Power Lunch - Stocks head for losing week as rate concerns stall the post-election rally 11/15/24

Episode Date: November 15, 2024

The post-election rally has fizzled, placing the major averages on track for sharp weekly losses. We’ll tell you all you need to know before the weekend. 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 Lunge, alongside Kelly Evans. I'm John Ford. Stocks are lower across the board today. All the major averages head for a down week, especially the NASDAQ, down more than 2.5% to start this hour today. Markets resetting expectations for rate cuts after Powell's comments about being in no hurry to cut. I loved Nancy Tangler's remarks. She said, you know, maybe just a couple days without Fed speak.

Please. Because look at this. Now we've given back, you know, half of the post-election gains. Investors were like, great. Another reason the Trump bump may be fading is that some of the president-elect picks are seen as wanting to cut spending. Defense stocks have had a very rough week. You can see RTX and Lockheed down about 5%. Biotech and pharma also getting hit hard today after Trump made it official.

He wants Robert Kennedy Jr. to be HHS secretary. Wow. So we could talk about that piece of the reaction here. But when I look at the NASDAQ and when I look at tech, I'm specifically intrigued by how much semiconductors in general are down. What's going on with that? What's going on with Emmett? Down 8% today. They missed on the guide on their top line, right?

And we also see Lamb Research down similar semiconductor equipment space. But it's not just their arms also down synopsis, which does the software for a lot of that semiconductor design. But it's not just the semiconductors. You also look into enterprise software, MongoDB, Amazon, Adobe, Data Dog, Atlassian, all down more than 4%. I mean, would there be a government contracting angle here? Really. I don't see that. I mean, I'm not sure why they are specifically down.

I mean, why were they specifically up so much leading into this? But it's very much enterprise software. It's very much kind of teamwork, even marketing, data-driven collaboration. That's down. And so we'll see. It's been a volatile, certainly, a few weeks. Maybe there's some just plain old profit taking over a sense that there was exuberance in the Trump trade last week. And we have seen some of that for sure.

Let's start with the latest names being added to the incoming Trump administration. Megan Casella brings us those details. Megan? Hey, Kelly. So the president-elect continues to staff his new administration at really a rapid fire pace. Two big names coming out today for his future cabinet. One I know you've been talking about. That's Robert F. Kennedy, Jr. as Health and Human Services Secretary. Now, that's a pick that's not as surprising as some others we've gotten this week, solely because he'd long been expected to join the administration to work on health policy in some regard.

But it is a pick that could set up a confirmation battle with the Senate, either over his anti-vaccine stances or over his pro-choice abortion stance. That's something the former Vice President Mike Pence flagged today as he urged Republicans to reject RFK's nomination. A few other names today, though, North Dakota Governor Doug Bergam tapped as Interior Secretary. And just in the last hour, Trump also announced Stephen Chung, a campaign spokesperson, will be his communications director. But guys, we continue to wait to hear any official picks for the president-elects economics team.

But the Wall Street Journal this afternoon is reporting that Larry Cudlow, a former Trump White House economic official, familiar name to the CNBC audience, is being considered for top economic jobs, including Secretary of the Treasury. So for most of this week, guys, it's looked like it's either Scott Bessent or Howard Lutnik for Treasury, but no decision has been made. And now it seems like Cudlow could be making a play for the job, guys. Larry Cudlow. Larry Cudlow. That's right. All right. Megan, thanks.

Megan Cassella. Appreciate it. Well, President Lent Trump's pick of RFK Jr. for Health and Human Services Secretary, sending shares of global vaccine makers and pharma stocks lower. Kennedy has been a vaccine skeptic and has been criticized for making false medical claims. Here to weigh in on the potential impact on the sector is Angelica Peebles, our health and pharma reporter, and Jared Holtz is health care sector strategist at Mizuho Securities America. Angelica, what are you hearing about this?

So at the beginning of the week, it sounded like nobody thought this was going to happen, you know, talking to people, how are you planning for it? And nobody wanted to talk. And then even yesterday, well, maybe it'll be him. And then it became clear that it was going to be him. And so I think now you're having pharma companies in the situation where they're really needing to think about how they're going to respond to this, what the strategy is going forward. And if you look at the stock market today, the reaction, right, investors don't like uncertainty. They don't like not knowing. what is going to happen, right? And so you have agencies under HHS that are really important to pharma. FDA, for example, what happens there? Who do they end up putting in charge of FDA?

And what does that mean for the regulatory path going forward? You have long timelines, right? It takes years to develop a drug, get it through trials. And if you don't know who that regulator is, what their strategy is going to be, that's a big risk, and that's a problem for investors today. And that's why you're seeing so much, you know, such a big reaction today. Jared, assuming this nomination goes through, how much uncertainty does this practically introduce, you think, for these public companies out there? Yeah, it's very confounding, obviously.

A lot of moving parts, not really knowing if RFK is going to be the definitive choice if, you know, if he gets through the Senate here. Assuming he does, though, to your question, I think there are just, there are so many variables and questions around. around obviously the vaccine complex, broader drug development, how, you know, how his appointment would impact the NIH, the FDA, you know, other agencies within health and human services. So, you know, I think what we're seeing today is stock reactions that obviously reflect investor angst over, you know, just the idea of RFK in this administration at all as it impacts health care. And they are a wide range, Jared. There's the, you know, the pharma stock, the vaccine stocks. There's obviously food stocks, a little bit outside your purview. But what would you say? And it is an investing opportunity. Does this create one on a pullback on some of these names? Yeah, Kelly, I really do think so. I mean, it's tough to say what's going to happen over the next couple of weeks. I mean, we're one week into the election. And it's been as noisy as I can remember in this sector. So I don't love that as a.

backdrop. That being said, I think as we head into next year, you know, if the biotech complex continues to pull back like this, I think there's a good opportunity for small and mid-cap biotech for two reasons. I think you're still going to have a number of key members in the administration that are pro-science, innovation, technology, whatever you want to call it, and the stifling of drug development that is reflected today is probably not going to be the case. So I think there is some overreaction with biotech. So I think there is some overreaction with biotech. would start there and then i you know we talk about it and nauseam but this mna idea of more deals happening you know if rfk is involved which you know many suspect he will be but even if not i think

pharma is up you know is hard pressed to you know come up with innovations themselves and therefore they're going to need to dip into you know the small and midcap pool so i think that biotech which is down you know over 10 percent just this week is a decent is a decent opportunity. Angelica, kind of a similar question. It's been notable to people just how poorly health care is trading more broadly. You can look at the hospitals, which might be under pressure,

if they try to make big changes to Medicare and site neutrality thing, the Medicaid providers, if that becomes an area where they look to kind of clamp down on costs in the budget, it's like everywhere you turn, there's kind of downward pressure and kind of, in a weird way for a deregulatory regime, the kind of almost regulatory pressure that could kind of push these agencies back from some of the expansion they've been under in recent years.

Exactly. And again, FDA is one to watch. But also in terms of, you know, the price impact that you're talking about, don't forget that now Medicare has the ability to negotiate some drug prices. And there has been a lot of talk heading into this election about what will happen, what will the next administration do. And now we have this new Trump administration. And RFK Jr. has talked a lot about the idea that he does not want Americans to pay significantly more than people in other countries do for drugs. That's an idea that we heard the first time around from Trump. and now it'll be interesting to see exactly how that comes up again. And, you know, there is some optimism that maybe the Trump administration will, you know, work with Congress, will push for making some changes that pharma likes. But now I think that's, again, a big question. How do we talk about prices going forward? And what do we see from this administration? Jared, I get it.

You know, there are these picks that are out there, not the traditional sorts of picks that people have expected. And there are a lot of palpitations. But if I think about what the market did between 2016 and 2020, I mean, largely overall positive. So we got these extremes in hopes and fears, but practically speaking, how much do you think government policy and these picks are going to derail who's actually innovating and who's actually globally competitive? Yeah, I don't think it's going to change much over the long term. If we're talking about the next two to four years within this administration, you know,

does drug development change in a significant way? Probably not. I think when we look at the pharmaceutical industry broadly, they're always under pressure. Whether Trump is president, whether someone else is. I don't think the Biden administration was all that friendly towards pharma either, and they kind of figured it out or continue to figure it out. So I don't really believe that, you know, massive changes are underway. It's really just the concept or the fear that they are.

So yeah, I do think there's an opportunity to, you know, take some swings here. That being said, I do think it's going to be an incredibly noisy four years. And this is already, you know, a very complex industry. That said, Kelly, it does seem like last week the refrain was Trump's good for business. But this week we've seen biotech, EVs, defense, like these areas where they thought, oh, we're going to be good. There's a rethink happening. We don't know how long that rethink is going to take and what the considerations are going to be as that gets rethought.

In many ways, this feels like it could be a reorganization. I don't want to call it a bankruptcy event, but it feels like there could be some kind of massive reorganization, ideally, about how money is spent in the economy and who wins and who loses. I mean, even on tariff policy, we're talking about potentially making consumers pay more, encouraging more investment, maybe fewer EV tax credits, you know, more goes to other areas of the economy, less than, I mean, you're absolutely right. There's a massive reshuffling going on, and at the same time, we're pricing U.S. stocks as if they're the best you know, and continuing to be the best performer in global markets.

So can those two be reconciled over the next couple of years? We'll see. No. Thank you all. Yeah. Sorry, go for it. Jared Holtz, Angelica Peoples. I never know who's on camera and when.

We appreciate your time this afternoon. As the political drama here in the U.S. continues, we are seeing uncertainty expand to the rest of the world. Tariff threats, ongoing geopolitical tensions, are giving investors some pause. And earlier this week, Carter Worth told us things don't look good for the MSCI World Index. So where should you look abroad? Our next guest says Japan, and he'll explain why when Power Lunch comes right back. Welcome back to Power Lunch. Japan's economy eeked out a slight gain in the third quarter, snapping two quarters of year and year declines. Comes as the

BOJ raised its interest rate to the highest level since 2008 back in July. We remembered what that did to exchange rates. And it's expected to continue the rate hike cycle, though maybe not to the same extent. My next guest says this has a huge impact on the psyche of Japanese consumers who are starting to spend rather than save and wait for those lower future prices. And it's part of the reason he is bullish on Japan and not just because he's from there. Joining us for more is Masa Takeda. Takeda. He is portfolio manager at the Hennessee Japan Fund. It's great to have you here. Thanks for having me. People are very bullish on Japan because, look, they've taken measures to basically say we want companies to increase their value on the stock market. They also have

this currency working in their favor. But then there's been a bit of a kind of a little bit less clarity lately what do you foresee in terms of possibility well so there's been a lot of there have been a lot of things going on in japan i think yeah if i were to single out one big driver of the japanese stock market is really the changing corporate governance standards in a good way so that is about having a strong focus on um businesses capital efficiency which was pretty much non-existent 5-10 you know 20 25 years ago um and And that's because culturally, the country has never embraced Western capitalism. I'm not saying that's the best form of capitalism, but in Japan, it's been a few and far between.

Is it starting to do so now, though? Yes. Yeah. Why do you think, and that's pretty significant. Right. So it's actually the result of many different events that took place probably over the last 10 years. First and foremost, under Abinomics, we introduced stewardship code and corporate governance code back in 2014, 2015. And since then, it has been making steady.

slow yet steady progress. And then in the last few years, activist firms making their way to Japan, Warren Buffett making a surprise visit, making a favor of comments about Japan for the first time, and then Tokyo exchanges the directive. And so all of these things led to the war to believe something that's going on.

We were just talking about some more domestic impacts of an incoming Trump administration and policy uncertainty. But when it comes to protectionism, tariffs, nationalism impact, If it's not just the U.S., if there are responses around the globe to this, how does that affect your Japan optimism? Well, so I'm a macro agnostic guy. So there will be some parts of the portfolio that will be hit hard.

But then again, there is also proposed tax cuts, as I understand. So that's going to benefit Japanese companies that operate in the U.S. And then, of course, tariffs, it's going to mostly hit manufacturers. tangible goods. There are Japanese companies that provide services and financial services included. So all in all, I think as long as you carefully select the right companies, it can still do great by investing Japanese companies. So one of your top picks is ORIX, which is about inbound tourism, and I guess that's an example. Right. Well, it's more of a domestic theme when it comes to inbound tourism because there's a booming Japanese tourism inbound tourism in Japan at the moment.

Orix owns Constant International Airport, which is a monopoly business in the Consulate region. They run aircraft listing business, which is the third largest in the world. And then there's hotel operations, hotel property business and so forth. These are big business. Oh, yeah. The people are talking so much about how cheap, like great hotels are in Japan right now. What an opportunity it is. Seven and I, I don't know what's going to happen maybe with any kind of M&A there.

You've got Sony. So what would you say about those? And you do you think this is stock picking? Can't just hold the market more broadly? Well, so with Seven and I, you know what is happening with Seven and I with Cush Start. We are also pretty much agnostic on this because this event itself has put a solid floor under the share price for Seven and I. And then on the upside, there's a huge growth runway for Seven and I, the convenience store business, because the US, they have number one market share, but it's only eight percent and very fragmented. So a lot of scope for roll-ups.

Sony, they turned it into entertainment-focused conglomerate over the last 10 years. They're no longer troubled manufacturer. They have a lot of intellectual property assets, animation, music rights, gaming titles, and so on. And these are attractive businesses inherently, in my opinion. All right. Masa, thanks for joining us. We really appreciate it today. Thank you very much.

Masa Takeda with the Hennessee Japan Fund. Well, here in the U.S., Trump's America First Push is driving many investors to rethink their playbooks, been talking about. In today's market navigator, I'm going to get you some reshoring picks from today. Power lunch is back in two. Markets are taking a stumble today, and it may go back to Fed Chair Powell's comments yesterday about whether monetary policy will continue in the easing direction. The NASDAQ is down two and a half percent. Rates are somewhat sticky. Meantime, President-elect Trump says he wants to cut back on foreign imports and bring manufacturing back to the U.S. Which companies and

sectors could see the biggest benefit from reshoring? My next guest has some ideas. Joining me is Manish Cabra, head of U.S. Equity Strategy at Society General. Monash, it's great to have you here. Everyone's been kind of diving and combing through these companies. And which ones most jump out to you? Well, Kelly, thanks for having me again. You know, as in, let's think what Trump is about, what Trump admin is about. It's three things.

It's lower taxes. It's lower regulation and it's lower oil. As a new, combined these three things together, it's, you know, cyclicality in the U.S. will pick up even further, you know, from where things are. Now, you know, how do you position and you try to see what are the Trump trades and, you know, how does reshoring fits into this? I think it has been extremely clear, you know, as in whichever way you watch, you know, whichever, you know, you try to see what, you know, what comes up together, you know, Trump is focused on America first. And then he's definitely focused on, you know, bringing manufacturing back. How do you

do it? I would say Republicans, you know, Trump 1.0 had a lot of organic things, you know, not many policies. Biden, you know, with Democrats, gave a lot of policies. Now, Trump 2.0 is promising, you know, a lot of tax cuts and bringing, you know, the idea of putting tariffs on different companies, and that's making, again, companies to think again, you know, where the consumer base is. I don't know if we have this flipped on the graphic. The Trump basket is outperforming the S&P, is that, right? The Trump 2.0. What are some companies in there? Can you give our audience some ideas? Yes. Yes. So there's a, you know, think of it, what, you know, when any country goes out and starts establishing manufacturing base, you know,

what do you need? You need energy infrastructure. You need manufacturing infrastructure. You need, you know, payroll companies. You need, you know, rails, trucks. Literally industrial reads, you know, that's a big part of it. So, you know, and I would say instead of going stock by stock, the key thing you want to own as, you know, mid-cap industrials, you know, some of the domestic, very domestic, U.S. industrial companies with domestic supply chain, as in those are the ones that you want to position for. Now, the chart you were showing, I think it's, you know, it's very interesting, very, you know, very phenomenal what you see, whether it was Trump 1.0, whether it was, you know, Democrat, whether it would be Trump 2.0, up until U.S. has de-risk China. And I think that's,

you know, that's a key point with U.S. admin, you know, they want to de-risk China. And up until that job is done, you know, this team is, you know, is there, you know, is there with us for long term. And it would suggest that headline risk from China is much lesser. So mid-cap industrials, you think one space in particular, people should be combing through. Manish, thanks for joining us today. We appreciate it. And Market Navigator. John, back to you.

Well, still to come, we'll talk politics, the consumer, and more with PowerPlayer and Real Estate giant Rick Caruso. Power Lunch will be right back. Welcome back to Power Lunch. I'm Bertha Coombs with your CNBC News Update. President-elect Trump today naming campaign spokesman Stephen Chung as his White House communications director, Chung, known for his combative presence on social media, has served as a top press aide to Trump for the past two years and also worked on his 2016 and 2020 campaigns.

Democratic New Jersey Congressman Josh Gautheimer just threw his hat in the ring to become New Jersey's next governor. It's expected to be a crowded field with current governor, Democrat Phil Murphy, unable to serve, serving his last term due to term limits. And a deep, has signed its first name image of likeness deal with a high school girls basketball player. Kalina Smith, the 16-year-old sophomore from California, is ranked as the top recruit for the class of 2027 and has already received offers from nearly 20 colleges, including USC and the University of Connecticut. Kelly, so exciting to see young women in sports getting this kind of recognition. I know I'm supposed to be excited. I still am still getting used to it, all the money pouring in for these very young kids,

but good for her. And I actually, I'd love to see some film and see what she's up to. Bertha, thanks so much. Let's get a check on the consumer as we enter the holiday shopping season. Retail sales in October were up 0.4%, which did beat estimates. And next week, a bunch of key retailers report, including Walmart, Target, and T.J.X. For a read on retail, it's talking about. to Rick Caruso. He's the founder and executive chairman of Caruso, one of the largest

privately held real estate companies in the U.S., especially with major properties in Southern California. Rick, it's great to have you back. I think it's the first time we've heard from you post-election. Welcome. It's good to be here. Thank you very much. Good to see you. Are there animal spirits and opium in the air, or is that just a stock market thing, or at least until today? I don't even know what that means. So you got me on that. Are you excited as a business owner? It's going to be, you know, I was going to say the tax cuts, but I don't even know. I don't think there's corporate tax.

We did corporate tax, so I guess personal taxes maybe aren't going higher. I don't know. Listen, I think it's a very interesting time, for sure. We're all living in a very interesting time. I would tell you from the consumer standpoint, from the retail standpoint, it's really great. You just talked about the numbers that are up, but on the ground, on the properties. What we're seeing is continued growth, both the business. sales per square foot, we're seeing continued amount of people on our properties and a strong

demand for retail space, which to me is the best metric. And we employed a strategy that's paying off. And we've got double-digit growth this year. So I think the consumer is in great shape. And I'm excited about that. I think everybody's going to be excited about going into the holiday season. Does that surprise you, Rick, that we are in as good shape as we are after everything the Federal Reserve's done? And especially, I don't know if there's going to be excited. going to be able to keep cutting rates here. Yeah, I don't know if the rate cut is going to really impact the consumer that much, to be honest, at this point. But here's what you have. Two-thirds of Americans own a home. Home values have increased. So people that own a home are feeling wealthier.

The stock market is at an all-time high, for the most part. So people in their retirement accounts are feeling wealthier. And what we're saying is they're spending. Now, the majority of spending is happening at the high end, but it's really at all levels. So we see it our price. the luxury sector is doing very well. We have some luxury tenants that are up 30% in sales. And also the Gen Z, which we have focused on, because they love these shoppable experiences and they're into shopping with their mom and their family.

We have retailers in that category that are doing 4,000 a foot. And then in the middle, you have aspirational that's doing well. The Lulu lemons, the Allo Yogas, the Sephora's. So if you're a best in retail class, I think you're going to do very, very well, and the consumer is going to reward you for putting out the product that they want and the experiences they want to enjoy. But what if you're not? Rick, you mentioned aspirational.

Lulu has hit some headwinds lately, and we keep seeing data and numbers suggesting that a lot of consumers, especially the working class consumer, is putting more and more on the credit card and is being more and more pinched by rates that are higher for longer. How long do you think before that starts to show up in the broader environment and maybe even starts to affect the lower end of that luxury cohort? Yeah, and it's a good question, John. So on the Lulu question, where you have is a lot of competition. You got Alla Yoga, you got Viore. They're all very competitive. And they're giving Lulu a run for their money. And I really have confidence in the leadership at Lulu that they're going to figure this out and the growth will continue.

So I believe in that category. It's not going away. It's only going to grow. In terms of the consumer, you're right. More is being put on the credit card or pay later. But the rate drop that the Fed would do probably isn't going to affect directly the credit card rate, right? At a certain point, that is going to break. When it's going to break, I don't know, but you can't continue to be racking up, you know, debt at running at 20%.

But right now, what we're seeing for the foreseeable future is spending is going to continue. People are feeling wealthier. And I think we're going to have a really good first quarter after the holidays too. How are you gaining at the impact of potential tariffs on the retailers that do business with you and therefore on your properties? It's going to be complicated. And I don't know all the ramifications of it. I hope it doesn't happen. I hope it's a negotiating tool that Trump is using.

But it's going to affect the supply chain. It's going to affect deliverables. I think it's going to create retribution. So I don't think it's a good scenario for the retail category at all. And what else, Rick? I mean, I was looking at your site and looking at some of your properties. I see you have a membership opportunity, is that right? I mean, is that something that people find a lot of value in?

And what are some of the other business models we need to be thinking through at a time when, you know, Walmart's in streaming and Chick-Vitail is becoming a platform, it seems to me, in a kind of an omni-channel, almost media experience, and less so of just the model where you just walk into a store and buy something? I agree. So it's more and more of a commodity, so you have to differentiate yourself.

What we have believed for a long time and we're even leaning into more is everything has to be surrounded by an experience, everything has to be surrounded by safety, everything has to be surrounded by creating an environment where there's shareable experiences, where you want to come with your family, increasing dwell time. Dwell time relates to sales. So you have to create these environments that are very compelling to get the attention of the consumer

and to shop on your properties. So why are our properties doing double-digit growth where our competitors, the indoor malls are suffering and more and more closing? They don't know how, and maybe it's impossible for them to deliver a compelling experience. Okay. And that's what people want nowadays. And we're going to deliver that and we're going to continue to be innovative in that category. So, Rick, what is the impact going forward of technology? We went through this phase where people were thinking about e-commerce all or nothing. I think in a way we're even through the omni-channel phase.

I think we've sort of digested that. Now we're talking about artificial intelligence. We're talking about metaverse sort of stuff. I don't know. People still like compelling, you know, experiences in person, too. How are you planning for gaming out the impact? these emerging technologies on retail and the physical experience? We've got a whole group in our company that's focused on that, and I think we're working with

the best and the brightest on outside consultants. That we're going to use it to deliver the welcome, the experience, and the frictionless opportunity on our properties. How are you greeted. We know when you're arriving towards the property. We greet you. We know what you'd like to buy. We let you know where it's at. We reward you for coming on the property. So Caruso's signature is that base and that platform where we're going to be delivering that. So as you're driving to one of our properties, we're going to say, John, welcome. You're going to be here in five minutes and you're parking on level two. We're holding a spot.

We know you like your morning coffee and it's at concierge's waiting for you. And this afternoon, Apple is having a program that you can go to. We've reserved a seat. It's that kind of experiences that will be compelling. And we're tying that into our resort. And we have this ecosystem of customers that you're part of that Caruso signature program. You're getting rewarded to be on our platform. And the more you spend at the Grove, you get free stays on the beach at the Rosewood.

And that's how we want our customers to sort of be part of this Caruso lifestyle platform that we've created. You live with us, shop with us, resort with us, dine with us, and we reward you. and thank you for doing that in the best of ways. And we make you feel special. It's genius. At every moment of your visit. But I'm going to be left out. Those of us who are just then going to show up at the store, you know, with 15 minutes

of spare and hope to do it, forget it. It's over. But I think everything you're doing, I think you're exactly right. I think it is a glimpse into how retail is evolving. I think John will really enjoy it. You just made me feel special, Rick. So I'm looking forward to seeing how that works out for you. Rick Caruso, thanks for joining us.

Thank you, guys. Well, still ahead. Bank on the Small Caps? Well, the post-election rally might be taking a breather, but our next guest has some under-the-radar ways you can still get returns. And as we head to break, CNBC is extending the deadline to nominate a leader for our 2025 changemakers list. It recognizes women transforming business and philanthropy. The deadline now ends this Monday.

That's November 18th. You can scan that QR code that are on the screen, or visit cnbc.com slash changemakers. Powerlunch will be right back. Welcome back to Power Lunch. Stocks continuing to move lower following the post-election rally, especially again, the NASDAQ today,

down 2.5% pacing for its fourth straight down day. It joins the S&P as the two track for their worst days since Halloween. The Russell 2000, also in the red, down nearly 4% for the week. But it's the small cap space that our next guest is turning to for opportunity, specifically small cat banks.

For more here, let's bring in Dory Wiley, president and CEO of Commerce Street Holdings. Dory, even though we've had kind of a rough week overall in the markets, you say that we should just keep swimming with this post-election market rally. Why? Well, the market's pouting, right? It's pouting because J. Powell came out and said, like, PPI's up a little bit, and the CPI is a little bit sticky.

we need to be cautious about raising rates. So I still think he has a cut bias if he can do it. But the market has tapered its expectations, and I think it should do so on cut rates. But having said that, this market still has plenty of room to run, and it doesn't need rate cuts to do so. It's earnings, and earnings are there. They've hung in there for this third quarter,

and the growth expectations and performance of earnings moving forward are actually quite good, and I expect to see some good rotation into small caps and banks are a good place to play. Okay, about those banks, if I can put on my skeptical hat, the KRE is over 65 right now, nearly doubled from the post-Silican Valley Bank lows, maybe even getting into that, you know, 70s territory, which would be all-time highs. It would be great if you got in like a year or two ago, but why now? Well, some of us were, but I don't think it's time to sell yet, and I think it's still good. You know, people have been afraid of small caps, and I think there's good reason for that. A lot of small caps aren't profitable.

They're too levered, and the rally will be sustained on good, profitable companies, not on hopes and dreams. Well, small cap banks are a good place to play. They've managed their asset liability risk, which took down, you know, Silicon Valley and some of these others as a big part of the equation. They're growing. A lot of these banks, several of them that I like, they hold big capital positions, higher capital ratios than the money center banks. And they're growing tangible book value per share. Earnings are expanding. And now we have a friendly regulatory environment where we can actually get some M&A activity going. And I expect valuations to increase with that. Dory, it's Kelly here. Third Coast Bank is one of your picks. It's up 72% this year. What's driving that? And where else do you think is a good opportunity? opportunity. Yeah, that was a sleepy find out there for a lot of people.

Full disclosure, we're a big investor in that, but it's a great bank. It's in all the major markets in Texas. We all know the attractiveness of Texas. They have a nice stable margin. They're running a very high capital ratio. They have the highest growth of tangible book value per share of any public bank in the state of Texas. And that's what matters at the end of that.

You grow your tangible book value per share and it works. It's still a buy because it's still a very low price. price stock on a price to tangible book value basis and only 12 times forward earnings. So there's still room to run for that back. All right. And then, you know, I know you're not, you're, you're kind of looking there more than the bigger banks, but because you know so much about valuations, when you look at the run and Goldman and some of the other investment banks and so forth, you know, are they now looking fully valued or do you think even among the top banks and maybe some of the money center banks, there could be good holdings? Yeah, I'm a pause on the big money center

banks. I think there's more room to run on some of those small caps, simpler models, easier balance sheets to manage. A third coast, for example, has a positive gain and it's AOCI versus losses in its securities portfolio. It's just much more attractive. You know, we also have trust mark and EFSC up there as well, and very similar stories, very dominant banks in their markets. All right. Dory, thanks for joining us. Appreciate it. Good to see you again. You too. Thank you. Turning to the bond market now, which is behind a lot of that discussion. Anyhow, the 10-year yield is pulling back somewhat this afternoon after hitting 4.5% earlier on.

Rick Santelli joins us now with more. We're at 442, Rick, and how much of this is Powell-driven? You know, I think there was a bit of it pile-driven, but, you know, my issue is we could make it pile-driven, but really, investors need to use their thinking helmets. CPI was a bit warmer. PPI was a bit warmer. Do we really need Fed officials to tell us that that's going to have some type of influence on future monetary policy? Of course it is.

So to me, the surprise was how well markets behaved when we actually saw those numbers. Seeing it jump up when Powell pointed out some of those issues, that wasn't so surprising to me. And if you looked at today's day, and I know you've talked about it with previous guests, you know, Empire was super strong, best since the end of 21. And even though retail sales outside the headline when you start to strip out autos and gas, it wasn't that great based on expectations. But when you factored in the huge revisions, it was pretty good. And import, export price were up. So it made sense that right at 940 Eastern, we touched 4.5%. We haven't closed above 4.5% since May.

And if you look at the chart for the week, at 441, we're still up nine basis points on the week, even a two-year right now, hovering at 429. up four basis points on the week. So treasuries continue to move higher. And if you look at the next chart, the dollar index is by far the darling of the week. It's closing at levels we haven't seen since November of last year. And as you look at that chart, I want you to realize something. The low for the year and the dollar index was at the end of September. Mid-September to Fed cuts 50 basis points. The beginning of October has really when that chart starts to go while. And that, of course, was the big jobs report. And even though the last year, the last year, last report was quite iffy, that changed everything, whether it was interest rates or the

dollar index. And like the last guest said, you know, sticking with somebody post-election trades, even with a correction, I would think that interest rates are going to be firm, so you're going to have to think about how that affects equities and supply. On Wednesday, we have $16 billion, 20-year bonds, and granted, that's not going to focus everybody's attention to the way a three-year or a 10-year or 30-year does, but supply always makes the fixed-income market pay attention. Back to you. Rick, maybe next week we can do a little thing on whether we should have turned out more of the debt the last several years. The discussion around that is picking up as we await a new Treasury Secretary. Absolutely. I'll tell you what, you know, friends of

CNBC, it was interesting to, you know, hear some of these whispers that maybe Larry Cudlow's in the running. I know, but they may, they have appeared, he might be whispering not so much, so we'll see. Rick, thank you. Rick Santelli. Have a good weekend. pharmaceuticals, defense, and chip stocks are among the worst performing sectors this week. We'll ask our trader for a name to buy in each space when three stock lunch happens next. Welcome back and it's time for three stock lunch. Now, we asked our trader to look among this week's worst sectors to find some stocks to buy. Semis, as we were talking about earlier, defense and pharma are all having a pretty rough week.

So here with our trades and some picks in each one is Lee Munson. He is president and CIO at Portfolio Wealth Advisors. Lee, been excited to check in with you. you post-election after all these big moves. So thanks for the time. Let's start with pharma. You chose Eli Lilly, which surprisingly is down 10% this week, but some think that RFK is no fan of the GLP-1s. You're a buyer. I don't care what RFK is a fan or not. People are going to buy this no matter what. Lily's down almost 20% from the peak. This is a great opportunity to get back in. I sold some Lilly earlier this year because I didn't understand how the price

cuts might affect things going forward. And I think Wall Street has it all wrong. Every so concerned about how many scripts they're writing. We are in the first inning of a very long game, and it's not about just weight loss. It's about Alzheimer's. It's about addiction. And it's that Lilly has a oral thing that they're working on for GLP drugs. It's where the money is. I don't think you look anywhere else. Does Merck to Pfizer have a plan? They're dead in the water. And I don't want to do novo. So I think Lilly is the only pharmaceutical that needs to be purchased if you need anything else buy a sector fund or move on. Okay. We also asked you for a defense name. You chose Aerospace Player TransDime, those shares down about 7% this week. Why can you buy it here?

Oh my gosh. I love this company. They had earnings that came out. People were a little bit concerned about decelerating this or that. It got hit 6, 7%. It's back going. I love this company. It's a mini Berkshire. And in defense, only thing I care about is aerospace. We've got to get hypersonic projects. We got to get, you know, UAVs. That is the future. It's not these big, you know, integrated defense contractors trying to sell another big, expensive billion dollar airplane contract that's going to go down the tubes. So when you're looking at Transdime, this is a company that buys up all the parts, all the OEM parts manufacturers, and they just squeeze and squeeze every single value and happiness out of those companies. And that's a very,

very profitable trade. They run their balance treat like private equity with leverage. That's why you're going to pay a 30 plus multiple per stock that I have a lot of conviction in. It's like it's a Berkshire. It's like Berkshire. Did you say Lee? Yeah. They go off and they buy all these little companies. It's just they own like 40 little companies and they let them operate.

It's just a wonderful way to, yeah, it's just a wonderful situation. Listen, as Berkshire hits a trillion, and people are always interested in those who might be kind of emulating it to some degree. Okay. Let's move on to the chips. You chose Nvidia. It's always hard to tell if people are going to love or hate kind of the love or hate kind of leader in any given space. You're liking it today. It is down about 4% this week. It's tripled on the year. It's also down 4% today. Why? Because there's nothing else out there. You're going

to do a DRAM play on Micron. You're going to do a relative valuation play on QCOM. They have the only thing that exists. And so while I hate the concentration, I hate breadth, I'd rather wallow around in small cap value like it's 2002. If you're going to bother in chips, just go for the 800-pound gorilla and go home. It's Friday. Lee, never failed to deliver. You're buying the overall market here or no? 10 seconds. Yeah, I love the market here.

I'm probably going to buy a little bit more next week, but I got my buying hat on. The Trump hump has happened. The Trump fade is happening about a month before I thought. I think if you have cash to invest, this is your chance. Every portfolio manager is going to be buying dips until the end of the year. We have one right now. Lee Munson.

Thank you, sir. And we'll be right back on PowerLet. Welcome back. Markets are lower, but off the worst levels of the day. Quick programming note. I'll be speaking with Microsoft CEO, Sotianadella. It's Tuesday morning on Money Movers. That's 11.30 a.m. Eastern time. You don't want to miss that. And I'll see you in about an hour for overtime. We're going to talk to the promoter of tonight's Mike Tyson, Jake Paul fight on Netflix. Mike Tyson is 58 years old, Kelly. This is all anyone's talking about. Are you going to watch it? I'm going to be out tonight, you know. Everyone's watching it. I'm going to be watching it. I'm going to be watching. Twitter to see what people think. I'm not going to be able to avoid it one way or another, that's for sure.

Thanks for watching, Power Lunch. We'll see you in a little while, John. Closing bell starts right now.