Power Lunch - Stocks Sell Off As Weak Tech Earnings Disappoint 7/24/24

Episode Date: July 24, 2024

Stocks are selling off today, weighed down by underwhelming reports from Alphabet and Tesla. The Nasdaq and S&P 500 are both on pace for its worst day since 2022.Wall Street says this was likely caused by a perfect storm of an overbought market, high bar for earnings and a seasonally weak period for equities. We’ll break it all down for you. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch on this Wednesday afternoon alongside Kelly Evans. I'm Dominic Chu. We want to get straight into the market action right now. Some big earnings misses are sending stocks lower and marketly. So as you can see there, we're talking specifically the technology space. The NASDAX down nearly 3%. A loss of 500 plus points at one point. By the way, this is going to be its worst day of the year. And worst day going back to I think 2022 at this point. The S&P 500. You can see they're down almost one full. actually one, three quarter percent at this point, down 100 points, 54, 54, the last trade there. And that tech heavier NASDA composite, as I mentioned, down nearly 3 percent, Kelly. We're going to start things off with the key earnings movers of the day, as well as some of the names that are on deck so far.

Alphabet being rattled by slowing advertising growth. Tesla losing some charge, if you want to look at it that way. Low expectations for Big Blue, despite some potential catalysts. And Chipotle may be biting off more than it can chew. So let's start with the alphabet trade down to about 3% so far, now about 4.5% at this point. Steve Kovac joins us with the details on just why we're seeing the kind of price declines we're seeing in alphabet today. Yeah, Dom, and it's not just that decline in ad sales growth. It's also showing that it's been not really cheap to be an artificial intelligence hyper-scaler.

The theme of alphabet earnings last night, and basically we can expect to see that continue next week when the cloud leaders, and Microsoft report their earnings. Now, much of the conference call for Alphabet centered around how much Google plans to spend in capital expenditures to meet increasing AI demand. That means AI startups and big names like Meta and Anthropic running their AI systems on Google's cloud. CFO Ruth Porat said to expect at least $12 billion each quarter

to build out more cloud AI capabilities. And CEO Sundar Pachai said it's a greater risk to underspend on CAPX, so he'd rather overspend and use anything extra for other parts of the business. To put all this CAPEX in context, the Wall Street Journal today notes that Google's CAPEX for the first six months of last year were half as much as Google has already spent so far this year. For now, the spending is helping Google's cloud unit grow, though. It surpassed $10 billion in quarterly sales for the very first time, and it also hit $1 billion in operating profit. Now, a reminder here, Google was also willing to spend $20,000,000.

$3 billion on cybersecurity startup whiz to juice even more cloud growth before that deal fell apart earlier this week. Plus, Alphabet will continue to cut costs in other areas that have nothing to do with AI. More layoffs could be on the horizon there. And among the hyperscalers like Google, Amazon and Microsoft, there's generally more AI demand than they can supply. We've seen some efforts to mitigate that in the near to medium term like Microsoft's recent deal with Oracle to offload some AI cloud computing, including with OpenAI. Now, if you're concerned about how much the magnificent seven companies have to spend ahead to serve those AI demand, Alphabet's outlook on massive AI CAPX is a strong hint, what we'll hear next week with Amazon and Microsoft guys. Steve, how much of the move lower is with regard to the spending that we are going to see the maybe medium to longer term impacts on profitability?

It seemed as though not too long ago, we were rewarding as investors, companies, for wanting to spend more and more. money on AI. What changed in the last couple of months? Yeah, based on the analyst call, Dom, like so many of the questions were around this theme, when do we see a payback from all this investment? Right now, it's just a money losing proposition, even though so many companies are signing on. We saw all that revenue that the alphabet is generating, and we know Microsoft is seeing a similar boost as well as Amazon through AWS. So it really becomes a question, how long does this have to continue and how much more has to be spent? And to be honest, the executives just don't know. And again, I'll go back to what CEO Sundor Bichai said on the call that he's

willing to overspend, you know, think their demand is way higher than it even is in order to get to where he thinks they need to be and then deal with it later if they have to. But that just didn't seem to really satisfy people who really want an answer of how long this spending is going to continue and when the return comes. Steve, thank you. Steve Kovac, Alphabet, down 5%. It's not the only name missing big on earnings. Tesla, underwhelming investors, seeing a 7% revenue drop. The stock is down 11% now, puts it back down 12% for the year. Craig Irwin of Roth, MKM is here.

Is this about profits, profit margins, Craig, just overall business trends? I mean, why do you think the stock is being punished so sharply? So the stock had had a run up for expectations around this robo-taxie or cyber cab. and then AI. And really, there's nothing new on AI, and the Robotaxie has been punted, right? They still think they're going to have something with no steering wheel, but, you know, on this 10-10 unveil, it's going to have a steering wheel. And then you look at the core performance. It's still a car company. They missed automotive margins by 200 basis points, missed consensus CPS by a dime. And they're down 5% year-over-year in delivery. So, you know, it's just not a good story on the automotive side right now.

you know, things aren't coming together on the forward look and, you know, it's being rightfully readjusting its valuation. Your price target is the 85, which is considerably below where it's trading now. What do you think the business is worth? So I think it shouldn't really be trading at a value, at a premium value to Toyota, right? You look at this optimist. Even with self-driving? I mean, I take your point, but there are people whose cars are more or less driving themselves. And that's something I don't think a lot of the other automakers can offer. You know what? I think it's a risk appetite. So to touch on Optimus, Boston Dynamics is years ahead, probably 10 years ahead of Tesla. Hyundai bought that for a billion dollars, right? If you want to talk about FSD, they have

FSD 2.5, you know, if you reach for the dream that they describe, the resolution on the cameras on the vehicles is inadequate. You know, they needed about a 10x increase in the resolution on the cameras they already have on the vehicles. And then the tax on the power train, the amount of electrons you're going to burn or consume to actually run the system, to run the compute, is about the same as what it would be to actually propel the vehicles. So you cut your range in half. That's a non-starter for this whole sort of level four, four and a half that they talk about. Yeah, they are probably, you know, they deserve a lot of credit for being out front, right? As far as the capabilities of the system they put in the car. Again, it's a risk appetite thing. And that's why I say it deserves a

similar valuation or they shouldn't trade it a premium to Toyota. But that's actually giving them a pretty chunky premium multiple to do that. Toyota's to sell more than 9 million cars this year. Tesla's not going to do too. How long exactly, Craig, does it take for the Tesla story to turn around given what these expectations are going to be and what they just told us about this past quarter? is there a catalyst or a series of them that gets this thing trending higher rather than chopping the way it is right now? So the last time I upgraded this thing to buy was 2019, right? We're back to where margins were in 2019.

The stock is yet to fully readjust, right? There's a lot of lofty expectations around AI, Dojo, Optimus, Autopilot. You know, five years ago is when Elon Musk gave us this promise around, you know, know, the Robotaxie, but actually it was supposed to be an upgrade to the software in your car that you already bought so you could send it out and it'll go and make money for you. So there've been some really hyperbolic claims made by the company and big promises that have not been fulfilled. You know, I'm not expecting the stock to have a lot of upward pressure over the next year. We've got pricing pressure for discounting that's going to continue. We've got a couple new

product launches. Cybertruck was a dud. The new mini car, they really, need to hurry up and get that out. It's five years late. And, you know, I think that the robo-cab is more likely to be a negative catalyst, given that it's going to have a steering wheel. So, you know, I'm not expecting the stock to be, you know, in a big upward trajectory anytime soon. Hayton on the steering wheel, Craig, the shares are down. I take your point, though, as they're trying to innovate, kind of push through some of these things. I love what they do. They're an innovator. Great company. Just over- They wanted to get rid of the side view mirrors.

I think regulators didn't let them. They want to do all sorts of things. Innovation is tough. Craig Irwin, appreciate you joining us today on Tesla. Shares down 11%. All right. So from new tech to the older tech, IBM is on deck after the bell. Expectations are low for Big Blue.

The stock is lower slightly today, but some believe the company as a sleeper with regard to the artificial intelligence play. Simomodi joins us now with more on how this seemingly old world. tech company can cast itself as new again. That's right. Don Wall Street will be watching for three things when IBM reports earnings this afternoon. It's hybrid cloud business, growth in consulting, and its AI offerings. Now, within its consulting business, the company has roughly $750 million in generative AI bookings to date, while Accenture generated around $900 million in the second quarter alone, which RBC analyst Matthew Swanson says illustrates just how big this market is.

Swanson has a $200 price target on IBM. It's currently trading at around 183, implying about 9% upside. Analysts looking for an update on its M&A strategy following the acquisition of Hashikorp for over $6 billion. That is still under FTC review. Before that was Red Hat. Shares of IBM, you'll see, have stalled as Wall Street has been focused so much on the hyperscalers and companies like Nvidia as the favorite AI trades. But the stock is trading at a discount to the broader S&P tech sector. We'll see what IBM tells us tonight, guys.

It's been for a long time, Sima, about the sequential revenue declines that we've seen, growth declines overall for IBM. How much now do investors want to focus strictly on this kind of AI thread, this AI part of the story, as opposed to how it fits in the broader portfolio for what IBM's doing to position itself in the coming years? Well, what's interesting about IBM's CEO Arvin Krishna's strategy is he's using AI and integrating it into their current businesses, from hybrid cloud, consulting, and other parts of the business. So I think that will be a key focus when the company reports earnings tonight. And listen, they have a suite of tools under Watson X that also help developers compute code faster.

So, again, a big update that we'll expect from the company, which shares down just for actually doing better than the broader market and the NASDAQ right now, guys. That's a great point. And up 12% this year. Seema, thank you on IBM reporting this afternoon. And outside of Big Tech, Chipotle also reports. Analyst have some high expectations. but what could the company's pricing controversy do for those numbers? Kate Rogers is watching it for us. And Kate, surprisingly, to me, Chipotle itself has been an underperformer lately.

Yeah, well, don't forget, Kelly, there was a stock split as well this quarter. But to kick it off here, analysts are looking for EPS of 32 cents on revenues of $2.39 billion for the second quarter. Same store sales projected to increase by 9.2%. That's according to facts that. Chipotle's not been getting in on the value wars. It will be interesting to hear any comment. from CEO Brian Nicol about customer traffic and pricing. Are people trading down at all with these offers from fast food competitors? Last quarter, Nickel told us that they were seeing traffic growth in all income cohorts, which is impressive and very rare in this environment.

The company saw traffic growth of more than 5% overall last quarter. As you mentioned, there's been a lot of social media commentary around the company's portion sizes this quarter with some customers claiming the sizes have changed and are smaller. Nickel has maintained that the sizes have not changed. It's not the only name, though, facing some criticism. McDonald's U.S. President actually published an open letter about its pricing, which is up by as much as 40 percent on some items in recent years, and that was after viral social posts claimed that prices had hyped by more than 100 percent,

which is not true. Now, remember back in March, Chipotle's board did approve that 50-for-1. Stock Split, one of the largest in the New York Stock Exchange's history. It did begin trading on a post-split basis last month, and as mentioned, it's up around 15 percent year-to-date, but fast food names are lower year to date. And don't forget, Jopold, A, CEO, Brian Nicol will be on closing bell overtime for an exclusive today at 4 p.m. So much more to come, guys.

And they don't sell French fries, but I think everyone should be a little nervous about what just happened to Lamb West and Kate. The shares down 28 percent, as Dom just told us, they're down 50 percent in a year. It's not a great read-through for what's going on with restaurant margins and visits and traffic and all of that. Yeah, certainly they did caution that restaurant. traffic and demand were down. And we'll, of course, hear from McDonald's next week. And that company has said that that value bundle, the $5 meal is working. And that franchisees, according to a memo we saw this week, will be extending that in most of its market. So that seems to be doing well. And I can't wait to hear, you know, if it's had any impact at all on Chipotle,

because it's been such a strong performer with all income cohorts. All right. Kate Rogers, with the latest on that trade. Thank you very much for that, Kate. As we head out to break now, some of the other earnings movers we want to flag, including Seagate, Timing on results, we'll trade that in tech check coming up. End phase higher right now, despite missing estimates. Pippa Stevens will join us to break down the move in that name. And then Lamb Weston, as Kelly just pointed out, plunging on weaker restaurant demand. We'll speak with billionaire investor and entrepreneur Tillman Fertita about the weakness in restaurants.

Power lunch is back after this. Welcome back. Here's the look at the markets. Tough day across the board, especially for the NASDAQ, down 3%. And for bond yields, that's where, you know, I have so many questions. Who better to ask then, Rick Santelli. Rick, some people making a lot of what Bill Dudley said about how he's concerned, maybe about the economy, and yet the 10-year yield seems to be moving higher.

I don't know. What do you think is going on here? Well, I'm not going to speak for Mr. Dudley, but what I can do is let's look at the three maturities on the yield curve. Let's look at a 2, a 10, a 30 on top of each other. And you can clearly see that the two-year yield is more moderate. Right now it's down about three and a half, four basis points. But as you move through the longer maturities, a 10 right now is up about two basis points. A 30 is up almost six basis points.

Okay, now let's look around what's going on. NASDAQ? NASDAQ is down what? About 3%. Many times you get a flight to safety in treasuries. That could be part of the reason short maturities like a two-year, like a three-year, are getting some buying, keeping yields lower. In addition, it's also getting a bit of a tailwind

from the notion of comments like Mr. Dudley, who's actually believing that there's a possibility of an ease at the July meeting. But no matter how you slice it, the markets aren't pricing that in. It's not an impossibility. But by September, we're most definitely pricing in at least one cut for 2024.

Those two issues are very important for short maturities. But the longer you move out the curve, That dynamic totally disappears in tens, 20s, and 30s, and it makes sense. What's the key platform going to be? What have we talked about today? Even though the Vice President, in my opinion, really hasn't underscored much in policy, policy is being attributed to her from the entire Biden administration. And it's going to be a big fight over taxes.

Well, what's really the conversation about taxes? It's about spending, spending versus revenues, about debt, servicing the debt, approaching a trillion dollars. I know this story seems to be an old one, but I still think it's one of the reasons long maturities are much more skittish. In addition, when you consider the slowing that we see Bank of Canada cut again, they're seeing slowing. It really is a dynamic that the long end is not paying attention to. And what does that done to these yield curves? It's an amazing move. Let's look at two's tens over three days. It's turned into a rocket ship. Right now it's trading minus 13. What? Three, four weeks ago was minus 50 basis points. Now, as you look on the

chart, we are now going all the way back to July of 22 on that spread. It has never been under 15 basis points going back to July, two years. And the other huge story, there's two central banks meetings coming up. The bank of Japan next week, big ones, I mean, the dollar yen continues to have huge moves in favor of the yen against the dollar. Right now, should it close, the dollar would be at a two and a half month low, the end of the two and a half month high, and it's all happened quite quickly. It certainly seems though there's fear the B&J might actually hike rates. And what's going on is a lot of these Asian trades that have used that currency for a carry trade because it's been relatively cheap. Well, those are unwinding

and is putting huge bidding pressure in the yen. That's pretty much what I'm seeing today, Dom Chu. Back to you. Rick, let me just ask you a quick follow question. Then maybe I shouldn't be looking And I hate to say this. It's like, it's like jobless. Maybe I shouldn't be looking at the 10 year. I mean, what you're saying, you know, so you look at the yields today. Everything up to about the two, the threes are down in yield. Everything beyond that is higher.

There's only three reasons the long end would be higher, better growth, higher inflation, or fiscal problems. Do you think it's better growth? Why is it, to your point about how it's disinverting? Why? Fiscal problems. Absolutely fiscal problems. If there was one maturity that I would look at, it would be tens, probably 30s, because it's given you a much more accurate picture.

You know, there was comments that we have a list trust moment should the Trump administration win. We have a list trust moment, no matter who wins, if we keep not paying attention to the fiscal issues that confront us with comments like, oh, don't worry about the auctions, don't worry about the debt, people are going to continue, investors continue, countries are going to continue to buy everything we have until they don't. And there's going to be not a lot of warning. It's just going to change quickly.

And these are the first little warning signs. It's an election year. The stories are going to get nasty and the markets are going to pay attention. I do wonder. In the 30 years of seven basis points to your point, Rick. Okay. Appreciate it. Thank you very much.

Rick Santelli. All right. Let's take a look now at some of the big names bucking the trend today. Lockheed Martin. Those shares are up 3% right now. The defense contractor getting an upgrade to buy over at TD Cowan. Mattel shares are up 10% after. it's better than an expected earnings report.

Tenant health care surging on an earnings beat of its own. Healthcare in general holding up better than other parts of the market. And then check out solar player end phase energy higher, despite posting an earnings miss last night. This is all on optimism. The pain in the solar sector may finally be reaching a trough and turning. Pippa Stevens joins us now with more on that solar story and N phase in particular. Yeah, so you saw there that shows are up 13 percent, meaning it is by far the best performer in the S&P today. As you noted, it was a top and bottom line miss, but their guidance, the high end of their guidance, was within range for Q3 revenue.

And then importantly, the company said it is stopping, undershipping. It no longer has to do that. So essentially, it was a good enough quarter. And the company has turned a corner in the sense that previously, for the past few quarters, it was undershipping to try to correct how much excess product there was in the channel. If you think about it's the exact same thing as retail, when you have too much product, you just want to get it out of there, want to get it sold to the end. and that's what end phase were shipping. And so their revenue in the past few quarters was not indicative of underlying demand. That's now over.

So looking forward, their sales figures will be reflective of what revenue is. However, there's still a very far way to go here. You see there on their quarterly revenue chart, just last year it was above 700 million per quarter. And right now, for the current quarter, their high end of their forecast is 410 million. So still a far cry from that. Also, Sunpower is one of their customers. And just last week, the company said it was halting new leases, halting new installations.

I did ask CEO, Badri Kathandarama, about that last night. He said he wouldn't comment on the specific nature. He said, you know, it's just a hiccup, though, and that if you have demand, there are other players there to absorb it and still provide it, but not good for the overall industry. One of the bigger themes over the last maybe year or so, maybe year plus with regard to solar, was just that supply demand imbalance, right?

We have this fear of Chinese-made parts and components flooding the market, it kind of took the whole industry down. Does the end phase report then mean that the entire industry has more discipline now with regard to how they're going to treat production and rollouts and everything else? I think the issue is that it's still a relatively new industry. It has been around for decades, but they are trying to respond to all this crazy upswings in demand based on what happens with rates. And so when rates were at zero, all these people decided to go solar. There wasn't enough product. And so they, you know, sped up there, they're manufacturing in order to get product to customers. They did air shipping. They took on all

these expenses. And then just as that product arrived, the demand slowed. And so we're so correcting their end phase is a little bit different in the sense that they only do residential markets. The oversupply issues are prevalent across the industry, but it's more focused on the utility scale, the bigger manufacturers. But I think for the time being, a lot of these products are very commoditized. And so they're very razor-thin margins. And so you do have to compete to try to make sure your product's in front, whether that's a more sophisticated product, whatever route you take it is a very competitive industry. Interesting for sure. And you pair that with GE Vernova's results earlier today with regard to alternative energy and you get an interesting picture. All right,

Pippa Stevens, thank you very much for that. Appreciate it. Well, chip stocks are also caught up in the broader tech sell-off today. Invita is down pretty big. You can see right there down roughly, call it five and a quarter percent. We'll continue to track today's action, especially in tech when we return after this commercial break. Welcome back those bellwether semi-stocks living up to their name as we see deep declines in Nvidia and some others. That's sending today's sell-off in the NASDAQ-100 into the 500-plus-point territory. Sima Modi has more in today's tech check. What gives Simiconductor sector as a whole, actually, worst day since July 17th.

And even when you look at the NASDAQ 100, nearly 40% of the losses for the NASDAQ 100 are coming from the semiconductor stock. So clearly these chip names are getting caught up in what's happening today. One data point investors are chewing on is Google's CAPX, how much its spending on technical infrastructure and chips. The fact that the hyperscaler did not change its spending targets for the year is raising some questions as to whether META, Amazon, Microsoft, will do the same. Goldman Sachs and Sequoia have both warned in recent weeks that bigger CAPEX budgets may not be justified, and that is a potential headwin for the chipmakers that rely on that spend. NVIDIA, which sells its chips to all the hyperscalers. You'll see that stock is down about 5% right now.

its competitor, AMD, down a similar amount. Broadcom, which is working with Google to develop its own in-house chip, is seeing its stock fall by over 6%. And then in the analog space, Texas Instruments is holding on to some gains here after reporting better than expected second quarter earnings on the call. CEO Javi Valan said its U.S. operations makes it a geopolitical winner. 75% of its business is based here in the U.S. So one stock here holding up, earnings, of course, will play a more important role in understanding how strong the demand story. Tonight, equipment player KLA Tinkor will report, and city points to its strong China exposure, actually as a tailwind, though recognizes the comments made by former President Donald Trump as a potential risk.

So we'll look for those results tonight, guys. It's hard to imagine in a world where the CAPEX budget that was reported by Alphabet is somehow going to be not good enough or, you know, in some ways, not robust enough to carry this trade all the way through. Just how much do these hypers, these industrial-level type spenders on IT, how much do they have to spend to make the chip trade better or more attractive or keep the momentum going? Well, it's all about context, right? These companies in the chip space have run up so far, so fast,

on the prospect of more spending by hyperscalers. So any sign that they're either pulling back or being a bit more conservative on CAPEX going forward is being seen as a potential headwin for these companies. All right. Sima Modi with the latest on chips. Thank you very much. Let's get out now to Julia Borson for a news update. Good afternoon, Julia. Dom, Israeli Prime Minister Benjamin Netanyahu is addressing Congress right now in a controversial bid to bolster U.S. support in Israel's war with Hamas. Netanyahu insisting in his speech that American Israel must stand together as he promised lawmakers, Israel would defeat Hamas

in Gaza. The speech sparked boycotts by some Democrats and drew, thousands of protesters outside of the Capitol building, angered by the humanitarian crisis in Gaza. A Capitol police official says officers are deploying pepper spray towards any demonstrators trying to cross the police line. Finally, Salt Lake City will officially host the 2034 Winter Olympic Games. The International Olympic Committee announced the decision today. Salt Lake was the only city in the running, so it seemed like a shoe in for weeks. But late concerns came in from the IOC about U.S. authorities possibly not supported the embattled world anti-doping agency.

It will be just the fifth time the U.S. has hosted the Winter Games and the second time in Salt Lake. Dom, back over to you. It was the only city in the running? Yes. The only one. Yes. It takes a lot to go and do that kind of thing for 2020.

I mean, in 2030, they're going to go to the French Alps. A French Alps. Yeah, that's where it's going to be. Anyway, Kelly, still ahead on the show. Inflation may be easing, but it's still affecting restaurant owners and other entrepreneurs and taking a bite. out of some of those stocks today.

It's an issue that's sure to come up in this election cycle as well. We're going to ask billionaire power player, Tillman Fertita, to weigh in when Power Lunch returns after this. Welcome back to Power Lunch. What we want to show you and call your attention to right now is the three plus percent drop in the NASDAQ composite index. It's down 570 points to a level of 17,427. The move is at session lows,

right now. We should also point out that the broader S&P 500 large cap is also now down towards its session lows. The Dow is hovering towards its lows, but not there yet, but we're making fresh ones, Kelly, in the NASDAQ composite and the broader S&P 500. And amid the broader tech sell off today, the restaurant sector is also getting hit. Full service names like Cracker Barrel and Brinker are falling more than 4% while fast casual restaurant stocks like ShakeShack and Wing Stop are also down about that much. This is in part due to those disappointing, really disappointing, appointing earnings from Lamb Weston, whose shares are down 28%. It's the worst performer in the S&P today. And on pace for its worst day ever, they're the French fry maker, citing a slowdown

in restaurant traffic in the U.S. and posting guidance well below Wall Street estimates. Joining us now, someone who knows a thing or two about the restaurant space, the consumer, so much more. Tillman Fertita is chairman of Landry's. That's the name behind Del Friscoes, Mastros, Steakhouse, the Rainforest Cafe, Bubba Gump, so we could go on. The Golden Nugget and Casino Chain, the NBA's Houston Roggitz, Tillman. It's great to have you back. It's been a while. How are you?

It's great. It's great to be back. We've all been busy. So here we are. You know, of course you have to come on on the day in which the French fry maker is crashing. What's going on with your restaurants? Well, it's kind of funny because in an earlier episode, you talked about how Don Perignon is down. And that kind of talks about the high end.

But Lamb Weston is really everybody. It's a great measurement, and I've never seen I really take them before. But all restaurants, no matter if it's the high-end steakhouses or a rainforest cafe and above a gum, we all use French fries. And if they're down, the restaurant business is down. And what happened is exactly true. And the consumer was strong for so long, but we're just feeling it everywhere now. And I think that's why LVMH and you're going to start seeing your restaurant stocks, they're coming in a little lower because people just aren't shopping and eating like they used to. And especially the high end.

And like I said, we sell as many french fries as anybody. But having Mastros, Martins, Del Frisco's, Catch, Palm, the strip house, that's the steak effect. And the stakes serve in U.S. prime are high end. And so just like the French fire effect and the Don Pernion effect, we're feeling the steak effect right now that people don't want to go out and spend $70, $90 for a piece of meat. So, Tillman, it's Dom here. You just laid out the broadcase across the entire consumer spectrum over whether or not there's not necessarily a crash, but that there is more caution developing. I wonder as a business owner and somebody who's done a lot in terms of developing businesses, do you feel as though, this economy in America can avoid a hard landing type recession, or do we just have to kind of bank

on this idea that the Fed is going to be the huge focus, and that's what's going to bail us out? I don't think we're going to have a super hard landing, but I do think that, you know, lowering rates, it's unbelievable how strong our economy has been, that it's teethered with these high rates, and the home business as bad as it's been has still been okay, and the high-end business has still been okay. So I think if we would start lowering rates, it's going to definitely soften it. But you can go back and see what I said two years ago

when they were talking about the economy. And I said, until there's a problem with not being able to hire employees anymore, and there's too many and everybody's not jumping jobs for 10,000 here, or 20,000 here, or 50,000 here, the economy is going to be good. And the economy has been good because of the employees that so many people came out of the workforce after COVID, that there just weren't enough people out there for companies. And now you're seeing it soften.

Everything slowed down. People aren't having the turnover and people aren't moving jobs. And that's the biggest sign of it all is what's happening with our labor base out there. And when that slows, everything slows. Although I hear you talking more about normalization, Tillman, than kind of that hard landing recession question. And I wonder, and now, of course, we run head on into the election cycle. And I don't know if you think that's going to be a swing factor.

I don't know, you know, what a factor it's going to be. If Trump wins or Kamala wins, you're talking about two just totally different philosophies and from an extreme area of how they see the world. And I do think that the vice presidential pick is going to be more important this time. And I think that if Kamala chooses somebody like a Mark Kelly, who is a hero, whose wife is Gabby Giffords from all the people that do not like guns, I think that it kind of goes back to the Sarah Palin and John McCain, that she hurt him,

Not necessarily that she should have, but that's what the media's perception was, and they used it. But I think that the vice presidential pick this time has a little more effect than it normally does. And if Kamala picks the right vice president here, who's totally different from her, and marks a man's man, and who is a great speaker, who has shown his leadership, I do think that it could be tougher for Trump and J.D. Vance than I thought. And I've met J.D. Vance. He's a really nice man who's extremely, extremely intelligent. But I'm worried if they choose the right VP, I think we could really have us a battle on our hands. Tillman, speaking of optimism and caution and the VP picks, would you venture a,

an opinion as to what you think would be the better business administration, hypothetically speaking, from your standpoint. We've asked a number of our guests over the course of the last several weeks about predicting or trying to extrapolate what they think is going to be a friendlier environment for business owners across America. You're a very successful one. What do you think? What would you prefer?

Well, that's quite obvious what I would prefer. and what, you know, if you just look at history, you know, a Republican administration is always going to be better. You know, maybe not history, but what's happened is that the last couple of Democratic administrations have just made everything so regulated. And I'll say this again, is you used to go do an M&A deal and get your bankers and get it all signed up and then go to the lawyers. Well, now you have to go to the lawyers and say, is there any chance we're going to get

this through the SEC and the FTC and the FCC. And it's a totally different ballgame. And it depends truly what party you have been supportive of, how difficult it is to get something through these commissions. And these commissions, you know, are totally controlled by the administration in charge. And it's always going to be more difficult, you know, in a Democratic administration. And that's just the way it is. But then at the same time, People tend to flourish more under a Democratic administration. So, you know, it's kind of, you know, one of one and one of two. Or I was going to say maybe with Trump's vice presidential pick,

you know, he's said Lena Khan is the best person in the administration, so even that M&A issue that you mentioned maybe isn't quite so friendly. Let's tiptoe away from politics for a second and talk sports, Tillman, because there had been some reporting about the Warriors maybe trying to sell a chunk of the team of the loss or whatever. and CNBC has said that doesn't not appear to be the case. If anything, sports valuations keep climbing. But we've talked quite memorably about this a couple of years ago in wondering just how much higher could they go.

Who can afford to kind of keep bidding at these valuations that I don't know if there's anything new you'd want to say on that front? Well, I mean, I go back to, you know, what I've said and created a laugh was you can't just be a middle class billionaire anymore and by a sports team. And I think that's why, you know, you see in the NFL right now starting to allow a certain amount of private equity to come in to compete with everything else. I see all the deals that come out there, you know, from soccer to basketball to baseball to football. And it's hard to sell a minority partnership to these people because remember, when you start talking about teams at just $4 billion, a 5% owner now is 200, million dollars and not to have a seat at the table owning 5% is different than when I was a 5%

owner of the Rockets and had a million dollars 30 years ago. And so, and you didn't expect a seat at the table, but $200 million is still $200 million. And so it is a problem, I believe. Now, these two, these new TV contracts are going to continue to help. And then I've all, here's another one that I've always said is you have a lot of these super, super billionaires who aren't interested in owning a sports team, but because they would rather try to save the world and this and that, and they just have no desire. But you know what's happening now? Their kids and their grandkids do want to own a sports team. And so all of a sudden, people that had no interest whatsoever, and I'm not going to get into names, but I know of three

acquisitions just in the last 12 months where they either bought control of the team or bought a huge minority interest in a team. So I do think they're going to keep going up, but for different reasons now. That is fascinating. We haven't even talked about private equity. That's the next conversation. Well, they're going to have to bring new players in, maybe on the NFL like they have with the, or NBA, no, whichever. Tillman, thank you. Oh, we'll go. Well, now the NFL, the NFL is allowing private equity supposedly in the next few months. That's the rumor, right? You can only imagine. I mean, you've got to bring new buyers in when those middle class billionaires, no matter how much their kids like those teams. They can only go

so far. TILB, hope to check back in with you soon. That's exactly right. Thank you for making the time. Tillman for T-MU. Thank y'all. Be sure to mark your calendar for CNBC's second annual game plan summit on September 10 in Los Angeles. It'll bring together leaders, visionaries from across the sports and entertainment world to learn more and register. Just scan that QR code on your screen or go to CNBC. events.com slash game plan. We've got much more market coverage coming up when power lunch returns after this commercial break. The Dow's down 400 points right near session lows.

Welcome back. It's time for three-stock lunch. Here with our trades is Doug Butler, Rockland Trust portfolio manager. And up first, we've got AT&T on a day where the markets are selling off. The telecommunications giant is up about 5% after reporting an additional 419,000 wireless phone subs. AT&T saw quarterly earnings per share that were in line with expectations, but revenues came in shy of the mark. So, Doug, what's the trade on AT&T? No, it's a hold. It's a solid yielding company, but really, we think that it's had a bit of a run, and you probably should be comfortable holding onto it, but we certainly wouldn't add more, especially on the pop today. They're not going to get another time where they beat subscriber

additions by the amount they beat this past quarter. That was a phenomenal quarter, and great, great news, but stock's pretty fully priced here for a telecom. All right. Let's see how you feel about Seagate then, which is higher today after stronger than expected Q4 results. It's up, call it 4.5%. But it's up 85% in the past year, Doug. Yeah, I think that's why we're very much take your profits, take the win, and head for the exits here. The operating margins went past 30% and seems like the street has that continuing. We generally don't think that operating margins in this business can stay that high. We think that now has your chance to take your winnings and find something else to invest in, which gets us to.

Like meta, which I don't even think we have time for, but I know it's a buy for you, Doug. Come back when we have a little more breathing space. We appreciate your time today. And thanks for joining us, Doug Butler, with Rockland Trust. We're continuing to track the sell-off on Power Lunch Returns. Okay, welcome back. So we've got a quick check on the markets right now. What you're seeing is a NASDAQ composite index that's down almost three and a half percent on the day.

This is going to be the worst day if it stays this way, going all the way back to, I believe, 20, 22. It's certainly the worst of the year. We're down 610 points for the composite index. So it's something to pay attention to. If you look at the losers with regard to the large cap side of things, it is Tesla, Trade Desk, super microcomputing and roper technologies as well. Moving on to some of the Dow losers and S&P 500 losers, the Dow Lagerds, Microsoft, Visa, Intel, and Apple. And then with the S&P, it's going to be some of those names as well.

Lamb Weston, we talked about that, Kelly, Tesla, Super Micro, and obviously you could trace this back to Alphabet's earnings and whether, you know, those investments, how big they are, whether they're warranted. I just want to throw out a mention for the yield curve, because it's really bizarre to see short-end yields dropping, long-end yields rising, and I wonder how much of a headwind that is for big tech. Or for banks, maybe a tailwind-ish, if things get normalized, we don't know. So that's going to be something to watch.

I want Mike Santoli's thoughts. There you go. Thanks for watching Power Lunch, everybody.