Power Lunch - Stocks Bounce Back, Inflation Blueprint: Materials 9/11/24

Episode Date: September 11, 2024

Stocks are seesawing, as traders weigh what the latest inflation data means for Fed policy toward rates. Tech shares are leading the rebound from session lows. We’ll track the market action for you. Plus, we’re kicking off a new series, breaking down how inflation has impacted each particular section of your home. We’ll start with a hard look at building materials. 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 alongside Kelly Evans. I'm Tyler Matheson, and stocks have made a big turnaround following that CPI report. It was, to me, a pretty good report, but the market, as it often does, became a big nitpicker here to me. We were down more than 500 points in immediate reaction, thinking 50s off the table and the economy can't handle that. But who thought 50 was ever the base case? Not many. Not many. Only about a one in three chance going into this morning, but now that's completely gone away. And the most interesting thing is not even the market's initial reaction, but the fact the S&P just went positive.

The NASDAQ had gone positive. The S&P is now positive. The Dow was down, we're 500 points off the lows. It's down 127. Down 127. Not so much there. So it's been a very interesting morning after the debate. Maybe we'll get to more on that.

I'll just state my opinion. I know that critics say Harris won. I don't think Trump supporters care what the critics think, number one. Number two, I thought Kamala's answer to question number one on the economy was a swing and a miss. Really? It was a swing and a miss. I'll get into that more. Oh, we'll have a lot more.

There are some stock movers to talk about today. Financials are actually one of the worst performers. Consumer staples and energy are down as well, and that's despite a rebound, interestingly enough, in oil prices. And check out the wild ride on the 10-year, a straight line up at 8.000. 8.30 when the data were released, then right back down, but now rising gradually once again, more on that as we talked, when we talked to Rick Centelli a little later at this hour. But we start with the big market moves following that CPI report that was basically in line with estimates. So why big market moves?

We're going to look into that. Major averages well off the lows of the day, but the Dow is still on pace for its fourth down day in the last five. Keith's Fitzgerald, his principal at the Fitzgerald group. Tom Porcelli is the chief U.S. economist at P.G.M. Fixed income. And Dom Chu is also with us. Let me begin with you, Dom, to sort of set the stage for the conversation we'll as Sue here with Keith and Tom. So the stage is exactly what Kelly had pointed out. There was the possibility. First of all, it was a 100% chance based upon the Fed Fund's futures, interest rate markets, that there was going to be a cut next week. The issue was whether or not it was going to be the quarter point cut or the full half point cut. And there's a whole debate about whether a half point cut was going to signal something worse about the economy.

What you got after the kind of mixed, although still generally positive, but mixed report from this morning. Slightly hotter than expected month-over-month inflation when you strip out the effects of food. Core inflation. Correct. Core inflation on a month-over-month basis came in one-tenth of a percentage point hotter than what consensus was. Knitpickers. Okay, so nitpicking. Knitpickers.

Fair enough. But real quickly, just think of it. If you do 0.2's annualized, that's 2.4. If you do 0.3, annualize it's 3.6. So it does kind of have a big delta. There is a cumulative effect. Correct. But again, when you're looking month over month

and extrapolating the year over year, it doesn't often go in that linear kind of approach. So what happened was those interest rate markets had priced in this kind of 65-35 odds of a 25 basis point versus a 50 basis point. A slightly hotter than expected read maybe means that the half point not justified. You can only really safely go a quarter point, and then you have to rework

your financial models to get valuations to where you think they're supposed to be. So, Tom, the economist, what was it in the core inflation that drove that number a tenth higher than people were expecting? Was it housing? Was it shelter? Yeah. So can I first say, though, that I think the door was virtually closed on a 50 after a Friday. Right? I mean, I think you need... After the jobs number. I mean, I think you really needed a weak jobs report to really usher in a 50. And obviously that didn't materialize. Well, it wasn't great.

Oh, you're appreciate it to the choir. I mean, I think that they're supposed to go 50. Really? Oh, yeah, definitely. I mean, I saw you. I love how you're like, they should definitely go 50, but there's no way they will. No, I mean, this is the whole, you know, idiom of what will they do versus what should they do.

And so I would love for them to go 50 because I do think there are cracks. I'd love for them to get to neutral much faster. But I think this is going to be a sort of a 25 basis point series of cuts until we get to neutral. out on the core inflation number. Because I think isn't the core minus food, minus energy, both of which were flattered down, right? Yes. And shelter. Yes.

Shelter would be in the core, but it would be out of the super core. So the core itself was reflecting that shelter component. It was reflecting the shelter component, which remains the stickiest part of inflation. Am I not correct? 100% right. And I think that will always remain. And by the way, it's almost always the case that shelter is sticky.

So I love that you mention Supercore Because I think it's an important idea I actually don't happen to like it Only Kelly would know about Supercore This side of the table would not know about Super Corps It's more when they start saying well, okay the core But then Chelsea have to By the time you take out enough things

Especially everyday Americans are feeling They sort of go I don't really care with the underlying Inflation trend at that point Listen again you're preaching to the choir on that I actually I don't like Supercore I think it's a disingenuous way of thinking about inflation Because you're effectively stripping out 50% of the weight of inflation

and that 50% is deflating, and that's part of the consumer wool basket. So I don't know why you would want to strip that out. The question is trend. So if we think that housing is divorced from the broader trend in the economy, I think that's the question after this morning. So here, to me, is the right way of thinking about inflation. Forget about super core. Because, again, I think it's a little bit disingenuous.

If you just take headline CPI and you take core CPI and you strip shelter out of both of those, that will give you your underlying sense for what's happening from inflation perspective. And when you look at that, guess where they're running at? 2.1? Yeah, it's 1.7% or 2. poor and it's under one it's under two point two percent for for headline ex shelter wow keith so to me that the inflation story i think for keith you've been nodding your head a lot go ahead what do you want to say i feel like a bottle head i love the nitpickers i love tom's take on this because

people are trying to overthink the unthinkable to me it comes down to the litmus test when you go to the store and you see people pull out their wallet do they have brand names or designer names are they filling up their car or they shopping for little bits, nits, and pieces. They're still doing the latter. So it's all about the wallet. So what do you think the market reaction will be if we get next week that 25% or 25 basis point or quarter point cut? Isn't it all already baked in? No, it's not actually, Tyler. And that's a very sharp question. You've got to go to Tom's point here. What should they do versus what are they going to do? My personal take is I think there's still an outside chance. Powell does nothing. Really? Because the data about which he's being vigilant

don't continue to perform the way he wants. So to me, I think the markets this morning's whipsaw action demonstrates that traders have not yet made up their mind. And when they got data they didn't like, they, to Dominic's point, had to rejigger, reconfigure all those financial models because the cost of carry of all the leverage they used didn't go the way they wanted. I would also put a point to to go on the shelter side of things because we do know for the CPI it is a very large component roughly a third of the entire CPI is just shelter there are already signs right now that in the coming months and quarters you will start to see downward pressure on some of those shelter costs and so it would be here by now right it would be here but even with interest rates declining there are

signs pointing to a almost disinflationary or deflationary pressure on shelter and housing costs if you go into the first half of 2025 into the third quarter of 2025 as well. On top of that, and we have to move along, but I will just layer, now look at what's happening with mortgage rates. So the 10 year has fallen, the mortgage rate is at about 6.1, 6.2. If that puts up a pressure back on home prices or I don't know if that would affect rents, does it continue to stymie that narrative? Tom, any...

Well, I do. I mean, I think you could actually take the other side of that. I mean, I think you can wonder if you do cut rates, does that actually allow inventory to to come back on the market. Yeah, and that actually brings it down. Keith, finish. Well, there's one other point that hasn't been discussed yet, which is if you sell your house or if you reconstruct your out, what do you replace it with? So one of the reasons I think that number is particularly sticky is because people are just sitting on what they've got no matter what it is.

Mm-hmm. Mm-hmm. Yeah, no, it's true. It's a big part of it. Shall we dive into some of the movers post-debate last night because that's another one of the phenomenon we're watching across the market today. It's not just all about CPI. In fact, we've been looking, we spoke briefly about some of the clean energy sectors, getting a bit of a fill-up. I don't know if that's the whole story.

There are people telling me they think the whole market weakness this morning was on increased odds of a Harris victory that gets people thinking about capital gain. I'm not talking about unrealized capital. I've told you actual capital gains taxes, rates going to 28 percent selling some of their winners like insurance year-to-date. So there's a lot of different cross-currents. I think there's a lot of them. And you can't put a single-factor model into putting any of these price moves. You have to put them in context because many of these, clean energy plays have been so beaten up over the course of the last several months that it could be

any kind of a relief rally. It could be shorts coming off and taking kind of profits and covering those bets and any number of things. But to your point, if you take a look at some of the hot spots out there, there's no doubt that within the S&P 500, it has been the big case here, clean energy type stocks. If you look at the upside, it's going to be end phase energy. It's going to be sun run, other solar energy plays. Alvimarle, which is a battery lithium play. are also one of the biggest moves higher. Meanwhile, you take a look at some other parts of the market. A direct corollary on what happened last night, arguably, is Trump-median technology shares,

which have taken a bigger hit. They're kind of off their lows of the session so far. But of Truth Social, which is, again, Trump-Media and technology, majority-owned by the former president, is starting to see incremental or relative downside moves. Down 13% today, yeah. Well, just the odds. When does his lock-up end on that soon? Yeah, it's got to be.

So again, yes, and it's not just that as well. It's also the prevailing narrative about whether or not, again, from a valuation standpoint, traders are just rejiggering some of those assumptions they go into modeling how much these companies are worth. And by the way, I will also throw out their Bitcoin and crypto prices overall. We do know that the former president, Donald Trump, has been an outspoken proponent of cryptocurrencies. And when there is, perhaps, again, a relative betting market's move lower and odds for the former president, it does take perhaps some of the shine off the cryptocurrency prices. So you're seeing some of that broad-based move.

Dollar selling off as well, September 19th, Tyler, by the way. September 19th is the end of the lockup. And it's a question as to how much, if any, he will sell. Because obviously if he sells a big slug of it, that's going to pull the... Downward pressure. Oh, sure. And a lot of supporters who put money in will there and then see that they've lost money. Keith, let me turn to you.

In light of the debate last night, do you do anything? different? Do you, as you sit there and you watch this and you go, oh, well, maybe I should lighten up here and put a little more there? Have you done anything, or is the debate not really a relevant marker for you? That's an interesting question. It's not really a relevant marker on anything other than a short-term basis, because what I'm looking for is, you know, if you imagine being Hirsta Walker and playing football, one of the reasons he was so successful is because he was able to spot openings in the defense and then plow through him. So I look at the debate. I look at other events that make headlines around politics. Do they create an opening that I'm interested in

and in sectors that I know are going to profit despite it all? And if so, then I'm going to spring into action. But today, not so much. It's the usual names that I'm hunting down today that I'm very attracted to because they have the long-term potential. This is just another opportunity. You got some Nvidia capital gains, if I'm not mistaken. 28 versus, what is it now? 20 minutes. It's currently 20%. Let's say you think on the margin she might pull it out after tonight. it goes to 28%. Would that make you think about selling it before your end? No, and here's why, you know, again, and this is financial heresy, but, you know, to me, if I have to pay taxes, even though I don't like doing so, it means I've had a good year. So I don't worry about that. What I'm focused on is the growth. Am I going to get it? Is the company on task, on focus, and on mission?

And if so, I'm going to continue to go with that. There are always tax mitigation strategies. You can manage that with a good accountant, a good tax professional. So not part of the buying process, but definitely something I think about when I get down the road, if I get. get down the road. Heresy, like you said. I like that financial heresy. Love that. Thank you all. Really appreciate your time today.

Tom Porcell. Little nitpickers here. And Domchie. Put geeks and nerds. Plenty of those. We got some breaking news on the Fed, in fact, not about rates. Let's bring him Steve Leasman with the headline. Kelly, thanks.

The Federal Reserve Inspector General out with the report on Atlanta Federal Reserve Bank President Rafael Bostic, getting back to 2022 when it came to disclosure about his trades and the IG finding that Bostic violated Federal Reserve rules, both the Federal Reserve Board and the Bank of Atlanta. Bostick violated rules on trading during the blackout period, financial disclosures, and prohibited holdings the IG found. There is no evidence, however, the IG said that Bostic used conflict of information to make these trades, and they did not find specific conflicts of interest.

They did verify Bostick's claim that he relied on third-party managed accounts. This came out in 2022 when these charges were originally made. He said he was not aware of what the third party was doing. The IG finding that Bostick was nevertheless responsible for ensuring the trades complied with the rules. Bostick, the IG said, created, quote, an appearance of acting on confidential information and a, quote, appearance of conflict of interest. The investigation is now closed, and they're referring this matter to the board for any further action. Tyler?

Just quickly, Steve, on this. So is he a current voting member? Would this affect anything about the composition, the vote, the makeup of the Fed for next week's decision or in the near term? I don't believe so. I'm just double-checking that. I should have checked that before we got on. I don't believe he's a voter this year. I could be wrong about that.

But it depends on what the board does is all I can tell you. I'm sorry. I'm not getting – I don't have that information in front of me. But it depends on. what the board does. So have there been historical correlates here and what's happened in those cases, which is a circular way of asking what's likely to happen to Boston? I don't know of another case like this, Tyler. They have been, and I believe there's still open investigations against Robert Kaplan. I'm not sure what happened with that. There was a similar issue with Eric Rosengren. I believe

that investigation was closed as well. But he had already left the board. I left the bank at that time. All righty. Steve, thank you very much for that breaking news. We appreciate it. And he is a voting member this year. He is a voting member. Yes. Interesting. Very interesting. He'll be at the center of all the activity next week.

All right, after the break, we're going to dive even deeper into that inflation data because why not? Looking specifically at how prices have changed for everything in your home, namely, and maybe most particularly building materials, lumber and more. Welcome back, everybody. Given how important inflation has been to the markets and consumers, we wanted to bring the data a bit closer to home. So over the next couple of days, we're going to zoom into each part of your home, breaking down how inflation has impacted each particular section and lay out the potential stocks to play or not. Today, we look at materials, stocks like Vulcan materials, Masco, Martin Marietta. Overall shelter prices are up 5% year-over-year.

Lumber, up nearly 4% in a month. However, those prices are actually down nearly 8% year-over-year. Here to discuss further as senior building products analyst at Jeffries-Philippe-Ain. Philip, welcome. Good to have you with us. Thanks for having me. Where are we seeing the largest increases in inflation as it impacts the home and home prices? Well, Tyler, I think what's interesting about this cycle is despite this locking effect on R&R and frankly, housing starts have been a little choppy.

Home prices have held up remarkably well. And frankly, most of the building material categories have been really firm. We've seen just some air pockets in lumber, some of the more commodity-centric categories. But as you kind of pointed out, some of the companies we cover, whether it's a masco, which makes some of these high-end showerheads like a Hans-Grow, M-O-N, Or some of the building mature guys, like a Volcan Marr and Summit, where they're levered towards the Agrits industry, cement, pricing's been really, really strong. Aggraits is probably one of the rare commodities

where prices are up effectively every year. And they're passing that inflation they're seeing through, and it's helpful for Agriott and cement that's tied to infrastructure. You've got this big infrastructure bill that's kind of coming through, and that's kind of helped enhance the pricing power of industry where it bears an entry are quite high to begin with. We mentioned Martin Marietta as one of the home-related, stocks, what is their niche? Sure. They're on the heavy material side. A good chunk of what they do

is aggregates, effectively rock, right? They have a small cement business. So it's the material that it's used to kind of build the foundation of a whole. Okay. But also for highways, bridges, so on the public infrastructure side, along with some of these megaprojects, you've probably talked about data centers, warehouses, so construction broadly. You know, Philip, as you're talking, I'm thinking a lot of these stocks that you like here have some nice upside. If I'm not mistaken, this is now the smallest sector of the entire S&P 500, an area that a lot of institutional investors probably have to be a little bit careful about taking big positions, but maybe for retail, it's an opportunity. Where do you see the biggest upside in the coming months?

Yes, I mean, we feel pretty good here. I mean, certainly we're going through a period of digestion because rates were quite heavy in that April-July period. So there's a lag effect. But when we kind of look out to 2025, we feel great because, one, the housing market's been massively underbuilt, right? So then we got a wave of young people that are going to be buying homes. And existing home sales are at a historical low. All these consumers that actually have a mortgage, call it two-thirds of the consumer, have mortgage rates that are below 5%. So not surprisingly, when you see rates come down, that's going to be a driver to improve affordability. So that could drum up construction activity on the new construction side.

companies that we like would be a top LBLDR. And in a recovery in R&R existing home sales, you know, Masca, Fortune, Mohawk all have good exposure to a recovery in R&R going forward. Lumber up nearly 4% in a month. Do you see that as an enduring phenomenon or not? You know, lumber has been under pressure, actually, the last year. But yes, if we see a recovery in new construction activity and a big part of lumber is DIY. So when you see, the existing home sales recover, that will be helpful. That's going to be a catalyst. From a timing perspective, that could be more of a 2025, mid-20205 event.

But I think the market's certainly starting to price in a right cut cycle and what that could mean for the residential complex broadly. All right, Philip, thanks for joining us today. Good to have you. Philipping. Take care. After the break, tracking the treasuries. While that inflation data was good news to Fed members, it might not be good news for T-note holders. We'll explore that in market navigate.

next. Welcome back to Power Lunch. The S&P 500 has now turned positive on the session while the NASDAQ is up 1.2%. Dow's slightly lower all of this after this morning CPI numbers suggesting the Fed might only go 25 next week. Dom Chu is back with more in today's market navigator. And that's exactly what we're going to head, given the inflation print and everything else. You mentioned the morning CPI data, throwing equities markets for a bit of a loop, although they're trying to recover right now. So today is tracking treasuries, and our trader wants to look at the price action there. He says that while the inflation data was good for the Fed overall, it's bad for some of the treasury note holders themselves. Joining us with why is Scott Nations, the president of nations indexes, indices, indexes. Scott, I wonder, this is one of those trades when it involves treasuries.

It's not just buying the outright bonds themselves as many retail investors would, but many retail investors and institutions use the futures market to take a view on this. What's the trade given the CPI print today? Right, Dom. The trade is to sell the December 10-year Treasury Futures at 115-16. We're a little bit below that right now, but we were above that level earlier today. Target to the downside, once we're in the trade, in short, is 1124. That would be halfway back from the April low to the recent. and high, we're always going to trade these with a stop, Dom, and my stop would be 116 even,

although I'm going to lower that stop once we're in the trade and it's continuing to work. But at those levels that I mentioned, we'd be risking $500 to make $3,750. And as you pointed out, CPI today now puts the Fed in no man's land to a certain degree. It certainly seems that Chairman Powell, three weeks ago, wanted to cut by 50 basis points. The market now doesn't think that's possible. A week ago, the odds of a 50 basis point rate cut were about 50%, nearly 50%. Yesterday, they were 34%. Today, they're just 15, 15% likelihood that the Fed's going to be able to cut by or will cut

by 50 basis points. This is generally good. It means that the Fed's going to do something which is nearly impossible. They're going to stick a soft landing, but it's not good. If you own fixed income, you're going to have to come to grips with the fact that you're only going to get 25 basis points rather than 50. And that's one reason I want to be short. Another, and I'm not the world's biggest fan of technical indicators. But if we do close lower on the day in these 10-year futures, then that's going to be a key reversal to the downside.

And that's never good for price action. Scott, if I can ask a question here, what are you implying by all of this, the direction of the direction of, yields for the 10 years going to be? I think it's going to have to be higher because so many people had piled into the concept that yields were going to come down precipitously. That is, the Fed was going to cut by 50 basis points. And that made a lot of sense. I mean, Chairman Powell sounded very, very dovish a few weeks ago. And that's the market has just come to the conclusion that they're not going to be able to cut by 50 basis points. They're going to cut by 25. But the interesting thing here is that the 10-year treasury futures have not really responded to that new reality.

All right. Scott Nations at Nations Indexes, thank you very much for the Treasury trade there. Kelly, I would point out, there are those traders and even longer-term investors who look towards that futures price for treasuries as a possible indicator for what the macro economy will look like, especially if you're trading 10-year note futures. So right now, you don't know whether or not it's an indication of perhaps maybe better than expected growth, higher than expected inflation. Right. What exactly is the mix that goes into the price that you're seeing right now? Could be the good kind, could be the bad kind of yield backup, so to speak. And again, I think about what we talked about with Steve Leasman last hour, there's still this huge gap between shorter term yields, the two-year and where the Fed funds is and where it's expected to be. So this has to get rectified one way or the other. There's these gaps in the market that don't quite make sense.

But they're taking views for sure. So somebody's going to end up on a winning side of this. Exactly. All right, Dom, thanks. Tyler. All righty, coming up, Cal, top key CEOs weighing in on the markets and the economy. CNBC today. We will break down their comments and the trade in stocks next. Welcome back to Power Lunch. It's time for today's three-stock lunch, and we're looking at three names making moves with their CEOs speaking today on current business conditions. Got to start with the financials after what we heard yesterday to the downside and with Bank of America giving a more upbeat tone. Well, today we heard from Goldman Sachs. The CEO David Solomon joining CNBC earlier today, and here's what he said about the consumer.

Generally speaking, relatively benign, consumers still healthy, particularly so in services businesses. There were some pockets of softness. I think in particular, when you look at consumers that are in the lower part of the economic strata, because of the inflation and the cumulative increase in prices, they're feeling a little bit more pressure, and you're seeing that in some places. But generally speaking, I found the CEO, CFO set at this consumer retail conference It's quite constructive.

All right. Here's with our trades. Does that make Goldman a buy? Let's ask CEO David Traynor. David, welcome to you. And would you, what do you think about the stock here? Hi, Kelly. Yeah, Goldman Sachs is one of our favorite financials.

Has been for a long time. Like, having been in Wall Street myself, Goldman was sort of always sort of the top of the pecking order. And their returns on capital, the return on equity, their profits have reflected that. And we continue to be constructive on this stock. We think it makes a lot of money, huge cash flow, and it's still relatively cheap. Well, let's move on to another one that has huge cash flow, makes a lot of money,

and may or may not be relatively cheap. That would be Nvidia. It's CEO Jensen Wong weighing in on the strong demand and supply shortage for NVIDIA's latest generation of chips, saying the scramble for his company's products has frustrated customers and raised tensions. Demand is so great that delivery of our components and our time. technology and our infrastructure and software is really emotional for people because it directly affects their revenues, it directly affects their competitiveness.

And so we probably have more emotional customers today than, and deservedly so. And, you know, if we could fulfill everybody's needs, then the emotion would go away. But it's very emotional. It's really tense. We've got a lot of responsibility in our shoulder, and we're trying to do the best we can. So that sounds like a question, an observation that demand is outstripping their ability to supply. Is that a problem or an opportunity? I think it's a little bit of both.

I mean, there's an enormous amount of capital being allocated into the AI and the semiconductor space for this reason. And look, Nvidia is a great company. High returns on capital. I mean, like 10 times, but even Goldman Saches is. I think Nvidia is around 195%. but the expectations baked in the stock price have more than that baked in. When we run the numbers in our reverse discount of cash flow model, we just did a big case study on NVIDIA because it's a poster child for good company, bad stock.

The stock price implies that the profit's going to be something like 10 times bigger than Apple and Microsoft combined today. And the revenues will be bigger than the GDP of the UK. So, you know, we're talking about a stock that has all that good news priced into it. This is not new news. I mean, NVIDIA has become a very crowded and popular trade. I don't think investors should be surprised to think that, oh, maybe all the good news is priced in. And as a result, we called the top in the stock a couple weeks ago. And so far, that's turned out to be a really good call. We think on the margin, this stock has got a lot more downside risk. All right. So that's a sell. Yes. All right. It's almost a short, but I don't know if you

would dare with the name like NVIDIA. Let's move along to Toll Brothers, David, which is on the decline today, actually, even with what's happened with this drop in mortgage rates. CEO Doug Yearly was weighing in on that and the impact it will have on housing affordability. The builders have done so well with high rates, which no one thought they do. We've been sitting on seven to eight percent rates now for the last two years. And finally, they're in the low sixes with a feeling that they're going to get lower. And that's when the builders sell more houses because the affordability, you know, all changes. I wonder if that takes away their competitive edge, though, David.

I mean, they've been doing buy downs. They've been able to be more competitive and, you know, kind of entice the buyer in a way that the existing inventory could not. Maybe their competition heats up now. What would you do with the stock? We like the stock. This is a buy-rated stock. And we've been really constructive on a bunch of home builders for a while. D.R. Horton's been one of our top focus list performers for a long time in VR is one.

I think Kelly and I, you and I talked about that one a long time ago. And, you know, look, the supply demand outlook for these businesses is really strong. There's too little supply, and we need to build more homes. And the best builders, the really profitable companies, we think, are continued to be in a position to see continued profit growth. And their stocks are priced as if there will be no profit growth. Like, for example, with Toll Brothers, you're getting a free option on growth. The current stock price implies, right, the opposite kind of at NVIDIA. With NVIDIA, stock price implies all this huge amount of growth.

Toll Brothers implies zero profit growth from current levels. So we like the fact that it's profitable. It's seen great profit growth, yet the valuation implies there will be no profit growth. So that's good risk reward for us. We like that in this environment. And it's really getting increasingly difficult to find stocks we like in this good environment. And Tyler always gives me a hard time because it's always sell, sell, sell. We did two out of three today and we're glad that Toll Brothers make the least.

All right. I don't know if that's some sort of contrarious. No, I'm kidding, in and of itself. David, thank you for your time. David Traynor. Let's get over to Bertha. Kuhm's now. CNBC News Update.

Bertha. Tyler, Michigan's Attorney General has closed her office's probe into former Michigan State Dr. Larry Nassar's sex abuse scandal. Michigan State's Board of Trustees released some 6,000 pages of documents related to its own investigation into Nassar last December. But the AG said today that she found no fulfilling answers

as to how his abuse was able to go on for so long. Cleveland Brown's quarterback Deshaun Watson issued a response today to a lawsuit accusing him of sexual assault. His attorney says Watson, quote, strongly denies the allegations and will not comment while the matter works its way through the courts. The NFL said yesterday it is reviewing the claims that Watson forced himself on a woman. Watson was previously suspended 11 games by the league in 2022 over separate accusations of sexual assault during massage therapy sessions. And a spacecraft carrying an American astronaut and two Russian cosmonauts took off from Kazakhstan today, heading to the International Space Station. They will spend six months aboard the ISS. The capsule is expected to dock within the hour.

the hour. You know, and Tyler, I just can't help thinking, are they bringing some extra supplies for those other two astronauts that are struck there and they might be there until next year and they were only supposed to be there for 11 days? And can that capsule shuttle some of those people? Could it possibly shuttle some of those people back? Who knows it? Anyhow, Bertha, thank you very much. All right, let's talk about the Dow. It has turned positive votes after spending the more, much of the more, was it, 500 points? More. More than that. Earlier, stocks bounced back from the post-CPI sell-off. We'll follow that story and more when Power Lunch returns in two minutes. Welcome back to Power Lunch, everybody.

Check out the markets right now because the Dow is positive, up 38 points. It had been down, believe it or not, 743 points back below 40,000 earlier in the session, is invested worried, worried whether the CPI would keep the Fed from cutting aggressively next week. that CPI number, the core, a little, little bit higher than expected. American Express helping to lead the Dow's comeback, the company CEFO, speaking at a conference this morning, saying that consumer continues to be stable, even in this slow growth environment. That's reassuring. The shares are up 3%. And the NASDAQ is turning higher this afternoon.

It was the first to go positive on the day. It's now up 1.5%. And leading the way are the old familiar leadership this year. Chip stocks, nice gains for Arm, Super Micro and Invidia. Nvidia up 6% arm up 8 and take a look at the wild swings we saw in the 10 year today. We'll get more on the bond market reaction to the CPI and the Treasury auction from Rick Santelli in just a moment. 366 is the latest read there. And remember to grab that podcast on any platform you listen to.

Don't miss a show or a moment. We'll be back right after this. Welcome back to Power Lunch. Some big moves in the bond market. After the CPI this morning, we had the 10-year auction. And Rick, we focus a lot on the 10-year and, mortgage rates are moving, but the two-year is also getting a lot of attention lately as well. Oh, absolutely. The yield curve is wiggling around. Maybe it actually inverts again. And when you look at

how much movement we've had, well, let's talk to the expert here. This is Pattiya, Aschakabatia, and he is with Newberger Berman. And you saw the numbers this morning. What were your thoughts? Well, I think two big things. One is inflation is still coming down, but at a slower pace. And so I think one implication of this is, you know, the Fed's less likely to go 50, and you're seeing that in some of the movement in two-year yields today. The second thing, though, I think that's related to it is it is still setting up the Fed for the beginning of an easing campaign. I mean, the number was a little higher than expected. But some of the internals about housing prices and what really drove it, I think we'll still give the Fed comfort that it's time to begin the easing cycle.

is that they were looking for comfort nine months, ten months ago. But inflation, as we saw on the chart for year-over-year core, is basically going sideways right around the 3% level. And once again, we've made a huge amount of progress. Target 2%. When we were below target, when we were at ZERP, zero interest rate policy, there was no tightening. Now that we're above it, half point, three-quarters of point,

it's like we're kind of looking through it. Is that wise? Is there a credibility issue here? I think the Fed's okay, but it is a great point. The big fall in inflation that we've had so far, that's over, right? We're at 3.2. We'd probably be around 2.9 at year and probably low 2's next year. The next under basis points of inflation, it's going to be harder to get out of the system.

And I think that speaks to why the Fed is going to have to calibrate the easing a little bit. Now, today is a very important day. We got to see a glimpse of a market movement after CPI, posted debate last night where politics getting bigger. What happened? Rate, spite the market, dropped. like a rock. Then you had the 10-year auction and stocks started to come back and rates reversed. Now you have rates higher and you have stocks. Dow just turned green. Explain all of that volatility.

Well, I think you got, you know, you reference the election and the election is starting to creep into prices and it's only going to creep in more. You know, we hear about some of the tax policies, some of the spending policies. These debates are only going to go up for the bond market and I think it is a component of the volatility we're seeing. The other issue though is we are getting closer. We've got got a Fed meeting coming up, and we're going to reach a decision point about what they do and how much they go. The bond market's pretty fully priced, you know, as we were talking about before we started, Fed's priced for 100 basis points of easing, it's priced to get all the way down to 280.

There's a lot in the bond market already. No, and as I always debate everybody, the market's always right in the moment, okay? You could write a check based on the prices right now, but it doesn't mean in three months or two months or six months that what we're looking at in market predictability is going to be accurate. Yeah, and I think, you know, there's a big decision point coming about fiscal policy. And, you know, one of our views is keep an eye out. Fiscal policy is going to change one way or the other over the next 12 months. And what path we take, it's going to have an impact on what the Fed does, rates, and growth.

Yeah, no, we're making a lot of promises that things we're going to do. I don't know where we're going to get the money, but I totally agree with you. Tyler, back to you. Ashok. Thank you much. Thank you. Gentlemen, thank you very much. Rick, thank you. Still ahead, the Apple of his eye. One of the very first computers ever built by Steve Jobs selling for a record amount at auction. We'll get a live report next. Welcome back to Power Lunch. We've been talking a lot today about the prices consumers are paying for things because of the CPI. Well, luckily, computers once used by Steve Jobs is not a component because Robert Frank is here with the eye-popping amount it is now worth.

We would have high inflation if it was, Kelly. It was one. of only 200 of the first Apple computers. It was hand-built by Steve Wozniak back in 1976. It is only one of 70 that still exists. And this is the only one that came from the desk of Steve Jobs. Christie's telling the Steve Jobs Apple won for $945,000. That's way above the $500,000 low estimate,

and it is a record for any vintage computer. Now, when Steve Jobs was fired, that was the first time, an employer retrieved it from his desk. It was then sold to get this Paul Allen. He's the co-founder of Microsoft, of course. He displayed it in his technology museum. Paul Allen's estate was the seller through Christie's. Allen's estate also during that auction sold a Kray One's supercomputer for a million bucks. You can use it for a sofa if you don't want to use it as a computer. And he sold a 1939 letter from Albert Einstein to FDR, warning about Germany's nuclear bomb program. That letter selling for $3.9 million. And this is my favorite, a lunch menu.

from the Titanic, April 14th, 1912. What about that day? Well, that was the day the ship hit an iceberg. That menu selling for $340,000. That was six times the estimate. For more on what collectibles the wealthy are buying, how they're investing, how they're spending. You can go to inside wealth.

That's cnbc.com slash inside wealth. That cray computer is like the size of a wardrobe. And it probably did about 1,000th of what you're... Of what you got on your iPhone. So I looked at that Apple One computer. It had four kilobytes of memory. So the new Mac Air is four million times more powerful. Four million times more powerful than that Apple One would sell.

But it just shows you, like there are a lot of people, a lot of the wealthy now made their money in tech. So for them, that is like a holy grail in their world to have one of the Wozniak-built computers that was on the desk of Steve Jobs. as all these tech wealthy start to collect, they love these vintage computers, they love these pieces of their history. If I'm remembering correctly,

and I may not be, the Apple One was, what did you say, only 340 were built or something like that? There was, I believe, 200. 200, because the Apple 2 was the first big commercial release, as I recall. That's right.

That's right. And it was a more compact. The Apple One was really just a motherboard, and they sort of put a monitor and a keyboard with it, but it was really the Apple 2 that people remember actually being able to buy. Having on your desk, yeah, and it had littleish screen, as I recall.

Yes, and this Apple 1, it couldn't even do Word today. No. It couldn't do very basic function. It's like a calculator. Four kilobytes. That's right. And then the Apple 2 is the one that people actually might have seen. I had this cool thing in my own. I guess I was a kind of earlier adopter at Time Incorporated. I had this thing called a portable computer. It was by Compaq.

And I had to walk with it from the timeline building in Midtown all the way to the Port Authority. It was this freaking big. It weighed about 45 pounds. I would walk with this limp to the Port Authority going to gate 412 to get on the number 66 bus. I remember it and I hated it. Too bad. You can say it was cool. All I can say is I once had a Blackberry. Robert. Thanks. Yeah. It was about this big. All right. Thanks for watching Power Lunch, everybody.