Power Lunch - S&P 500 strives for second winning day in tumultuous September 9/10/24

Episode Date: September 10, 2024

Stocks are mixed today as bank stocks are dragging the Dow lower while the other major averages are posting gains. Bank capital requirements came in much less strict than feared, but JPMorgan says expectations for net interest income are too high. We’ll hear from Bank of America CEO Brian Moynihan live in our hour. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Glad you could join us on this Tuesday. Stocks are mixed right now. The Dow falling, while the broader averages are slightly higher, bank stocks the big drag on the Dow. J.P. Morgan and Goldman Sachs costing the average more than 200 points between them. Bank capital requirements were less strict than feared, but this morning J.P. Morgan saying expectations for net interest income are too high. And that turned those stocks low. And that wasn't even CEO Diamond. It was Dan Pinto, but still, you can see a big reaction across the board there. Bank of America outperforming, though. While tech is getting a boost from Oracle, which is soaring to a new all-time high today, up a little less than 11 percent now. Company says strong AI demand boosted its earnings, more ammo for the camp, who says AI is real, tie, and will add to tech company profits.

I mean, I didn't know about you to double take when I saw these results come in last night. after Broadcom the week before, after Nvidia the week prior to that, both failing to deliver. Not really lighten it up. No, not in the least. Here comes out of the pack. Right. If it's a horse race, Oracle would be the seventh horse coming around the final turn.

And here it's done a very nice job. And just in time, because just as the narrative can kind of turn a little bit on, maybe we can still have that soft landing. Oh, if we could have some AI too, well, then that's a pretty nice setup. Again, stocks are some profit taking today, but this is bolstering things. Then, like, to your point, not only the seventh horse comes out and delivers on the AI front, then the bank comments come out of the blue and say, just as things are lining up, we're going to pull back a little bit on the profitability forecast.

On the profitability and probability forecasts. I guess the thing on the capital requirements was kind of a non-starter, but it's helpful, but not transformative. Overshadowed. Yeah, nevertheless. Well, Mr. Ellison can buy another yacht. That's nice. All right.

Speaking of the AI boost in big tech, D.A. Davidson out with a new note, saying that out of the mega cap names, Meta is the best positioned in the future of tech platforms, initiating the stock at a buy with a target price of about $600. I think it's in the 520 area right now. Joining us now is the analyst behind that called Gil Luria, senior software analyst with D.A. Davidson. Gil, what is Meta's edge and why are you so confident it can add $80 to its stock price? Yeah, so if we think about the Mag6 that we now cover,

all of these stocks. They're all going to benefit a lot from AI. Some of them are getting the credit for that. Microsoft and Vida are getting the credit for that. Apple's getting the credit for that. It's meta and Amazon that are not necessarily getting the credit for how well positioned they are. Specifically for meta, the next two big frontiers for compute are AI compute and spatial computing. And in both of those realms, meta has positioned itself best as the open platform provider. So if you think about PCs and mobile, we have closed provider, which is Apple, and then we have the open platform, which in PCs is Microsoft and in Mobile is Google. But if you think about where we're headed in terms of AI compute, Microsoft, Amazon, Google are all fighting for that closed platform for AI compute.

and only meta has positioned itself to be the leader in open platform. Same for spatial compute. Apple has positioned itself as the leader in the closed system with Vision Pro and where that's going to progress. And only meta is investing and investing heavily in being the open platform for spatial computing. So they're doing well now. They're not getting credit for it at 20 times earnings. And they're probably as well positioned as anybody.

for the next two big waves of compute. Forgive me for not knowing this, Gil, but I guess I need a little bit of a tutorial on what open versus closed compute means, specifically in the AI area. What is the distinction here and why have so many of the others gone to what you would describe, like Microsoft and so on and so forth,

have gone to what you described as the closed compute model? Just walk me through that a little bit and why it's so important. Yes, so if you remember, So Open AI was supposed to be an open compute platform for foundational models. They've gone the other way. They've closed the model and they and Microsoft really now control it and they control how the model works, what the weights are, and they sell that as an end product.

Google is keeping its Google Gemini as a closed platform and then Amazon is mostly aligned with Anthropic whose cloud model is also closed, meaning they know how it works. Only they know how it works, only they know what the weights are, only they can control that. Well, Meta's taken a different approach. The Lama model, you can see how it works. You can use it as you wish, and you can control the weights to make it work for you, as opposed to have to pay one of those closed source models to use the model. Gil, I also wonder how much of this is meta using AI effectively to optimize advertising,

which is what a lot of these businesses come down to. How important is that in kind of thinking about where the, the stock price could go. Incredibly important because, again, of the group of six, the two that are not getting credit are Meta and Google. They're both trading at less than market multiples. And the reality is that AI is already helping Meta's business. They have already gotten a lot better at delivering ads and getting higher yields using AI.

They are benefiting from that as a tailwind where on the other side, Google is going from 90% market share in search. to something less than that as AI gets incorporated. So of the two big mega caps that are not getting credit for AI, MET is actually already getting a tailwind. You just sent something very tantalizing, and that is that Google is its commanding position in search is under attack. How much smaller will their market share be do you think in five years?

I think that's the biggest debate on Google and it's an ongoing debate, but we know one thing, which is once you're 90% share in search, you can't go higher than that. There's only one way to go. And the other thing we know is that the Department of Justice has picked this particular time to come after Google search and its monopoly because they're saying as we transition from just search to search plus chat, AI Enhanced search, don't want. Google to have a monopoly. That's in what they're saying, and therefore, Google is going to have to fight uphill from now on. Thanks very much. And I said earlier that Facebook or meta was in the

520. It's like about 505. And your price target is 600. Gilles, thank you. That's significant upside. Maybe that's the eighth horse or whatever the analogy would be. Tech stocks have been struggling lately as concerns over the state of the economy grows. Our next guest says the market is broadening as profits growth does as well. He points out that more than 100, 150, S&P 500 companies, grew earnings 25% or more, and the Russell 2000 has outperformed the MAG 7 in the past two months. So is more broadening ahead? Let's bring in Rich Bernstein, CEO and Chief Investment Officer of Richard Bernstein Advisors. It's great to have you here, Rich.

What are your overall thoughts on what's happening in this market, a rotation? So, Kelly, great to be with you. Thank you for having me. I think, you know, Tyler mentioned before about he used the horse race analogy. And I think it's time to bet on the field, not even on the numbered horses, right? You should bet on the field here. Profits growth is broadening, as you pointed out. We've highlighted there's now over 150 companies growing earnings 25% or more.

The Russell 2000, the S&P Small Cap Index, are both outperforming the MAG 7 pretty handily in the last two to three months by 15 to 20 percentage points. That makes perfect sense, right? If the field is gaining on the leaders, maybe there is a bet to be made on the field. Maybe, okay, there's, so one of the questions, though, which I think people have, is that the Russell 2000s, depending on the time frame, still don't look all that great in terms of their returns. So maybe the last few months are an exception because the mag seven's down the way that it is. But spin this into year end. What do you think the picture looks like? Oh, I think, I think, Kelly, I think we're at the beginning of something here.

I don't think we're at the end of something. that this is a natural rotation that whenever profitability starts accelerating, which it is doing in the United States, counter to I think what most people believe, profitability is actually starting to accelerate. And historically, what happens is almost literally investors become comparative shoppers. They say if everything is going to grow, why should I pay a high price or growth? That's a very normal process that appears to be what's going on in that a broad range of cheaper, we could argue whether undervalue or not, cheaper assets are out.

performing the VE expense of MAG7. So let me go back to something you said at the start, and that is the idea here is to bet the field, not the horse, or certainly not the jockey. That sounds like you're saying go into an index fund or a sector ETF. Are you? And if so, which?

Right. Well, remember, we're ETF model managers, so almost everything we do, not everything, but almost everything we do involves ETFs. But I think the story here is, that most investors do not have adequate exposure to mid-cap and small-cap stocks, let alone that they would actually be overweight mid-cap and small-cap stocks. So, you know, from my perspective, you just want exposure to that asset class. If you want to get picky within that, well,

that's another story. But I think people are so under-exposed to mid-cap and small-cap, and for that matter, even emerging markets if you take out China. And that's been getting some attention as well, kind of people advocating for that. You say, Rich, the Fed is about to cut rates as profits, as the profit cycle is accelerating, which normally, obviously, they would be raising rates when that happens. But a lot of people would take issue with the idea that the profit cycle is accelerating. So can you speak to both parts of this? And how do you think it should inform what they end up doing next week? Should they be more conservative and go just a quarter or not go at all?

Well, Kelly, I thank you for asking my opinion about what the Fed should do. I can assure you that Jay Powell is not calling me up and asking me my opinion on these type of issue. But I think, look, the Fed is going to be somewhat out of step. I think we could argue about how much, but they're going to be somewhat out of step. And that's because profits, as profits accelerate, you tend to spur some additional employment, some additional spending in CAPEX. Again, we could argue how much. And with lower rates, you may actually start stimulating housing,

which, as we all know, is a very high multiplier industry. So, you know, this kind of being out of step is kind of an interesting phenomenon. doesn't happen very often. I think what's going to happen, my personal belief, is that that added liquidity will flow into more cyclical situations because that's where the profits growth is going to be. All right, maybe a double boost then for that area of the market. Rich, thanks. Rich Bernstein.

Appreciate it. He's getting ready for the Rangers season back there. I can see again. I'll see what they can get one step farther next time. All right, Rich, thank you. Coming up, another GOP spending plan, stymied, Mike Johnson's plan. to extend government funding. Unraveling after only a couple of hours is a shutdown around the corner with the election

around the corner. Pressure is mounting. We'll discuss this as well as tonight's presidential debate when we return. Welcome back. Former President Trump and Vice President Harris are set to face off in their first presidential, maybe the only presidential debate tonight we'll see. The stakes couldn't be higher as both candidates entered the home stretch of the campaign. And all of this comes as another government shutdown could loom at the end of the

the month here to weigh in on what to expect in the weeks ahead and tonight. Kim Wallace, is senior managing director and head of Washington Policy Research at 22V. Kim, it's great to check in with you again. Listen, we know the debate can literally end presidential campaign. So the significance is actually, I think, pretty, it sounds like many Americans are still tuning in. And the three and ten, according to one poll I saw, said it could influence the way they vote. I think that's right, Kelly. And it's, as you say, unlikely to be, as catastrophic for either candidate, although, you know, we don't make predictions in any races, certainly not this race. But it will reset, at least, the perceptions of some unaffiliated voters

and maybe members of the base. So, yes, tonight is a significant event for both. I would imagine that former President Trump will want to stress the advantages that show up in the polls, economic policy and leadership, while Vice President Harris likely will lean into her advantages that include democratic freedoms and broad ranges of social policy, including health care, from elder care all the way through to women's reproductive rights. And so, yes, each one will want to protect losing any support among their base and then reach out for unaffiliated voters to broaden their base. When you talk to clients about the big takeaways so far,

I mean, again, tonight is more about presentation in a way of persuasiveness, charisma, all of those things perhaps more so than policy. On the policy proposals, do you say, I mean, the polls that, the aggregated polls that I see tend to suggest Trump with more momentum in the last couple of weeks as these policy proposals have been unveiled. Do you think that's accurate? And what do you make of that? I see that trend in terms of a snapback from the tremendous momentum that the vice president enjoyed from July 22nd in the four or five weeks after that. Most of the data I see show a competitive race at the top. Most of those data are within the margin of error at the sub-presidential level in the House and the Senate, particularly in swing states. Harris has held on to some advantages she's gained in the last month in some key swing states.

And in the House in particular, election analysts are moving from the certain Republican category to either toss-up or, moreover, leaning toward Democrat in some of the states such as Florida, Nevada, Arizona, Georgia. So we would expect a very competitive race up and down the ticket with close margins, regardless of the balance of power after November 5th. Kim, I wonder why you think the Democrats and Kamala Harris in particular have had such a hard time making the case for economic performance under the Biden-Harris administration. Growth is higher than it was under the previous administration. Jobs have been added at a very high pace. Oil prices coming down.

Production of oil is at an all-time high. Inflation is falling from a high point. And there have been 38 stock market records so far this year. Why doesn't that message stick? Tyler, from your lips, they would say, to voters' ears. But I think it's a very straightforward reason. in incumbency. Americans are facing relative to any time in modern history, tougher prices on the household budget, and whether or not the Biden-Harris administration and the vice president

deserves blame for that is irrespective. Incompancy usually absorb disproportionate amount of blame on economic issues. It also presents an opportunity, I would think, as we close out the last two months for the Harris campaign to stress some of the points you made. Does it matter that Congress could end up not being on the campaign trail if there's a shutdown fight in the way in sort of the October weeks as the November election date approaches, given what you said about the way that fight is looking? It would matter immensely, I would think, which is one of the reasons we are highly certain there's not going to be a shutdown.

All right. All right, Kim. Thank you very much. Kim Wallace. We appreciate your time today. And still to come. Well, let's see what's still to come. Natural gas on the rise over the past month.

We'll take a look at the technical trade for that space when we return with our market navigating. Well, welcome back to Power Lunch. There's your look at the markets. The Dow, the only one of the three major indexes in the red off by about a half percent. S&P 500 marginally higher and the NASDAQ up 100 points or 6 tenths of 1%. Joining us for today's market navigator is Dom Chu. Hi, Dom. I'm good to have you here because you understand this stuff.

Well, so this is going to be an interesting trade. It's not stocks this time around. We're going to take a look at the end of summer because it's coming up, but a lot of folks are already looking ahead. And one technician is seeing several things coming together for the natural gas trade of all things as we head towards the cooler months of the year. A 75% decline from September of 2022 is what we're dealing with in context, as you can see here. Joining us now is Katie Stockton and the founding and managing partner of Fairleet Strategies. She's also a CNBC contributor. Thank you very much for joining us here. Katie, I guess what we want to talk about is what the trade is on natural gas.

I ask because it's been known in many parts of the financial circles as a widow maker type trade, very volatile and has the ability to shake a lot of people out. So why Nat gas and what's the trade? You know, it is a long-term downtrend and there is, of course, that risk. However, we see signs of basing in natural gas now for really a couple of months. So just this month, natural gas prices have seen their monthly MACD, which is a long-term momentum gauge, flipped to a so-called buy signal, and that's for the first time since the beginning of 2023. So for us, that feels like a meaningful shift in long-term momentum. So that's one case for it.

We've also seen short-term momentum improve enough to lift natural gas futures above their 50-day moving average. They're now testing their 200-day moving average. As you know, once you get through those key moving averages, it tends to catch more of a bit off of that. Once through resistance around 227, we would expect not gas to see follow through to secondary resistance, which is roughly 257. Okay, so if that's the trade, how tight would you make stops? It's not that we're asking you because you're a technician, we understand that. But as a trader, if you're looking at this, you target an upside that you've talked about. What kind of trading strategy would you use to limit your risk in that kind of a scenario?

The support level is around 190. So that's the catch, of course. That would be a lot of risk to take on for a position that's directly in natural gas futures. So we think that folks should use a percentage-based stop loss, whatever they're comfortable with in terms of their broader portfolio. We're looking at natural gas in part because equities don't feel like they're offering a great entry point at this time. So we're getting somewhat creative, looking for opportunities, some of which like NatGas are counter-trended nature. One way to express a view for natural gas is in UNG and ETF. And if you look at that chart, you'll see that UNG has continually seen relief rallies within its downtrend, right up to its downtrending 200-day moving average. There's about 23% upside right now to that 200-day moving average, and that's compelling to us combined with this improved momentum. All right. Katie Stockton with the trade on natural gas as we head towards those colder months. Thank you very much. We appreciate it. Of course. Amazing how much natural gas has come down over the past two years. There you see it.

And that's pandemic related. So a little about two years ago. And Ukraine. Yes, in August of 2022, just about a little over two years ago, we're talking about over $10 per million British thermal units. We're at $2.23 right now. just to give you an idea of what kind of a downtrend that Katie was talking about. But, you know, there's a seasonality aspect. And she says your low point would be about a 190 or something like that. Yeah, she was targeting that level. But again, this is crazy because it's often weather related, but it's not typically just easy just to say, hey, buy in the summertime and then sell in the wintertime. It's just not, it's been a tough road for a lot of Nat gas. All right.

Dom, thanks very much. You go. Come on, Choo. Kelly. Ahead on Power Lunch, J.P. Morgan, dragging the rest of the big banks lower. weak guidance shaking investors. After the break, we'll hear from Bank of America CEO Brian Moynihan directly. We'll be right back. Welcome back to Power Lodge. Today should have been a good day for the bank stocks. After those new capital requirements came out less strict than feared, but this morning we got some guidance from J.P. Morgan.

Investment banking fees are tracking below the streets forecast. The company saying expectations for net interest income in 2025 are also too high. That stock was down 7% at the lows, 5% now, but it could be the biggest decline in four years after that update. For more, let's send it over to Sarah Eisen, who's live at the Barclays Global Financial Services Conference in New York City, Sarah, with another major name in banking Bank of America's CEO, Brian Moynihan. Good to see you, Kelly. Thanks very much. And Brian, thank you for taking the time here at Barclays. It's great to be here. See you again. So Kelly was just running through some of the headlines that were moving bank stocks lower coming from this conference, where a lot of executives were warning investors that expectations were too high around the business.

What about you? Do you show those sentiments? Well, I think, you know, the questions of net interest income, we basically confirmed that we have $14 billion this quarter, and for the fourth quarter will be higher than that. And that's a trajectory. We set back at earnings, and we stayed with it from credit, credit's good in the company. So we were more confirmatory of prior guidance with two pieces that were kind of interesting. Our trading revenue is sort of, We think it'll be up low single digits. That's kind of counter to what we've heard. And the government's down 10%.

Yeah. In our investment bankie revenue, I think, will be softer because our mix of business in this quarter won't be strong. But Matthew Coder, our team, done a good job of pushing us up to third or fourth position of business. So we're fine with that. But we said $1.2 billion versus, which is basically flat to last year. So on the net interest income question, that's always been a question mark, this whole cycle.

And now that the outlook for interest rates has changed so much. How does that impact profitability going forward for you? Well, it's $14 billion plus a quarter, and it peaked at $14.8 billion, and it went down to $13.9 last quarter, and now it's coming back off of that. And so it's a major way we generate value. We take deposits, make loans, and then we have wealth management fees, and we have trading revenue and all kinds of stuff. But it's a big part of our revenue base.

We have $25 billion in a quarter, and 14 of its NII. And by the way, it flows through the profitability faster. because if you make more margin off the same deposits, it obviously benefits you. You're not doing any more work in that, so you get the earnings stability of the company. What are your expectations as far as rate cuts from here? So our team, Candace Browning Platner Research Team,

which are the best in the business, they now have three cuts in the fourth quarter, beginning in the September meeting in each meeting. And then they ultimately end up at a terminal rate or a terminal short-term rate or the end point, and a half, three and a quarter of three and a half. And so there's a big debate of whether it's three or four or two or four and you know, that's all I truly. The real question is somewhere over the next six, eight quarters, you'll get to the end point. And our team believes that that is three

and a quarter three and a half, which would mean it would fundamentally higher interest rate environment than anybody's been in the business really since 2006 and seven. So think of how long that is where the business has really not had that much of a real rate environment, a real nominal rate environment. And so that's the real thing to pay attention to, not necessarily which happens which quarter, but where we're going to end up and then how that affects the economy and borrowing and business after that. So you think we should get used to higher rates, ultimately, wherever this ends up? And what are the implications of that? Do you think the market's mispricing that? Well, if the economy is growing, understand those rates, that's actually a good thing,

because that's more normal environment. We can't have a low rate structure. It means that the economy isn't performing. You're not getting enough inflation. I was talking to into a former central banker, and he said, why are they trying to cut off inflation? It took us 15 years to try to get inflation back, and we finally get it back. So there's a debate. So as you move down towards the level of 2% to target, you have to slow down and make sure you stay above it, because you can't average 2% unless you're above it sometimes, because you know you're going to go below it. So a higher nominal rate with the right inflation tamed is actually a better place for a big economy like the U.S. to be than a very low rate structure. We learned that

less than 40 years in Japan. Jamie Diamond today warned that he's worried about stagnation. It sounds like you don't agree with that. No, our research team sort of says no stagflation issue right now. That was because they believe that the underlying economy grows at 2% as we move into the end of this year, bottoms out at 1.5 and kind of comes back to 2. That is all sort of trend growth rates. And they see that with the unemployment, 4.2, maybe it was up to 4.4, 4.5, and then kind of trends back down. And what we see as a consumer activity is consistent with a low growth, low inflation economy,

and has stabilized. And that was important because it came from a very fast growth rate in 23 first part versus 22. Slowed down as we came through 23 as we sort of normalized after COVID. And then the worry was it would keep slowing down and now stabilized about a 4%. Consumers not getting worse right now? Consumers not getting worse right now. They're very stable. Because Ally Financial this morning at this conference warned that auto and card delinquencies were worse than expected. We're seeing them come out where we thought they'd come out and they basically delinquencies. have gone back to where they were more or less than 19.

Chargeoffs are stabilized after that. And again, people forget that 19 was a very good credit year for our industry. It was like a 50-year credit low for chargeoffs in our company. To give you a sense, that's how good it was. So we're only back to around that in the consumer side. And consumers have the money in their accounts. They're spending wisely. They're employed.

They're getting paid more. Inflation's tough on certain income strata. Unemployment has kicked up a little bit. The job market's softer. this is why the Fed has to start to get more accommodative and not. The real drag on the economy, the real rate structure is 200 basis points plus, and they've got to start to normalize that. Right, but it doesn't sound like you're in the growth scare camp.

We don't see it. Literally, for the month of August, our consumers spent 4%, 4.5% more money than they spent in August of last year, with gas prices providing a benefit of 7% or 8% year over year. Labor market is softening, isn't it? Labor market softening. This is why the Fed has to start moving, because the labor market has softs.

Is it late, the Fed? We'll see. We'll see. This will be easier to tell after the fact. I worry that they could be late. The risk is much more to that side of it. So they do a double to catch up? Well, our team's still at 25 basis points.

And again, that's not the important thing. It's actually to start doing it instead of talking about it. And you saw a consumer dip as low as 3% year-over-year activity in our customer base. So even if you heard about all the travel, it was interesting because in prices have come down, the number of units spent, number of times people spent, under credit card and travel went up, but the dollar volume was actually flat as year. And so you're seeing price pressure come in to the providers bringing prices down to get more volume. And so I think the economy is normalizing.

And that level of spending is where it was in 17, 18, 19. When rates had come up, the economy's grown a couple percent, inflation was a couple percent. Not that bad. It's where it should be. And that we, our team's been very consistent. They took the recession off the table, you know, five, six quarters ago. Earlier most people, but our research team saw it. saying this thing's stabilizing. So the danger is they don't go they start

don't start cutting fast enough. They know it they're going to do it. They said they're going to do it. The question is now you have to be really tentive the day-to-day impacts of the economy. Speaking of the Fed, the vice chair bar for supervision came out this morning with the highly anticipated, reproposed rules for Basel 3 endgame. Are you satisfied with the new rules? One of the things I hope is that we, that in a great show you all have and all the things you talk about, you quit talking about banking regulation because this shouldn't be what people are talking about. You guys are talking about bankers. You complain a lot about it. We do because it's our job.

But the route is, so basically our industry is well capitalized. You heard multiple Fed chairs say that. Vice chair's supervision said that after the financial crisis, a set of rules, a set of capitalization got it there. The to do was to basically adopt the international capital standard called Basel 3. And so this was a big debate. And at first they showed us. us a set of proposals would have been on average a 20% increase in risk-weighted assets, i.e. capital. And now they're saying they're cutting that back to about a 9% based on vice chair Barr's comments. It feels a little bit that old phrase, we'll show them deaths and they'll take despair. In the end of day, we were well capital. You don't want any of it.

Well, the question is sort of why. And so at Bank of America, we have enough capital. Safeguard the financial system. Well, it's safe. We've gone through ups and downs and that to COVID and hyperinflation and slow down inflation and change in rate structure. It's never been seen before the failures of a couple sizable institutions, which just happens all the time. It's happened thousands of times over history. So, but when you think about Europe, the question is, this was a question of normalizing a capital treatment between us and Europe when we have a whole different basis with gold plating and stuff. So we'll see the rules. We'll see the proposal. We'll see if it how it plays out to our company. We don't know that yet because it's not even

published. And, you know, at the end of the day, we'll figure out what it means to us and the rest of the industry will figure out. But when you look at our, overall our industry is actually the envy of the world and just had you know mr. Draghi put out some papers about the need for Europe to get more productive and having a more vibrant capital markets it'd be more like the US it'd be more like the US and when you go over those banks have not been able to sort of recapitized and earn the money they could few of them have done a great job and they need to get that enthusiasm back in economy but it's not banking's technology it's a lot of

different things because their economy pre-financial crisis is relatively the same. Ours is almost 1.7 times bigger. And that's because we took on the task and got to the good things. But you know the political environment. You're sort of talking around it. That has a lot to do with what's happening here. I do wonder with Kamala Harris's chances increasing of winning or having increased at least since, you know, months ago, if you're more willing to accept and embrace these new regulations because it could get worse. So when people ask me about politics, I say our company, the oldest part started in 1784, and that election, 800 was a tough election, and we were around that. I'll trust you on that. The elections go back and forth,

and so our job is to run the company through all different environments. And so if you think about it, the new rules coming out at the end of Bush administration, the Obama administration, and Dodd-Frank and all that stuff. The industry adapts that. The question, though, is when do you want to get the balance right between capital requirements, liquidity requirements and everything and the real economy? Right. Because that was the warning on the previous rules. that it was going to hurt lending, it was going to hurt our economy, it was going to create all these unintended consequences. And they've made a big adjustment to try to balance that risk reward and risk cost and risk and the cost of the economy risk. And we'll take a look at it. We don't know what's in it. We have a speech. We'll see it as an industry.

And then we'll figure out what we'll go on. But, you know, the reality was it clearly the new proposal reduced it a lot. So the belief that they had the balance not correct. And by the way, that's the way the vice chair opened the speech. We've got to get the balance back. And here's material proposal changes to make that happen. Final question is about costs and you know you mentioned technology and innovation and how AI fits in right now for you and for that outlook and whether it is going to be a game changer for a company whose biggest cost is labor It it already is in a sense that if you look at people think of AI as discrete thing It's you know it's augmented intelligence is machine learning. It's digitization. It's customers doing stuff digitally So if you think about it very simply stated in 2010 I became CEO that management team took over and they've done a fantastic job. We had 285,000 people. We went up to

305,000 people. Today we have 212,000 people. The company's bigger, we do more stuff, we have a lot more customers doing a lot more transactions, whether it's in markets or banking or consumers or wealth-manager customers, and yet we've been a lot of it. That's all through the power of digitization. AI just gives you another level of competence in scale. Our example of that is Erica. So 22 million Bank of America customers, 200 million times a quarter, use Erica to answer questions. It's a virtual assistant powered by AI. And now we've taken that, and our employees use it.

There's Erica for employees, which a lot of the tasks that you might ask about, benefits, enrollment, all stuff, we have automated that it's answering the questions. And then you go to our thing called CashPro, which is our GPS, our global payment service business. Erica's integrated in that. And so 500,000 units, they're a lot less number of customers, but they use it. So we believe strongly it's a game changer. What is interesting is you listen to the big providers of software. they're embedding it in. So there's a discrete models, there's a large language models, but also, you know, Salesforce and companies like that, Microsoft are betting this in their basic

software, and that's what will change. Software will become AI enabled over time. And that means as a big purchaser of software, an integrator software, we'll be getting benefits all over a company. Well, it's a whole, like, hour-long discussion for another day, but it's interesting to hear your enthusiasm. And thank you so much, Brian, Brian, for taking the time here at Barclays. Thank you. On a lot of hot topics, especially today, Brian Moynihan. a CEO of Bank of America, Tyler, making me feel a little bit better, actually, about the economy for some of the growth scares that we've had lately in the markets. Absolutely.

Sarah, thank you very much. And to Mr. Moynihan, thank you as well. Let's go now to Bertha Coombs for a CNBC news update. Bertha. Tyler, the Israeli military says the six hostages found dead in Gaza nearly two weeks ago were executed by Hamas the night before Israeli forces reached the tunnel where they were being held. The discovery of their bodies late last month sparked large protests in Israel. Thousands marched in the streets to demand a ceasefire agreement that includes the return

of all remaining hostages in Gaza. The White House said today the hostage killings could complicate U.S.-backed efforts to secure a deal. There are no reports of injuries after a Delta plane clip the tail of another aircraft on a runway in Atlanta today. The FAA says just after, 10 this morning, the Delta plane bound for Japan struck an Endeavour Air Regional jet while taxying. The collision appeared to have knocked off the Endeavor plane's tail.

And small businesses are feeling less confident. The National Federation of Independent Business says its optimism index slipped in August after surging to its highest level in more than two years in July. The group says business owners are feeling more uncertain ahead of the November 11th. and expectations of weaker sales. Tyler? Thank you very much. And remember everybody, you can always hear us on our podcast. Follow and listen to Power Lunch wherever you go on CNBC podcasts. We'll be right back. Welcome back to Power Lunch. The Dow is down a third of a percent today following those cautious comments from JPMorgan, which are weighing on all the major financials. The S&P and NASDAQ are still positive, but it's not just the big banks, which are under some pressure today. check out Ally Financial, down 17% after the CFO and a presentation at the Barclos conference, Sarah was just out this morning, said borrowers are struggling to repay their loans.

And Tyler, just to read his direct comments, he said, you know, over the course of the quarter, credit challenges have intensified. Our borrowers are struggling with high inflation and cost of living and now more recently a weakening employment picture. To that point we're making about Harris campaign, what might hear in the debate tonight. That's a serious cut in price there, 17%. Yes. And it highlights this top-level issue. Bond yields, meanwhile, are slightly lower ahead of tomorrow's CPI report. July's reading, remember, showed that 2.9% increase from a year earlier.

We're looking to see if there's anything back in a three-handle or if we continue to drift lower. But bond yields are down significantly. Commodity prices are down significantly. And that will be the last major read on inflation before the Fed's meeting next week. And we will be in Washington together for that meeting next week on Wednesday. I should book that travel. Yeah, book that travel. I did mine yesterday.

All right, folks, boot barn is higher after the Western Ware dealer pre-announced strong same store sales growth for the second quarter. We're going to trade the boots in three-stock lunch next. Welcome back. Let's squeeze in a little three-stock lunch here with Victoria Green today. She's a CNBC contributor, CIO at G-squared private wealth. Victoria, welcome to you. And let's start with Bank of America, as we just heard from CEO Brian Moynihan. They raised their minimum wage today. What's your, and by the way, he commented on Buffett saying we didn't ask him why he's selling the position. We wouldn't do that. What would you do with the stock here? Well, I hate to do this after it was right on, but for me, Bank of America is a sell.

Look, I think they've already hit peak net interest income. They have struggled, really, to actually grow their loan and a portfolio. And so when you look at that and say, okay, net interest income's coming down, loans haven't grown as much. Not charge offs are coming up a little bit. Yes, he stuck a more optimistic tone, but maybe Buffett saw something. So I'm a little bit on Team Buffett here. It's a sell for me.

I think you could see it retesting 35s well off its high of 44. Well, let's move on to stock that's moving higher today. Oracle shares soaring new all-time highs beating expectations. Strong AI, one of the reasons demand forming a strategic cloud partnership with AWS. Your trade on Oracle, Victoria. Oracle for me is a buy. They are not your parents' Oracle anymore. They are absolutely the next-gen Oracle.

They're powering AI. They're talking about their data centers. They're building. They talked about the acres of NVIDIA GPU. Some of their data centers, you can literally fit eight Boeing 747s in there. They're that massive. Not only AWS, they're powering Microsoft. They're powering Google.

They're involved in everything. They have massive expansion and backlog. I look at this and I say this, trade is alive and well. Yes, it's expensive, but the growth story is there. I think they're going to continue to grow backlog, grow revenues, and it's exponential with cloud services now, their highest earning segment. It's a shift and a new paradigm and a new day at Oracle. All right.

Another stock that's jumping today is actually Boot Barn, surging to an all-time high. They announced preliminary same-store sales growth of 4%. in the second quarter, of course, Ben Axler of Spruce Point had a short position on the stock he discussed on the show a couple of months ago. What would you do with this name? For me, boots as a hold. I love this stock. Most analysts love this stock. I just think it's super expensive here. It's hard to jump in at this point, right? 160, 173. You had a couple upgrades today's from Jeffreys, and they are a great stock. They're just really expensive. So I think about the Brooks and Dunn song, Bootskookeetsk and Bootsky. That's what the stock is doing. You're just late in the game

if you don't have it. All right. Victoria, thanks so much for your time today. We appreciate it, Victoria Green. So are people drinking less alcohol? Constellation Brands recently announced it's going to write down the value of its wine and spirits business following several quarters of weak demand in the U.S. So is this trend a temporary decline or a more permanent problem? Joining us now to discuss is Nadine Sarwatt. She's director of American and European alcoholic beverages at Bernstein. Nadine, welcome. Good to have you with us. What's going on here? alcohol volume down almost 5% in 2023. Who's drinking less and what are they drinking less of?

Yeah, we probably have a lot of viewers at home reflecting on their own alcohol consumption at the moment. Well, basically what happened is that per capita alcohol consumption was down, like you said, almost 4% in 2023. And this really follows a stable period in America of alcohol consumption on a per capita basis, leading up until about 2019 in COVID, that has spiked. And then what we've seen recently is really a normalization off of that high when people were stuck at home with stimulus checks. And the real question that people are having is,

is this temporary and cyclical or is it structural? And when they ask the structural question, they're going to be talking about perhaps younger consumers drinking less. They're going to be asking about cannabis, and they're going to be asking about GLP ones. And so what do you think? Is it structural? or temporary and and flick in your thoughts about cannabis, GLP-1s, and younger drinkers?

Yeah, absolutely. That is the billion-dollar question, isn't it? Look, we think that the vast majority of the weakness that we have seen is temporary cyclical factors. The first half of that was very much normalization from COVID. That high basis of per capita alcohol consumption during those COVID years simply wasn't sustainable. and we are now coming back down to something that resembles more what we had for the past history.

But we're also seeing a weak consumer. You know, the theme of the last earning season for consumer staples was a challenged consumer. And alcohol, though, is lumped in with staples in many ways is also part discretionary. Beer is a standard part of shopping for many Americans, but there's almost no private label penetration, which reflects the fact that our brands mean a lot to us and we like to trade up. So those three factors, young Americans, there is some signs that 21 to 22-year-olds are drinking less. However, it doesn't look like this is permanent. Once those younger consumers enter full working adulthood, they're reverting back to those trends.

And remember, a lot of young Americans today came a phase during COVID, hardly a normal. Then when we look at cannabis, there are early signs if we look at Canada as a benchmark and also the U.S. or certain states have legalized recreational cannabis, where we have seen impacts to especially beer volumes with wine somewhere in the middle and spirits not seeing as much of a hit. Obviously, cannabis being a huge topic of conversation following former President Donald's Trump post on True Social this weekend,

saying that he supports a rescheduling. And finally, GLP1s, you know, there is evidence that GLP1 cuts your desire to consume alcohol. But the real question is about, concentration and the correlation between high alcohol drinkers and that target obese American when it comes to the standard use for GLP1s. And unlike if we were talking about full sugar soda, we find that the overlap there is pretty neutral. Yeah. No, and it's just interesting, Ty, because the larger societal question is whether young adults who are drinking less as they

start their careers would potentially be dealt some kind of setback or not be able to fully, you know, into Nadine's point, perhaps, that's not where we're seeing the real weaknesses, that it's more the younger ages they kind of catch up as they get into the workforce, so with historical trends. Nadine, where is cannabis competing with beer? I mean, I think sort of the occasions where one drinks versus the occasions where one takes a gummy are different. Well, I think you put it very well.

All of this is about occasions. Now, when you consider the preferred occasions for alcohol drinkers, two-thirds say that that's in a socializing occasion with friends and family. Cannabis tends to be more solo or intimate occasions in the home. So what we're seeing is it's those environments where perhaps beer is your after-work relaxation of choice or a glass of white wine. That's where it's cannibalizing. But I think your tailgate is safe. We have to leave it there. Nadine Sarwatt Bernstein.

Thank you very much. We appreciate your time today. And we appreciate your time. for watching Power Lime. Oil just settled at a three-year low, by the way. Closing bell starts right now.