged to us yesterday, Carvana, down again right now. It's losing steam. It's at about 8%. This follows allegations by a big shortseller on a report that said the stock is a mirage. They made a bunch of allegations.

I want to be clear, Carvana is denying or has denied many of these allegations, but still Carvana. Yeah, big fallout on day two. That report landed yesterday. And some other news in the autospace, GM and Ford reporting their best annual sales since 2019. And on the electric front, Rivian met its 2024 vehicle production targets after I had previously lowered those projections. So it met a lower bar. That said, Rivian shares are up 22% today. GM's fractionally higher Ford's up two and a half percent.

And finally, we call this a wolf for wolf. You're welcome. Wolf Research upgrading Pet Foods Company Chewy to an outperform, i.e. a buy from a peer perform. Because I guess you guys don't have pets, correct? Nope. I'd love to have one. Why don't you get one? Because you have to walk it.

Walk it? Yes. I don't want to walk it and clean up after it. I have two dogs. And I can assure you there's a lot of walking and a lot of cleaning. Chewy getting upgraded. Let's go back to Emily Wilkins in D.C. with more on the Speaker election or lack thereof, Emily. Hey, Kelly. Well, at this point, we have just seen two of the three members who voted against Johnson. Come back to the wall of their floor and change their votes for Johnson.

This means at this point, Johnson should have the number of votes that he needs to become Speaker on the first ballot. So a little bit of drama there, but it looks like he's locked it down. It doesn't seem like they have officially called it at this point. but it seems like with Thomas Massey will be the only Republican then who will not be voting for Johnson at this point. This, of course, opens up the way for them to vote on the rules package and then for them to get started on Monday certifying the election of Donald Trump. And then, of course, right on to a very ambitious Republican agenda that includes energy policy, border security policy, and an initial package. Also includes raising the debt limit. Also includes funding the government by March 14th.

And then, of course, that tax package. So they have a lot to do. But at this point, it seems like they have overcome their first initial hurdle of electing a speaker and that Johnson does have the necessary votes. Kelly? So wouldn't you love to know what happened in that cloakroom to get two of them to change their votes? And so now, Emily, is the gavel down? Is it official? I will be honest.

It doesn't look like the gavel is down at this part. I'm just watching a video feed and I'm still seeing members going ahead and mulling around. So it doesn't seem like there's any gavel yet. I will be honest, I'm not sure at this exact moment what they are waiting for. Normally the best policies when you have the votes to go ahead and call it. But we were watching the situation very closely. And again, at this point, we've math the math and it's looking good for Johnson. Incredible.

Again, markets hadn't moved a ton when it looked like he was going to lose this. And they're still rallying this afternoon on this somewhat surprising, maybe some anticipated it. Actually, we're moving towards session highs with this now out of the way. Dows up 370. Emily, thanks. Let's get a check on the bond market as well, the 10-year yield. We saw it backing up, putting some pressure on the stock complex the past couple of sessions. We also had that ISM report coming in a little better than expected.

We're creeping up a little 458. The manufacturing PMI was still below 50, so the seconder, yes, technically is still in contraction. And while today is the first Friday of the month, we don't get the jobs report until next week, so we await further catalysts. And further ahead on this fine show. More exclusive power lunch data, we are going to reveal. The top city. Top city out of 38 metro areas for the stock market in 2024. They're called the Power City Indexes.

They're back, baby. And we're back right after this. All right. Welcome back to Power Lunch. We've got markets rallying to session highs. The S&P 500 up 1.4%. And the news that we just brought you from D.C. is now official.

Mike Johnson, speaker from Louisiana, has enough votes to remain. Speaker of the House of Representatives. Join us out of talk about that. And more is Margie Patel. She is senior fund manager at Allspring Global Investments. Margie, don't worry. Listen, we know you're not a political person necessarily. You hear about talk about the markets.

But this news just breaking as a market person, is there any movement or fallout from this news out of D.C.? Well, I think it's positive. It shows that Republicans are more or less united to try to chip away at Trump's a very, very ambitious problem. for the economy. So that's a positive. Okay. So it's not like you're going to go out and change your strategy or buy this, but not that because of this news that it does look like for all its dysfunction,

there is a little function in the junction known as D.C. Yes. And I think the big thing actually is that in a more general sense, there's probably no likely increasing the corporate tax rate, which was a big increase before the election. That would have been a real market this year. I have a very simple question about bond yields. What the heck happened to bond yields? I mean, in September, we're looking at a 3.6% 10-year.

The Fed cut rates, they did the bazooka, half a percentage point. You know, they were talking up the economy and cutting rates. I found odd, but whatever, they're the Fed. All of a sudden, in the last 90 days, 60 days, bond yields have gone from 3.7, 3.8% to 4.6%. What did the vigilantes see? Well, I think they see that inflation is going to be a lot more stubborn than the Fed had hoped, and it isn't going to be as sensitive, and especially if the Fed is cutting rates. Also, the Fed has shown itself to be very, very sensitive to damaging the economy.

So I think it says basically the market thinks that the economy is very strong, so it likes it. And, two, it says that inflation is likely to be higher than certainly that 2%, maybe around 3%. So bonds are quite as attractive as they were, say, versus equities with that scenario. Well, how much is the stock market related to or, I guess, symbiotic to bond yields, meaning that if we get a four, seven, five, ten year or a three, seven, five, ten year, does NVIDIA fall 20% or go up 20% based on where that number is? Well, I think we've seen in the bond market over the last few years, and you can relate to this, that really the bond market has become more or less detached from the

equity market. And I think it's because so much activity is away from the balance sheets of the banks which the feds used to control in private equity, private debt. So that's why we're seeing these movements we can't explain. But basically, if the economy is going to grow two and a half percent or so and inflation is, you know, say 3%, really a bond yield of 4.5% is really not going to be an independent of economic growth. Certainly a company like InViti won't have anything to do with the growth rate or their PE if it's up up to 5%. We talk a lot about Nvidia, Margie, but Targa Resources is up 112% over the past year. That's a pick you're sticking with Curtis, right? You like broad. I mean, so you're basically identifying the areas where there are booms happening.

Yes, and I think you could say, well, the economy is only growing maybe a two and a half percent, maybe faster, but some areas of the market are growing much faster, and that's where we think we should be invested. Technology continues to be a winner. We think the whole energy space is very interesting, especially the gas-related names, and also industrial names tied to the faster growing sectors, data centers, power development, improving the grid, and aerospace, even autos, as you saw by the numbers today, looks like it might be pretty decent sectors. So we like specific sectors. All right. And we love the idea of kind of rebuilding the USA, something like that. Margie, thanks so much. Good to see you today. Margie Patel with Allspring. Let's get to Kate Rooney now for the CNBC News Update.

Hi, Kate. Hey there, Kelly. Israel and Hamas confirming a new round of ceasefire talks resumed today in Qatar, Hamas saying in a statement, it is serious about reaching a deal as quickly as possible. Meanwhile, the White House said today the Biden administration will, make a final push to help broker a possible deal that secures the release of Hamas held hostages in Gaza. Mexico's president, meanwhile, suggesting today her country would consider receiving non-Mexican migrants if the incoming Trump administration follows through on its promise of mass deportations.

Previously, Mexico had said it would push for the migrants to be returned directly to their country of origin. President Claudia Shinebound did not offer details, but she did say Mexico would, quote, collaborate through different mechanisms. And finally, Elon Musk's SpaceX announced today its powerful Starship would deploy mock satellites in its next test. It will mark Starship's first ever payload test. SpaceX said in a blog post that the 10 simulators will be similar in size and weight to the Starlink satellites. The Starship's seventh test flight is tentatively planned for later this month, Kelly. Back over to you.

All right, Keith. Thank you very much. Beer, wine, and spirits makers are lower after the first. The Surgeon General issued a stark warning about alcohol consumption and increased cancer risk. We'll get a live report on that next. Welcome back. A lot of the alcohol makers are lower today after the Surgeon General has called for warnings on alcoholic beverages regarding the cancer risks. Our Brandon Gomez covers the space for CNBC and he's here now with the details.

Brendan, what do you know? Yeah, an interesting way to kick off dry January. A new advisory specifically calling alcohol the third leading preventable cause of cancer in the U.S. behind obesity and tobacco. The Department of Health and Human Services saying alcohol increases risk of at least seven types of cancer, regardless of alcohol type, it's beer, wine, or spirits. The report also finds alcohol contributes to nearly 100,000 cancer cases and 20,000 cancer deaths each year in the U.S. So what does the Surgeon General want to do? Well, he's calling for reassessed consumption limits, advising public health professionals to

educate the general public. And most notably, he's calling for new labels on alcoholic beverages, warning of cancer risks. Picture those tobacco. labels. I reached out to the alcohol makers, both Anheuser-Busch and Brown Foreman, offering no comment, pointing me to trade organizations instead of spokesperson at the Beer Institute saying, we encourage adults of legal drinking age to make choices that best fit their personal circumstances. I spoke to an anti-tobacco nonprofit for how labeling played out there. He reminded me that Skodas actually refused to hear industry challenges to graphic cigarette warnings back in November. Those rolled out in 2020 during President Trump's first administration,

Kelly, it's clear for investors. This is going to be a Washington issue well before it's a Wall Street issue. So should we expect to actually see like a warning label on a wine bottle or a beer can? So it's a long road to that step, but that is essentially what the Surgeon General is asking for. Some graphic imaging, much like the Trump administration said, would have to go on labels at the top 50% of cigarette labels. Or anything that causes obesity. If obesity is the number one cause of cancer, then we should put a warning label on anything that has been linked. How about things with hydrogenated, you know, all these sugars and oils and all of these other problems?

And anecdotally, somebody said, should we put a warning on gum packages because it causes cavities, right? Like, how far are you actually willing to go with this is sort of the debate that I think is going to take place in D.C. Before, again, we see any sort of impact on these companies and products. And perhaps why we're seeing kind of a mild reaction across the side. Our reaction, but a mild one. Yeah. Brendan, thanks. Thanks.

Thanks. All right. We've got even more. Exclusive data. You'll only see right here on Power Lunch, the winner of our latest Power City. Index coming. All right, welcome back. You know what time it is?

It is time for more exclusive content right here on Power Lunch. And we have been tracking the biggest market cap companies in nearly 40 different city and metro areas for a decade. We called them the Power City Indexes. You've seen them on CNBC for years. And now that the year is over, we can show you who won the stock market for the year. Again, it's, you know, listen, they're not, they're equally weighted. There's no market cap weightings.

Take it easy. But in terms of what is the best median performance of any metro area, the honor Kelly goes to Austin, Texas. Austin, you go. It's 12 biggest companies had a median return of 47% last year, led by huge gains in your favorite company, Natera, Q2 holdings, flex, Oracle, Tesla, and more. In fact, the only one company based around Austin in that 12 biggest market cap, that fell, was Cup and Cooler Maker Yeti. They were down last year.

They're the best performer. Second place, by the way, on our Power City Indexes, Miami. Interesting. Miami. Summit Therapeutics, Royal Caribbean and Moore did well. And the Womp Award for the city that did the worst in the stock market last year

was actually our beloved Philadelphia. Oh, dear. It was actually negative on a median basis. I recognize a couple. I love Philly. Great people. better food than New York, but not a great stock market. There you go. Year for them. Let's trade them. Some of these names and three-stock lunch with our trades,

Boris Schlossberg, is managing director of FX Strategy at BK Ascent Management. He's a CNBC contributor. Boris, feel free to chime in with your favorite city. But we'll start with Tesla, which was one of Austin stars, up 62% last year, seventh positive year and eight. What do you think? Yeah, I agree with Sally. Federal chicken, Philly, best food there is. unfortunately, that last place. So Austin, Tesla, obviously, you know, people like Tesla as a stock, though, but I think at this point, it's really a question of whether that stock is grossly overvalued based upon the fact that you view it as a car company or whether you think it's just actually an AI transportation company. Now, if you view it that way, and Musk has this forecast of doing

two to four million robotaxies, it's a completely different ballgame, and I think that the stock goes higher. At this point, it's really hard to chase it in the 400s, but if you want to buy it, you could sell 350 puts in March for $20. So you have an enormous amount of premium and get a very good toll on the stock at that level. All right. Next name, we're going to go right by Austin to our second place performer, Miami, Royal Caribbean, one of the top names, second straight year of gains, RCL, big year. What do you see ahead, Boris? So this is a true tension between the growth to the business, which it's expected, right now it's doing 30 million cruise tourists, tourists across the world. It's expected to go to 40 million by 2027. And of course, World Caribbean prime beneficiary

of that. But it's also got five to one debt to equity ratio. It's got a massive debt service at this point and cash flow only for about nine months on hand. So in many ways, the better in Royal Caribbean is actually a better and lower rates. It's going to help it as much as a good growth business going forward. So if the 10 year goes down and employment stays, relatively steady. World Caribbean continues to be a great buy. But it's just you've got to be very careful at this point because they are very, very leveraged to the upside. All right. Let's pick a name from

Philly then. Let's do the worst performer, shall we? It was 5 below. The discount chain, the shares dropped 50 percent last year, which is its worst year back to its 2012 IPO. Surprising. I mean, maybe ahead of the tear. I don't know. The stocks went down a lot of the year. Boris, what do you do?

Yeah, you know, just like Rocky, you've got to believe in a comeback story. I mean, five below is hated. It's down 50 percent from last year. Everybody is really, really wary of it. Yet in the last quarter, they had a 15 percent increase in revenues and new management coming on board. If they can stabilize and just have incremental growth, there's a potential here for it to go to 125 from 100 currently. So I really like it as a speculative long buy. It's a great company. They just simply need to, you know, reorient themselves. I think they have a chance here to come back, just like Rocky.

Any other dinner recommendations in Philly? I forgot the Israeli place. It's super, super famous. But it's really, really good. Zahav. Thank you. Yeah, see Sully knows. She knows. But those are, we all love Phil. Look at me. You don't know about food. I love Sully knows the Israeli place. Zahav. It's fair. I'm not joie. I love Philadelphia. I travel constantly. Forrest, thank you. Thanks for watching. Power Lunch. Everybody, have a great weekend. Closing bell starts right now.