Power Lunch - S&P 500 rises, but gains capped thanks to weak jobs data 6/4/25

Episode Date: June 4, 2025

The S&P 500 is slightly higher, but gains were kept in check after private sector hiring hit its lowest level in more than two years, raising concerns trade policy uncertainty could be weighing on the economy. We’ll tell you all you need to know. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch on this hump day alongside Kelly Evans. I'm Dominic Hsu. In for Brian Sullivan. Coming up on the show, Too Late Powell, the president criticizing the Fed share yet again. But with more disappointing data today ahead of Friday's key jobs report, is President Trump maybe correct? Is the Fed behind the curve? We're going to discuss. Plus, three big tech calls today, including a rare Apple downgrade. Those shares are down 4% since their earnings just last month. Remember, services revenue came in light, and CEO Tim Cook warned about tariff uncertainty. We're going to get the trades. But first, let's get a check on the markets with stocks higher again today.

And even though the gains have been relatively slight, the Dow was on pace for its fifth straight positive session. S&P NASDAQ higher NASDAQ leading the way again as well. And with today's move, the S&P is now less than 3% from its all-time highs. The 10-year yield, drifting lower. That might be bolstering stocks a bit. 435 lowest level in nearly a month after weaker than expected data on both private sector hiring and ISM services. In fact, let's get over to Rick Santelli at the CME for more on the significance of today's moves here on the bond market, Rick. Yeah, you know, the data was pretty much

weaker than expected, but let's start at the beginning. So we see ADP at 37,000 at 815 Eastern, lowest since March of 23. But as you look at that chart, you know, we've been down before we had a 42,000 read. So it's not as though that chart looks like it's falling apart, but there's definitely deterioration. Now, let's look at the second group of data points. We had service sector ISMs, and S&P Global was first, and they came in with 53.7, which was better than expectant second highest reading of the year. However, it was a split decision because the ISM, what you're looking at now, was the weakest going back to June of 24, under 15. at 49.9. So split on the service sector PMIs, weaker jobs. Well, let's look at what the market

said about it. Here's a 12-hour chart of two-year note yields. And boy, you can clearly see the two cliff drop-offs at 815 on the jobs and then again at top of the hour 10 as you see the weaker and expected ISM PMIs. Both of those are very clear. But we also had a much hotter than expected prices paid that was completely overlooked. And that's a good clue about what the Treasury market seems to be paying attention to. And you pointed it out, lower rates are maybe fueling the fire for a greener equity market, but at some point, those two have to reconcile each other. And finally, two-year and tenure, both on pace for the lowest yield close since the seventh of last month. Kelly, back to you. All right, Rick, thank you very much. Appreciate it. Rick

Santelli. Now, meantime, the big beautiful bill that's trying to make its way through the Senate this week is creating some rather odd bedfellows. Like the president who posted a tweet from Senator Elizabeth Warren on truth social about an hour ago, and in a rare occurrence saying a rare occurrence saying he agreed with her that the debt limit should be, quote, entirely scrapped and echoing her call to pass a bipartisan bill to get rid of it. It comes as the Congressional Budget Office crunched the latest numbers and found that this new package will add a little less to the national debt than previously thought about $2.4 trillion over the next. next 10 years. That compares with the previous estimate of nearly $4 trillion. Joining us to discuss that and to dig into what the recent data means for the Fed is Kathy Bousjansik. She's chief economist at nationwide mutual. Kathy, let's kind of take these one at a time. We showed earlier how the

president's criticism for the Fed to lower rates again. And does today's data point in that direction? Hi, Kelly. Happy to be with you. Well, I think we really, well, I think it's premature at this point. I think there's still a lot of uncertainty surrounding the economic data and how the tariffs will ultimately impact prices versus activity. Just as you highlighted the ISM survey, the bond market sort of overlooked the higher prices paid, but focused on the weakness. And I think Friday's payroll data really be the final arbiter on the labor market, well, at least for this month. What we've seen is ADP is not always a good indicator of payrolls month to month. Yes, the trend can tell us something. But we really need to see the BLS's count of total employment and look at the household survey as well.

Because it's surprising on the upside, we saw the Jolt's data for now that it's lagging. It was April. True. But it's how job openings actually increased. So we need a little more clarity here. Kathy, do you have any concern about the quality of the data, the journal? and I think a few other places have been reporting on this, that we saw these revisions,

and there were some questions about whether NOAA is fully staffed and all of that. Do you think, I mean, at a moment when we're parsing over every thousand payrolls one way or the other to figure out the Fed's next move, you have any concerns about that? Oh, absolutely. You know, concerns because the economic data

or the bedrock rate of financial markets and really analysis of the economy tells us where we're going. So we had seen survey response deteriorate. It's nothing new, but it seems to accelerate it. And now with some of the cuts to employment in these different agencies, it seems like it's becoming even more problematic fielding these surveys. So definitely a concern there on that front. Yeah, I want to ask you as well about the spending bill. So Elon Musk just tweeted as well, kind of reiterating his opposition

to it. He said a new spending bill should be drafted, a new one, he says, that doesn't massively grow the deficit and increase the debt ceiling by $5 trillion. How are you figuring this all into the fact that the debt ceiling does need to be raised by something like August, depending on the timing of payments? Yeah, I think we have to be careful not to conflate the two. The death ceiling limit is really a reflection of past debt and past spending, where, you know, with the budget, what they're debating now will really tell us about the deficit and debt going forward. So, you know, I think, I do think there's concerns about the big, beautiful bill. It certainly

does, even though the CBO numbers are more encouraging and did lower the deficit projection, the $2.4 trillion addition, as you indicate it, it still, we have a lot of debt and deficit, and it can be an issue at some point. I, you know, I think that we'll have to see how that plays out, but it's unsustainable, right? As Chairman Powell and others have said, a little long run, it seems unsustainable to keep having these types of spending increases and not having revenue keep up. But I don't know that we're at this point now. No one knows, right, if we're exactly at a crisis now. All right, Kathy, it's Tom. Just hold on one second because on the economic front, we've got breaking news. The Fed is releasing its Bejewbook. It just did so moments ago.

Our Megan Kisela is in D.C. and been digging through it. Megan, what can you tell us? Hey, Don, this was a beige book really centering on tariffs and uncertainty, which shouldn't be surprising. A few headlines to bring you guys here. The Fed says economic activity has declined slightly, they say, since the previous report. They say half of the districts reported slight to moderate declines in activity. They say all districts reported elevated levels of economic and policy uncertainty, and that that has led to hesitancy and a cautious approach to business and to household decisions. They also say manufacturing activity declined slightly overall.

And on balance, they say here, the outlook was, quote, slightly pessimistic and uncertain. They say that's unchanged relative to the previous report. A few districts said that their outlook deteriorated, while others said that it had improved. Now, on the jobs front, on employment, they called that little changed, said most districts described employment as flat since the last report, but that comments about uncertainty delaying hiring were widespread. On the inflation front, a little bit worse here. They said prices have increased at a moderate pace since the previous.

report and that there were widespread reports of contacts expecting their costs and prices to rise at a faster rate going forward. So overall here, guys, we did a quick search. We found 112 mentions of tariffs in this report, 69 mentions of uncertainty. So it gives you a sense of the theme there. On the prices, one other piece of Fed news today, the New York Fed was out with a survey this morning showing that three quarters of businesses surveyed passed at least some of the additional cost due to tariffs directly onto consumers. About a quarter of many of the new things, You can see on the left said they swallowed the cost. But then on the right side here, you can see a third of manufacturers and nearly half in the services sector,

past 100% of the cost onto consumers. So, Dom, we've been looking for data on this front. So far, it's just been anecdotal reports about prices increasing. But now you can see, at least in the survey data, that businesses have been following through. All right, Megan Casella, with the latest on the Fege, Begebook. Thank you very much for that. Kathy, I want to go back to you because, you know, we had chatted yesterday with Kathy Jones over at Charles Schwab about this idea. of the balance or tipping point between inflation concerns and maybe some of the growth concerns

out there, given what we just heard in the Fed-Bage book and that more cautious approach to business and everything that we're seeing from respondents, do you feel as though, I guess what's the tipping point when it comes to inflation and growth worries versus what we are seeing in terms of bond prices and the deficit concerns? Yeah, you know, that's really the critical question is in assessing all of those, right? So I think what we're going to see is the price increase. And we're going to see inflation. We haven't seen it yet, but it's coming.

And I think that makes the Fed hesitant, and rightfully so. They don't know the degree and they don't know if it's persistent. So they'll wait a bit. But then I think at some point, as you said, you get this tipping point. There's going to be overwhelming evidence that the economy is slowing materially. It doesn't necessarily mean we're going into recession, but slowing materially where the Fed is going to feel and assess that they need to come in and provide support.

And they'll do that by cutting interest rates. So our view is they wait until September. And then they actually have to go a little bigger than normal, like 50 basis points because they're a little behind the curve. And I think what we're going to see is some of the employment figures. That's what we're really expect to see that weakening. And if that plays out, that follows through to the consumer. And then overall, the economy slows.

All right. The lag effect into the second half of the year, I think is what a lot of economists are looking for right now. Kathy Bosjansik of Nationwide Mutual. Thank you very much. We'll see you soon. Thank you. All right, let's turn now to the technology trade. Chip stocks are hired at eight despite Commerce Secretary Howard Lutnik, saying in a hearing that the White House is renegotiating some, quote, overly generous Chips Act grants.

And while Nvidia has currently lost its crown as the world's most valuable company, it's a back and forth, right, with Microsoft. Microsoft's market cap is back on top. It's one of our next guest's best ideas. Maybe not a shock there. Here on set is Dryden Pence, the CIO of Pence Capital Management. Invidia, I got to say, is probably, it has been for years now, one of the most searched tickers on CNBC.com every single day for years now. But it's still a best idea for you. Why?

Absolutely. And we've had it since 2018 and continue to increase positions in it. Why? Because we're just at the early stages of the buildout of the infrastructure around AI. It's like we're just laying the track of the Transcontinental Railroad. Invidia is the absolute choke point to that. And if we're going to grow AI and what it's going to do for labor productivity and every company in the world, invidia is going to be a key part of that. And so we think that their chips are absolutely essential to growth. We think their chips are absolutely essential to increase labor productivity.

And we think that the demand signal for this is going to only get greater over time. So can investors just thematically invest in strictly artificial intelligence? because if there are, there are ETFs for that, they just buy a basket of stocks, or do you have to be more discerning and make a fundamental case as to why certain AI-oriented companies are better values or better risk-reward candidates

than, say, others? We look for the choke points. The companies that are absolutely dominant at a particular place in the supply chain, where they're the ones that have pricing power, they're the ones that are able to get excess earnings out of that. So they're out of this whole big theme. NVIDIA as a company occupies the choke point

in this. They get pricing power. They get excess earnings. That's going to deliver better stock price in most cases. So I think that this is where you want. You do want to be a little more discerning. You want to pick the guys that are absolutely essential in Occupy choke points. It's funny because we were just last hour talking about how the retail investors have been selling in VINVIDIA. We're talking about that with Robin Hood. At Robin Hood, yes. I said so if they're selling who's buying and now we know who's buying. Absolutely. Yeah. But your case for the long run is that this company will continue, I guess, to outperform the S&P, even though the past year it's been not so much.

You know, the issue is, is this theme is not going away. We're in the early stages of this. We're just building out the infrastructure. We haven't even gotten to where we're implementing it across the board. And so when you move to that, this is going to be something that's going to help our economy overall. Every company needs it. You take a look at KAPX spend of Microsoft. You take a look at KAPX spend of META.

They're continuing to buy what NVIDIA is selling. And NVIDIA is not having a discount anything, and they've got long black logs. All right, let's talk about the Magnificent 7. We know META was in the news yesterday signing this big nuclear power deal with Constellation Energy. Is the mega-cap technology comm services trade, the Mag 7 trade, just one you should just go with and let it just ride? You know, basically we're at the early stages of this. This is a generational opportunity to increase labor productivity in this country, and really worldwide. And so I think you're in this situation.

Anybody who's tied to that is going to have very long legs on their growth for a period of time. So, yes, this is the beginning of the next industrial age. And this is one of the key points to it. All right. Dryden. For those people who don't know, Dryden, his jacket liners have railroad cars on them. You can't see them right now, but just take it from me. You'll know.

All right. Dryden, Penn, CIO of Pence Capital Management. Thank you very much. We appreciate it, sir. Thank you. All right. Coming up, deal or no deal, President Trump calling it extremely hard to reach a trade agreement with China's President Xi as the tariff uncertainty drags on.

Our next guest says businesses better brace for the situation to get worse before it gets better, how he's telling his clients to prepare. Welcome back. President Trump expressing his frustrations over the trade war with China in the early hours of the morning and very early hours. Let's get over to Amon Javvers at the White House with the latest on those truth social posts and his lack of sleep, Amen. Yeah, Dom, the hour was very early. 2.17 a.m. Here's what the president posted on social media expressing some frustration here saying, I like President Xi of China, always have and always will, but he is, and then all caps, very tough and extremely hard to make a deal with. So the president here venting a little bit of frustration, you know, expressing some concern that the negotiations

may be not going as well as they'd expected. We're still waiting on word of whether or not there's going to be a call between Trump and she this week. The White House said earlier in the week, they did expect a call was very likely. You know, here we are Wednesday afternoon. Don't have a schedule for that call yet. So maybe that will happen at the end of this week. But clearly, the president expressing some frustration here. And take a look at where we are overall with these trade agreements with just 35 days until the 90-day tariff pause is up. The one set of deals that's been agreed to is with the United Kingdom. And then waiting on trade deals with all sorts of sorts of countries, Japan, China, potentially, EU, South Korea and on and on to see if any of those

deals can get over the finish line. The White House spokespeople, officials top to bottom here, have been suggesting that those deals are just around the corner, but no indication of when we might see signing ceremonies, world leaders here, that sort of thing. It's all sort of quiet here on the north line of the White House as we wait for any announcements to roll out of this trade team, guys. Back over to you. Ben, Eman, although things seem to be heating up on the Russia front, the president and the Russian president, apparently having this phone call in the last hour or so, Trump telling people that Putin basically indicated he'll have to respond to the Ukraine attacks.

Not a huge market reaction to that, but does brace you for what could be coming next? Yeah, absolutely. And I think the reason the market's not reacting that much to that truth social post that the president put out is that a Putin response to the Ukraine attack is, it has a, it has a has been sort of baked in and I'm sure the Ukrainians themselves expected it when they executed the attack. So that sort of has been the expectation. The president interestingly kind of posted that post about his call with Vladimir Putin on truth social, then deleted it and then now it seems to be back up on truth social. So if you go there now, you can see that post. It was taken down

for a while. The president saying that he had a good conversation with Vladimir Putin, but not enough to bring peace. He said they talked for over an hour in that conversation. I've been pushing White House officials on whether or not they discussed trade or China in that conversation, but folks here are not willing to go any farther than the readout that the president gave us on social media. All right. Amen, for now. Thanks.

Appreciate it. Amen Jabbers. Turning back to China, our next guest says the trade war won't be resolved anytime soon, and businesses should buckle up and prepare for worst-case scenarios. Dennis Unkavik is senior partner at Meyer Unkavik and Scott. He advises executives and government leaders all over the world and is author of the fragility of China. you're putting this concern back in people's minds. I'm sure they'd like to say,

maybe it's going away. We don't have to worry about it. Well, Kelly, I'm not sure it ever really disappeared. I think there's been a lot, I think, distracting us over the last 30 days. But the U.S.-China relationship is not going to get appreciably better in the short run. And I think there are a lot of reasons why. Okay. And talk about that. The Chinese have, I think, a secret weapon. By that, I mean, they have what are called rare earth minerals or rare earth elements. They're really not rare. They're around the world, but 80 to 90% of these things are used in all kinds of technologies. And the Chinese are the ones who are responsible for refining them. Although we as the U.S. under Biden and currently under Trump are

limiting the sale of chips around the world to Chinese entities, the real key is what goes into them. And the Chinese have not yet played this car, but at this point, they're slow walking licenses to get them out. And I think in the long run, this is what China is going to do to put pressure on the U.S. and Trump. Okay. So if you're a company who has to, maybe your supply chain, there's, you know, different levels of exposure here. There's many companies just trying to source product. There's a lot of them who are, you know, have more substantial business at stake. What's your advice to them? At the 30,000 foot level, I think you have to take companies at the sea level, the CEO and the board of directors to make this the number one priority that those companies do. There are a lot of companies

who have people doing their global supply chain work. They're good, they're hardworking, but this is a new world. So I think you have to seriously take a look at the fact of where are you in the supply chain. And finally, we talk returning to rare earth metals again. You may not, in your company, need rare earth metals for what you are doing, but you may have products that include them. And these are the kind of things that I think are very, very concerned. in the long run to companies. And unfortunately, I hate to say this, I don't think that a lot of CEOs and boards

have given this the proper attention that it deserves. Dennis, it's Dom. One of the things I've heard some more chatter and talk about amongst people I talk to is the second, third, fourth order derivative effects of what's happening right now in that China and US in a trade war is now spilling over into maybe this idea that countries around the world almost have to take sides

from a hegemonistic point of view, to either side with China or side with the U.S. What exactly does that mean for many of these companies around the world who are trying not just to navigate their own country's governments, but now also this kind of dual-sided kind of approach to what's happening with global trade? Dom, I think the world is moving toward a two-technology world. We have basically 70% of technology now is Western-based,

30-the-35% is Chinese. Xi Jinping has been pushing really since 2013, to develop Chinese technologies. Your question goes exactly to what I think the problem is. Eventually, a company is going to have to decide, do you want to sell your products to this part of the world or the other part of the world? That's why I see, in response to Kelly's earlier question,

that there's not going to be an immediate coming together of China in the United States, because I don't think China wants that. And President Trump's saying, you have to do this or else, won't play well with the Chinese. And, Dennis, finally, what happens with the rare earth magnets, we have automakers in the U.S. and Europe saying they're going to have to halt production or literally assemble the engines in China in order to get these permits that they can't otherwise

get access to. So that's a huge piece of leverage over some of these automakers. What's the U.S. going to do about it? Two things. We have some limited amounts of reserves. U.S. government holds them of earth metals. But I would think four or five months from now, exactly what you describe, Kelly, is the problem that these companies are going to face, which I think puts tremendous pressure on the Trump administration to come up with a response to what the Chinese are saying. And my view at this point is negative. All right. Dennis, for now, good to have you on. And we'll take it. We'll see how the companies take it from there, Dennis Unkovic, with Meyer, Unkavik and Scott. Thank you very much.

All right. Still ahead on the show, a nationwide crackdown on retail theft, a CNBC exclusive look at how law enforcement and major retailers are teaming up to target organized crime and criminals across the country. That story coming up. Welcome back. Retail theft has been surging nationwide. Now law enforcement agencies across the country are joining forces and what one state attorney's office is calling a first of its kind nationwide law enforcement blitz to curb the rise in retail theft. Illinois's Cook County, a regional organized crime task force led the effort between law enforcement, the National District Attorney's Association, retailers and the Retailers and the Retail Industry Leaders Association. And so far, 12 out of the 28 participating states

are reporting more than 400 arrests. Here's Courtney Reagan with the story. Retail theft crackdown along one of Chicago's premier shopping districts. CNBC had exclusive access in Chicago, Venture County, and Los Angeles as police arrested shoplifting suspect after suspect. Our cameras followed Commander Michael Ware in Chicago. I have at least two undercovers in each store with their loss prevention. As the loss prevention members are either one of my undercovers inside, observer subject, concealing items, and they pass the last point of sale. The coordination we have our storm members outside, ready to make the apprehension. 28 states and more than 30 retailers took part in the operation, including Walgreens, T.J. Max,

Macy's, and Target. When you give specific fall. focus to a crime, it reverberates. When they see it's being prosecuted, it's being taken seriously, it absolutely deters conduct. They don't want to get caught. Retailers reported a 93% increase in the average number of shoplifting incidents per year in 2023 versus 2019 and a 90% increase and dollar loss due to shoplifting. The problem in retail theft has decimated our retailers in Chicago and throughout the country. Back in 2024, our CNBC investigation showed in some cases The thieves are part of organized retail crime groups, stealing goods to sell for cash. The idea is, let's have one day where we focus and we concentrate on it.

We share what we learned about these organized crime networks. So then that gives us more tools to take the entire network down. Home Depot, which took part in the Blitz, told us, while overall theft is down, investigated incidents of organized retail crime are still up, double digits year over year. Alta Beauty said it coordinated teams across nine states for the space. Blitz. Other participating retailers re-reached out to, including Macy's T.J. Max, Walgreens, and Target said they're committed to partnering with law enforcement in pushing for stronger laws to combat retail crime. Kelly and Dom. And I remember Courtney and me that original story that you did

were tracking, the trucks, and there's layers of subterfusion. People in Dubai were involved. So is the law keeping up with what's happening in retail crime? So that's really tricky, and that's been a criticism from some people when it comes to how tough law enforcement local and otherwise are on retail crime suspects. Many of them are fairly sophisticated. They do this frankly for a living if it's an organized retail crime group. They know the laws and they know sort of the local state attorney's policy for what they will enforce. So as an example in Illinois where our cameras were on this nationwide investigation in just one of the locations, we spoke to that state attorney and she said, look, actually, in my predecessor, even though the

the Illinois law is a felony threshold of $300 and in a one prior conviction, she only went after them if it was $10,000, I'm sorry, $1,000 stolen and 10 convictions. And so that's kind of the trouble, right, is the enforcement. And obviously, police departments are just dealing with an awful lot of crimes. And they've got to figure out what's most important. All right. Courtney, appreciate it for following this story, bringing us up to speed on it. Courtney Reagan. All right, well, last hour, Kelly spoke with.

Needham's Laura Martin, making her case for downgrading Apple shares to a hold rating. So does our three-stock lunch trader feel the same way about Apple shares? We're going to find out after a quick break. Welcome back to Power Lunch. Time for today's three-stock lunch and here with our trades is Rebecca Walzer, the CEO of Walser wealth management. Rebecca, thanks for joining us. First up, we've got your trade as Apple. Needham analyst, Laura Martin, downgrading that name, saying the stock is overvalued amid growing AI competition. So Rebecca, Apple shares, do you agree with analyst Laura Martin for a stock that has been an underperformer this year? I absolutely do. And it's not really Apple's fault. It's all the tariff talk and all the fact that, you know, they have very heavily relied on supply chains to be in Asia.

And obviously this is a direct trade war between the United States and China. And it expires July 9. So it's really concerning to us that we haven't seen headway. Apple is going to have to make obviously major investments that are going to take long years for infrastructure. structure duplication, what they have in Asia, outside of Asia. You know that we know that Trump had exempted cell phones potentially. However, he's also directly said he wants the iPhone made in America. The price right now is really trading right in between. It's 52-week high and low, so it's not over or undervalued right now. And so right now it's just all analysts, universally consensus, it's going down until we get tariff policy resolution. All right. What about Netflix then, which is going the other way, to a fresh,

all-time high with UBS raising their price target to 1450. The stock is up 40% this year. It's doubled from a year ago. Do you like it? Do you own it here? Yeah. So this is a surprise a little bit to me, Kelly, because, you know, this is a very expensive stock right now.

Right now their PE ratio is 57. It's the highest in three years. Their forward P is only 48, but they're still pretty high. And now they're trading above their 52-week high, as you just said at 12-41, when the 52-week high was at 1235. So they are actually on the upside. The thing that concerns me is that we did get subscriber growth in Q4, $18 million for a total of 302 subscribers. But that ended, as you guys know, in Q1. And we no longer have subscriber growth. And so when they're talking about 27.7 percent, you know, year over year growth, I get concerned because we don't see, we don't get to see the data going into the subscribers. And so content is all about what it's going to drive it. And they already had their crackdown, their 2023 crackdown on past. which did see a bunch of subscriber growth. That's already happened. I actually do have some issues with the way they do their IP crackdown with IP addresses because I can't travel anymore

and use my Netflix for exactly that reason. So I think they have some glitches there. So I would say right now we are going to be a hold on this, potentially even a sell if we don't see that we can see the subscriber growth and see the actual growth that they're projecting in the next quarter. Interesting because a lot of that Netflix story has to do with this idea that through various channel checks, people say that that might be the last streaming service that they cut if they have to cut their budgets. So maybe that's part of the story. Let's talk about Snowflake, Rebecca. These shares are hitting another 52-week high earlier this day following another UBS call. UBS's upgrading shares to a buy in writing that the company is in the early stages of a multi-year

data investment cycle. Snowflake, Rebecca, do you agree with this team at UBS? Yeah, so I look at the actual technicals. And when you look at this, their price earning, their PE is 196.91. And if you look at the industry as a whole, it's 29.5, too. That's the industry kind of average. So they are extremely, extremely expensive. And to your point, Dominic, it's exactly because of this deal that they have coming. So yes, it could be a buy-in now because of the deal that they have,

but I'm going to just tell you it's an expensive stock. And if that deal doesn't materialize or it doesn't materialize to the extent necessary, then there is going to be a pullback and you're going to have some unhappy people. So I would just give this one a little bit more time before you actually execute because it is super expensive compared to the industry. I'm not saying that it doesn't have great architecture. It's on top of AWS or Azure and it has, you know, a singular point of it's definitely got a long runway. But right now it's really expensive. All right, big momentum story there.

Rebecca Walzer, Wallsert, Wallser, wealth management, the CEO there. Thank you very much. And remember, by the way, you can recap every single three-stock lunch that we show anytime you want. Just scan the QR code on your screen right there. Head over to CNBC.com slash pro. Subscribers get access to all these three stock lunches. Let's get to Julia Borson. Now for the CNBC News Update, Julia.

Kelly, the FBI arrested a Washington state man accused of assisting in the bombing last month of a California fertility clinic. Authorities say Daniel Park shipped large amounts of chemicals and conducted bomb-making experiments with the man who set off the explosion in Palm Springs. According to the FBI, the two men met an online. forums and were anti-natalists who bonded over a shared belief that people should not exist. Former White House press secretary for President Biden, Corrine Jean-Pierre, announced today she is leaving the Democratic Party and registering as an independent. She announced the move

in a press release for her upcoming book titled Independent, a look inside the broken White House outside the party lines. And the rock band Heart is offering a reward for anyone who could help them track down instruments stolen last week from an Atlanta. city venue. The band says someone took off with a custom-built guitar and vintage mandolin after they set up their gear a day before their show. They are now urging anyone with information on the instrument's whereabouts to come forward. Kelly, back over to you. All right, Julia, thanks. Coming up, Goldman upgrading this fast food chain to buy today, bullish on growth and improving technology. And it's positive on the year up 8%. That name and the other ones investors may also want to bite into.

Still ahead. Welcome back, Steel and aluminum tariffs are doubling now to 50% from 25%. It's helping the U.S. steel stocks this week. The ETF, the SLX is up about 4%. But some small businesses are feeling to pinch on the other side. Here's the chief brand officer of skincare product due. So we had a really successful month at Sephora, and we actually sold out of a few of our products.

And so we already ordered products that are now coming into the United States. We ordered those months ago. A 90-day pause doesn't really help businesses, because we do our ordering well in advance. And so ordering something now, I can't rush it to the United States. This isn't like Amazon Prime. And so it's unfortunately it doesn't help. What we are doing right now is very little

because the production timeline sometimes take longer than 90 days. For example, I put in a purchase order with the aluminum factory. They have to find place for me on their line because an aluminum tube might be made only on Tuesdays, right, in that certain size. So once they schedule me in, then you have to find a place. have to get it on a boat and there's all the approvals to make sure that the decoration looks nice, et cetera. We might be well past that pause and who knows what trade war we're going to get ourselves

into. Hiring freeze, yes, we have a couple of heads open but we were going to do more. That's gone and then we're already pulling back on what our marketing costs and our new product development pipeline looks like. And so that then what impacts factories. We're also doing less production lines, right? We're not doing the velocity of production that we were doing before. Welcome back to Power Lunch. Goldman Sachs is upgrading Yum brands. That was our mystery chart, by the way, from in that commercial break. It goes to a buy from a neutral. They're positive on its high franchise mix and international growth prospects. Yum shares are up about 8% so far on a year-to-day basis. But it's a mixed bag overall for restaurant stocks, more broadly speaking. Cheesecake Factory, a big winner, but then Chipotle and Shake Shack under some pressure. And then earlier this week, the Campbell CEO said that people are cooking at.

home more. In fact, at the highest levels since the start of the virus pandemic. But our next guest is bullish on the group overall. So joining us now is Sharon Zafia, the head of consumer research at William Blair. This is all an interesting conversation, Sharon, to juxtapose it next to Campbell's comments with regard to people eating at home more. So which restaurant brands can actually buck the trend and get people to go out more instead of eating at home more? Sure. I mean, I think, well, first of all, thanks for having me. I think, you know, restaurants is largely a market share battle, so it's always the haves and have-nots. You know, right now we're seeing great results from companies like Kava. Dutch Bros is doing a wonderful job. You mentioned Cheesecake Factory. So we're definitely seeing companies take share here. I think what's also very interesting is we're seeing, I guess what I would call a blurring of the lines between these different segments, between limited service and fast casual, between casual dining and fast casual. And that's created some interesting dynamics as we've gone throughout 2025 so far.

How exactly do you navigate the changing consumer trends in landscape? Because oftentimes they don't turn on a dime, but they do shift. I saw another report that said that some folks are upgrading from some of the fast, fast casual, say, like a Chipotle or a Jersey Mikes, but then down from, say, a Capitol Grill. So that's the sweet spot for, say, a Chili's or an Applebee's or an IHop. What exactly does your research show about where people are going? And what's the common theme among your three big names of Dutch bros, Portilloes, and Kava? Yeah, I think we're seeing the consumer trends are very confusing right now, to be quite blunt. But we're seeing dinner outperform lunch.

We're seeing, you know, suburban, outperform urban. We're definitely seeing, for the first time in a long time, casual dining, outperform limited service. Some of this is comparison related, but it is all very interesting in the context of this kind of dynamic consumer environment. we're in right now. You know, our tendency is to bet on the companies with a lot of TAM, a lot of growth prospects, companies like Kava, Dutch, Portillo's. It's not so much about what's happening in the June quarter. It's more about what happens over the next five to ten years. They're all companies with great growth prospects, increasingly proven geographic portability. Those are the companies that can compound from a stock perspective and really yield those

outsized returns regardless of what's happening, kind of in the near-term consumer environment. Yeah, and I don't want to pit you against the CEO of Campbell's, but you're saying you're not really seeing the same trends in your data that people are eating home in as large numbers as they were a few years ago. And I'm interested that dinner is outperforming lunch. Is that just because lunch is underperforming because of return to work? It's very confusing. So typically in a macro slowdown, you would see dinner underperform lunch. You would see casual dining underperform limited service. that is not what we're seeing. And, you know, I don't want to take on Campbell's by any means, but, you know, I think the first four months of this year, which is really what we have the data for,

has a lot of noise in it for the restaurant space. We had a very bad February from a weather standpoint. There were L.A. Wildfires. We had an Easter shift. All of those dynamics make it really hard to read restaurant trends. And people don't eat out twice as much the next day if they were snowed in the day before. So when you lose a sale, you lose a sale, and that's, you know, and we've had Liberation Day tariffs as well. So lots of noise. I tend to think the consumer is pretty resilient here. And in other times of economic duress, we've seen restaurants hold in very well as a group, but it hasn't always been for each individual concept within the group.

And this is curious, too, because say you have a kava, which is more of a, you know, you go out there, you eat at the restaurant, it's slightly more upscale than, say, a Chipotle. but, you know, it's still kind of downsizing from going to a capital grill. What about a company like, say, why Kava versus a Dine brands, right, which is Applebee's and IHOP? What's the differentiator there? Is it strictly a price point thing or a value proposition? I mean, I think what Kava's done really well is they have taken very little price.

So you have this menu that's very customizable. It is healthy. It's fresh. And they've only taken 15% of price total since 2019. That is way below CPI over the same timeframe, way below what others have taken. And so Kava is one of those concepts where you're seeing trade up. I mean, they talked about in their last quarter that one of their fastest growing demographics is their lowest income cohort. And so, again, we are seeing consumers vote for what they think of as value, but it isn't always the absolute price.

It's the whole package. Yeah. And as I understand it, Gen Z loves sit-down restaurants. They love chilies. What was the? Rainforest Cafe. What about sweet greens? That's like a, that's a more expensive salad.

They're going for like the old school, like, right, Sharon? Sweet green? No, just the kinds of restaurants that apparently younger people are flocking to these days. Yeah, I think, you know, the younger generation generally is kind of infatuated with things that happened kind of pre-cell phones or pre-smart phones, I should say. There's a lot of fascination with the 80s and 90s. There's fascination with these sit-down concepts. I mean, it is experience in general, the younger you are, the more your budget is towards experiential dynamics rather than goods.

I think all of that plays in. But I also think casual dining has gotten very smart on some price point-driven promotions. You mentioned Chili's that have proven to be very successful. And that started to blur the lines between, you know, the price barrier entry to casual dining versus where it had been historically. And it's more in that limited service realm now. Even I wonder. I think I have to find a planet Hollywood or a hard rock cafe going forward.

Sharon, thanks. Good to have you. Thank you. Thank you. Thank you. Thank you. Thank you. Zach Fia with William Blair.

If you ever miss an episode of Power Lunch, don't worry. You can catch the audio version anytime, anywhere on any platform you listen to. Just look for the Power Lunch podcast. Download. Give us a follow. And we'll be right back. Welcome back. So it could be a fifth straight day of gains for the market here.

Again, quietly, we've been sort of stacking these together. And the S&P is less than 3% from its all-time. I mean, if you look at also just the idea that we're approaching there, there are certain parts of the market that have been maybe stealthily, if you want to look at it, that was stealthily hot. And one of the things I've been watching is the aerospace and defense side of things. I mean, geopolitical concerns are always there. But the aerospace and ETF, the ticker ITA, the I-Share is one that you're seeing there. Record high today, a lot of it having to do with record high performances from the likes of Howmet Aerospace. Also, Axon, the maker of tasers, body cams, that sort of thing.

So an interesting one to watch here is whether or not we do see continued momentum for this particular part of the market, given the uncertainties that we're seeing around the world right now. Just a quick check on oil, of course, as I'm thinking through the implications of what could happen next in the Russia-Ukraine front, but not seeing a ton of movement there today. It's still trading lower, so it's going to take a lot more escalation, I think, to push that back into a bull market. There you go. All right. Thanks for watching Power Lunch. Closing Bell right now.