Power Lunch - Stocks vs. Bonds, and Back Down to Earth 3/31/23

Episode Date: March 31, 2023

Market turmoil & rising bond yields have some investors willing to sit on the sidelines and take the steady returns in treasuries. But are they going to be sorry later? We’ll hear both sides of the argument in a ‘stocks vs. bonds’ bull fight. Plus, Richard Branson’s Virgin Orbit is cutting nearly all of its workers and ceasing operations for the foreseeable future. We’ll discuss the latest black eye for the once-hot SPAC space. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hello everybody and welcome to Power Lunch. Alongside Contessa Brewer, I'm Tyler Matheson. Coming up, market turmoil, plus the rising bond yields have some people willing to sit on the sidelines and take steady returns in treasuries. Are those people going to be sorry later? We've got what we're calling a bull fight coming up. Stocks versus bonds, we'll hear bulls on both sides. Plus Richard Branson's virgin orbit cutting nearly all its workers, ceasing operations for the foreseeable future. the latest black eye for the once red, hot, space, space. We'll get to all of that. First, let's check on the markets now.

Finishing up the week with gains, and there you're seeing green across the boards. The Dow industrials up three quarters of a percent, S&P 500, up nearly a percent. You've got the NASDAQ at 1.2 percent higher on the day so far, and the Russell 2000 up one and a third percent. Let's get right to Christina Parts of Nevelas for a look at the day's biggest movers. Hi, Christina.

Hi, that's why I'm wearing my green today. But the first quarter is coming to a close like you mentioned. NASDAQ is the clear winner, over 15% higher, snapping its longest losing streak since 2001, the year of the first Harry Potter movie came out. The S&P up 6% heading for a straight second quarter, positive quarter, I should say, and only the Dow is expected to end flat for this quarter.

Semiconductors, though, making some news today with Chinese regulators announcing they will review micron chips for security risk. Micron shares, you can see, are 3% lower, but still up about 22% percent. this quarter. Sounds like good news, but still trailing. The Van Eck S-M-H-E-T-F, which is a great barometer for the chip sector. And by the way, the much beaten down Intel, still the best performer in the S&P 500 this month and on pace for its best month also since 2001. And investors seem to really like the new 2024 product

launch timeline. Tesla leading the consumer discretionary sector higher today. Investors are buying into the name ahead of its Q1 delivery and production numbers that are expected this weekend. The recent price cuts are expected to help. And lastly, shares of General Electric trending about 1% higher after settling patent disputes in the U.S. and Europe with Siemens Gamesa and getting a price target upgrade to $110 by Morgan Stanley. Shares are about $95 right now. Christina, thank you very much. Well, as we close out the first quarter of the year, The word of the year so far has been volatility. The Fed's interest rate hiking campaign has sent equities scrambling while yields have gone haywire following the fallout from the banking system stress and mess.

But what is the better investment now? It's time for a good old-fashioned bullfight between stocks and bonds. On one side, we have equities largely outperforming this year with the S&P up more than 6% in the NASDAQ, 16% higher. Best quarterly performance for that one in over two years. On the other side, yields have come down from their highs and are lower than where they started the year, but are still sitting at levels not seen in quite some time with a six-month T-bill paying nearly 5 percent, down from where it was, but a nice return nonetheless. So where should you put your money now?

Here on the equities bull side is Mike Binger, gradient investment president, and on the fixed-income bullside, Maria Shrin's Circle Wealth Management Managing Partner. Maria, let me begin with you and clarify something here because I don't want to suggest that by calling you the bull for bonds, that means you are a bear on equities and think people should be selling equities and moving into bonds. Have I got that right? Absolutely. I do not think that being a bond bull means being a bear for equities. I think this is one of those periods where we can go back to the old-fashioned asset allocation and have. both asset classes because both have merits at this point. But what you do say is if you have incremental money to put to work right now, given where yields are on bonds and a particular point in the maturity spectrum, we'll get to that in a minute, where bonds are now and where stocks are now, that the incremental return you

would earn from stocks may not be worth the increment to risk. versus bonds. Have I got that right? Absolutely. All we have to look is after the rally that we've had this year, where valuations and the equity risk premium are. Stocks, whether it's large cap, are trading above their 30-year historical average P.E.s of 16 times. We're right now at 18 times. Small caps are almost 23 times. And the equity risk premium is at the lowest we've seen for a long time at 2%, where typically it's 3.5%. So it's very hard to make the case that new money should be going into equities at this point. Where on the maturity curve would you be emphasizing investments? And would you be going for high quality versus high yield? Would you be going for

munis if it isn't a taxable account that you're looking at? Yeah, we like the shorter to intermediate part of the curve because you can get actually higher returns that longer bonds or 80 to 90% of the return of longer bonds in the two to four year intermediate maturities. We also like higher quality bonds. They are a safe haven. We think that they're a better place to write out the uncertainties that we're seeing as opposed to higher yielding credits where the credit crunch resulting from the banking stresses that we've seen over the past few weeks have not been.

fully known and have not been fully developed. And so we prefer high-grade bonds at this point. Okay, so Mike, bring it in for us. Lay out your bullcase for stocks right here and why we should be feeling confident putting our money where the equities are. All right. I got a bunch of reasons. I think that we're in the ninth inning, if not the bottom of the ninth of the Fed increasing interest rates. I feel once that's done, that should ease the strain on the banking system. I also think that inflation is going to trend lower and probably exit 2023 in the 4% area. And, you know, I'm not as much of a bear on corporate earnings as a lot of people are. I actually think we're going to find that, you know, corporate America has got very expense conscious right now,

and that's going to keep earnings at an elevated level. And as we look out to 2024, I think earnings stand a good chance of growing 10% plus. So you put this good stew together, and I think you have a market that will feel, pivot in September, start looking into 2024, and you have an economy that's growing. You have corporate earnings growth of 10% plus, and you got stock valuations that, you know, they're not bargain basement, but they're not bad right now. So you say you put an 18 multiple on 250 or $260 in corporate earnings. That's how you get to that 45, 4,600 on the S&P 500. There is a lot of uncertainty right now. I think that you're hearing people feeling

nervous about what's coming down the pike, more broadly about whether recession is still in the picture, what's happening with the banks, what's happening with this rolling credit crisis and what toll that might take on the markets right here. With all of those factors considered in, and you're right, you know, the companies are showing some intense efforts on efficiency, which are being applauded by investors, but that means people lose their jobs and there are opportunities that go down. Given that, given all the answer, Are there names that you particularly like where stocks or investments are concerned? Yeah, I mean, I really like U.S. Bank right here.

I mean, this is a top five bank with all this turmoil. You know, their deposit base is actually grown. You know, they're right here in the Midwest. We're in Minneapolis. They're in Minneapolis. They're a conservative bank. They're diversified. They're deposit based.

You know, when you can get a bank like that at a six or seven multiple, I think that's a good one to go on. The second name I like a lot is Google down here. You know, Google is, they're still dominant in search. YouTube is still dominant in video. You know, people are getting way too carried away in this pullback over chat GPT versus Google bar. I mean, that's so far down the road as far as revenue generation and part of the business model. I think it's a good opportunity to get into Google right now, a dominant secular growth name.

All right, guys, thanks for the argument there. It really wasn't an argument. I mean, there was widespread genial agreement, I guess, basically. Mike Binger and Maria Shrin, thank you very much. We appreciate it. Thank you. While tech is keeping the stock bulls raging, not every group is living their best lives. Retail is struggling here, trying to regain some footing, with nearly every discretionary category weakening, except for one, beauty.

Melissa Rupko is here to talk a little bit about this. What are you seeing when it comes to spending on this? category. So Contessa, discretionary merchandise is really pressured across the board, both in terms of sales and also in terms of units. So we've heard that discretionary is down about five percent in both those categories, dollars and units. But beauty has stood out as the bright spot, and along with groceries, that's what retailers are using to drive people into stores. We've seen a lot of retail look at high-end strength, the luxury market holding up, and really starting to see weakness in that lower end categories. What's the case in beauty? Is it the same?

So I spoke to ALTA CEO Dave Kimball earlier this week, and he was saying there's a couple of different dynamics that are helping beauty. One is that it's an importable luxury. It's like a little thing that you can get. Some people call it the lipstick index that as the economy goes down, often lipstick sales, beauty sales go up. So that's one factor he mentioned. But he also spoke about how it's a routine people got into during the pandemic. So they got used to a different skincare routine, a little pampering of themselves, and also connecting beauty to wellness and health. So he says that's also making it more resilient and sticky, even as people pull back in other areas.

Is beauty tied to the level of tax refunds? Tax refunds are a factor here, but again, beauty seems to be holding up. But we are seeing tax refunds under pressure, and that's really bad news for, again. Lower this year than prior year. Yes, actually, on average, tax refunds are trending around $400 less per person, according to Wolf Research. So if you think about $400 and you multiply that across people, that adds up pretty quickly. That could be... That's a lot of lipstick.

It could be a lot of lipstick. It could also be a flat screen TV or some of those bigger ticket items. People may have a harder time justifying until they get that surprise check in the mail or in their bank account. So that is another factor here. But again, beauty is a smaller price point. Is Alta the hot name here? Ulta is definitely rising to the top, and that's why it hit an all-time high today.

It also was accompanied by Elf Beauty, which is a brand that hit an all-time high today for its stock, too. An elf is very affordable. This is at the, you know, I would call this like the teenage brand in the drugstore that you go in and every teenager can afford to spend their allowance on Elf, right? Yes, exactly. That's a very good point, and that's something that cuts across both Ulta and Elf. When I spoke to Dave Kimball at Ulta, he said, no, we have across the board

price points. So they have some of the brands you might see at a drugstore. They have some of the brands you might see at a luxury retailer like a Bloomingdale. So he said they are, you know, hedging their bets that way. And with Alth, for example, I spoke to their CFO and she said they are actually gaining more traction among older consumers who are looking to save on those beauty items too. I'm curious what you see in terms of trends here because when we were talking about the return to the office, there was this expectation that everybody would go out and buy new work clothes maybe to fit changing bodies from the pandemic weight gain or loss. And maybe a decline in athleisure, for instance, Lulu Lemon. Okay. If you apply that to beauty, the one thing that strikes me is that we all got used to these Zoom calls where you're looking at the camera and now you can see yourself the whole time where in normal times, if you're not on television, you look at the mirror. in the morning before you leave and then that's it.

If you're on a Zoom, you're seeing yourself as you really are. And whether that's carryover, if that's the carryover now for beauty. I think that's a really fair point. And I think that that is part of the reason why it's sticky too, because it's one small thing you can do to make a difference. Maybe you can't afford that blouse, but you can afford to upgrade your makeup just a little bit to put on that extra eyeliner or do something to make yourself pop and feel good,

even if you can't go and get a whole new work wardrobe. Is the beauty going to help lift the Macy's, the Bloomingdale's of the world? It could, but really every type of retailer is leaning in, not just the Bloomingdale's of the world. Dollar General this week said it's going to devote more aisle space in about 300 stores this year to beauty. And it's going to be having more things like that front and center, everything from lip gloss to bath bombs. So really we're seeing both the low and the high price point retailers lean in because they know people are still buying these products. I feel like this was a Today Show segment. I really enjoyed the makeup chat.

Yeah, makeup chats, makeup. Blending. I like the bad. Yes. Yes. Melissa, thank you. Thank you. All righty, coming up, breakups and shakeups.

JD.com follows Alibaba in splitting itself up. Richard Branson's Virgin Orbit shutting down, basically. And three Canoe Health Board members resign, but they don't leave quietly. We'll have all the corporate drama ahead on Power Lunch. time for today's tech check. First, it was Alibaba, now JD.com, splitting itself up. Let's bring in Deirdre Boza for more on this trend. Deirdre, is this just coincidence? It can't be. Well, Chinese big tech, it's not that dissimilar to our own big tech. These are sprawling empires with many different businesses under one umbrella that have gained huge influence over

different spots of the economy and have collected a ton of data along the way. No, this is not a coincidence because if this is the new playbook for Chinese mega cap tech, spinoffs, etc. JD.com and Alibaba, they may only be the start. JD.com is the second public Chinese tech company in a week to announce that it's breaking up its sprawling businesses by targeting Hong Kong IPOs for property and industrial units. Alibaba was just a few days ago. It said it would split itself into six different independently run companies that could seek separate IPOs.

So who else could follow? the biggest names in Chinese tech, if they so wanted to, or if Beijing so wanted them to. Take Tencent. Let's take a look at its businesses. It pioneered the super app model with WeChat or Weishin, as it's known there, but it also has games, advertising, fintech, cloud, media. It's also been one of the most active startup investors over the past years, taking stakes even in American companies as well, like Fortnite Maker Epic Games. Let's take a look at a few others, Baidu, known to many as the Google of China, but it's evolved. over the years. In addition to search, it has AI, autonomous driving and clouds. You could see this

being a company ripe for this kind of model. There's also Pinduo Duo Chinese e-commerce darling. It is pushing abroad with Timo. You might have seen those commercials during the Super Bowl and also expanding its logistics footprints like some of its other e-commerce siblings in the space. Others from Maituan to Bight Dance, they could follow the spinoff model as well and potentially unlock billions in value in terms of new IPOs. But as always, guys, buyer beware. It wasn't all that long ago that Beijing was pushing a very different agenda that destroyed value at many of these companies and totally derailed ant groups, IPO, which really kicked off that whole regulatory crackdown. And even if it looks like it's easing up on Chinese companies, maybe there's a foreign shoe to drop, right? We saw what happened with Micron today.

So, Deirdre, what does the Chinese government stand to benefit by forcing the split-ups if it's the government behind this? Well, they can say, look, look what we're doing for the private sector. They are unfettered. They can go create billions of dollars in value through IPOs. They can operate independently. But there's another side of this. They also benefit in that they reduce the influence and the data, particularly important, the data held by one large conglomerate.

That's what happened to Jack Ma, right? He was so powerful that he was able to say things about the Chinese banking sector that Beijing really didn't like. And that was the moment where they said, Hold on a second. These companies, these CEOs, these billionaires have become too powerful. We need to knock them down and notch. So is there a sense that it is the hand of government of the CCP that is driving this in part? Absolutely, from people that I talk to on the ground. The companies aren't going to tell you that.

They're going to say that they're unlocking value. But you have to remember that Beijing has really has a hand in everything. And something that maybe we forget about is they also have this thing called golden shares. It's a very small part of these private companies that they take shares in, and it gives them really outsized power to influence decisions and even gives them veto power. So if you're asking me, and I lived in China for a long time, Beijing always has a hand in these things. Dear Drabosa, thank you. Coming up, the Netflix fix, the streaming giants continuing on its journey from a growth disruptor to a profitable operator, potentially cutting back on original movies and curbing password sharing.

Sorry, Mom. Plus, the political toll on TikTok, the controversial social media platform, along with its parents, spending more than $13 million on lobbying. We'll discuss both those stories when Power Lunch returns. Welcome back to Power Lunch on this last day of March and markets rising to end what already was in up week. Let's bring in Bob Pisani for more on what's moving the markets. Hello, Bob. Hello, and I don't want to take anything away from the tech rally, but the character of the, the tone of the market is changing in the last week. And I see cyclicals coming to the fore, and that is a very good sign. It's got the Bulls very happy. Let me just show you what's been

moving this week big. I see reits, which have had a disastrous month moving, like host hotels. I see some of the office reeds moving. I see housing-related stuff like Lowe's. I see home builders doing really well this week. I see transports doing well. The airlines are having a great week. J.B. Hunt's having a great week. And most importantly, I see, autos, Ford, AAP, Advanced Auto, General Motors, all outperforming the market.

This is a very good sign overall when you see technicals moving, tech stocks moving, and along with these cyclicals. Take a look at the laggards, though. A lot of tech stocks are not performing as well as the market. Alphabet and AMD are down this week,

not up. Defensive stocks like United Health, the healthcare group, Humana, Pfizer, are down this week. Another defensive group, Super Staples, like Clorox, Kroger's, they're also down. So you see here cyclicals up, defensive stocks generally to the downside. That's a sign of optimism overall. I don't want to take it any way from Q1 for the tech. I mean, this is amazing when you get your big five or six tech names moving 15, 20%. I mean, look at these numbers. The fact that these are the biggest stocks that are out there, they moved up so strongly. They themselves moved the entire S&P 500.

The rest of the S&P 500 is relatively underperforming. But in the last week, the character of the market is changing. And that's why people are feeling rather bullish right now. If you take a look at the VIX here, this is, I think, the most important chart for the month here, started at 19, went to 30, and then back here to 18. So, Contessa, the bottom line here is it's a Goldilocks thing. The market is anticipating a modest recession and essentially a top in the rate hikes from the Fed coming very, very soon. They might be wrong, but that's how they're reading it right now. They're looking for just right.

Bob Pisani, thank you for that. Let's get a check on bonds. The yield on the 10-year right now flat, about 3.5%. Even as the PCE, the Fed's preferred inflation gauge rose less than expected. This wraps up a wild month for bonds here. Early in March, the two-year yield spiked above 5%. And then during the banking crisis, had its biggest three-day decline since 1986. And let's check out the price of oil right now up slightly today.

Right around $75 a barrel. Remember a week or so ago it was about $67 a barrel in the middle of March. About two weeks ago, I guess it was. That rebound in oil prices leading to a comeback for energy stocks and energy ETFs as well. The energy sector spider oil and gas exploration, Vanek Oil Services, and Vanguard energy, energy, all with big gains this week, as you see right there. Look, 6, 7 percent, or thereabouts. This data come from our partners at Insight investors. We are pulling money out of funds. Nearly $800 million of net outflows from energy ETFs, however, in the last week.

More information available on the F.T. Wilshire ETF hub. Meantime, let's go to Sima Modi for the CNBC News Update. Seema. Tyler, good afternoon. Here's the update at this hour. Starting with weather, more dangerous weather is brewing over the Midwest and South, according to meteorologists from the National Weather Services Storm Prediction Center. An outbreak of severe thunderstorms that could cause hail, damaging wind gusts, and tornadoes are expected to impact at least 15 states. This is just one week after a deadly tornado killed dozens in Mississippi. The Environmental Protection Agency has approved California rules to phase out the sale of diesel-powered

trucks by 2040. The rules are part of the state's plan to cut CO2 emissions and improve air quality in heavy trafficked areas. Wimbledon is reversing its ban on Russian and Belarusian athletes from both countries will be permitted to compete this year as neutral players. They will not be able to show support for Russia's invasion of Ukraine. The tournament is set to begin on July 3rd. Tyler. All right, Seema. Thank you very much. And ahead on power lunch, Lost in space, urgent orbit failing, and falling,

failing to secure funding, ceasing operations. I will explain how a once hot SPAC got to this point when power lunch, Richard. Welcome back. The fix is in it. Netflix as the one-time disruptor

works to reshape itself into a profitable juggernaut with staying power. That includes cracking down on password sharing, which Atlantic Equity says should actually provide a boost to both active users and revenue. Also, Netflix is cutting back on its filmmaking ambitions,

reportedly restructuring its movie division and scaling back the number of releases to focus on quality over quantity. Investors seem on board. Shares are higher today and on pace for their third straight positive quarter. Here to discuss, Gene Munster Managing Partner of Deepwater Asset Management,

it looks like there's a lot of hope that is being put now into this idea that you're going to crack down on passwords and suddenly all these people who've been glomming on to my paid account are going to go and start their own accounts. What do you think, Gene? Well, I think password crackdown is undoubtedly an exciting topic for a story that hasn't had a growth vector to it for the last couple years. And so it's understandable that analysts and investors are looking closely at what this could ultimately mean. And I just want to quickly put some perspective around it. is the number of people that are glommian on,

as you mentioned, it's about 92 million. It's about 40% estimated by Netflix. So the 230 million paid sub-base, but 40% of those have free accounts that are glommying onto it. And most analysts expect that the crackdown will yield about a 10% revenue increase over the next one to two years, which is good. If you take the best case scenario, which I believe that if the best case, they get 40% of those 92 million to start to pay up, that would add just over 15% to revenue.

All of that is good. The problem is that's a one-time bump. Essentially, that's a six-quarter bump. And soon, as investors always look six, 12 months out, they're going to be talking about more difficult comps because of these crack-word, these, the password crackdowns. and asking the question again, what is the true growth of this company? So understand that investors are excited. I don't think this is a reason to own the stock. Keep in mind the first time that they mentioned this password crackdown was back in September.

The stock's up 60% since then. NASDAX up 18%. A lot of this is priced in. The change in revenue, I see what you're saying. The change in revenue would be a one-time bump. The Delta is a one-time bump. But wouldn't you expect that many, if not most of those people who then open their own separate accounts would continue on.

And so you get not only a one-time bump, but you get ongoing higher revenue as a result of this. You get the revenue steps up to a higher base to get the revenue to increase. They would have to either add subs or increase the pricing. They could increase the pricing. So tech is about growth. and ultimately the growth is probably going to have to come from continued price increasing, which begs a question of what's the real value here and just quickly, I mean, the competitive landscape's changed with the past few years.

We know all about it. Just look at the, so I think that there's, it's going to be tougher for them to grow outside of this password opportunity. I'm going to do my one-person focus group with my mother-in-law and see whether she'll take her own, buy her own Netflix. We'll find out. All right, sit tight, jean. We're going to shift gears now. Now, CNBC.com reporting that TikTok and its parent company have spent more than $13 million

lobbying U.S. lawmakers since 2019, an investment that appears to have kind of gone nowhere, given Congress just grilled the CEO amid discussions to potentially ban the app altogether. Let's bring in the reporter who helped break that story, CNBC.com's Brian Schwartz. So, a large lobbying expense, but I can't remember a topic or a time where, recently, that is, where Congress seemed as unified as it is right now about the idea of busting up TikTok or banning it in the U.S. Yeah, you're right, 100% right. This is something really become a bipartisan effort to attempt to ban TikTok.

Now, we don't really know if they're going to actually get to that point. There are variety of bills that are being discussed in Washington right now that could end up banning TikTok from being downloaded on U.S. platforms phones and the like. But right now, there's a lot of chatter, a lot of push in that direction. And it was coming, really, as TikTok and bite dance, the parent company of TikTok spent, as you said, millions of dollars on lobbying. And in many cases, the people we spoke to for this story, either shrugged off the lobbying efforts, the in-person and over-the-phone engagements from TikTok and bite dance to lawmakers on Capitol Hill, or after they would have some of these meetings,

as an example of this, they would move forward with bills that really could hurt TikTok and possibly see it banned at the end of the day. So they don't have that many allies on Capitol Hill. They clearly have a few, but it may not be enough to stop the company from being impacted by future legislation. Brian, are the lawmakers writing off entirely that their constituents use TikTok? And maybe, you know, they think of it as, well, if it's young people, young people may not either be old enough to vote or may be less likely to vote, and so I don't

have to worry about them. But that ignores the fact that a lot of entrepreneurs have a revenue stream from their TikTok accounts. Yeah, you're right. And I think it really depends on who you talk with, right? When you speak to people in and around, people like Jamal Bowman's orbit, right, he was somebody that held a press conference around the time the TikTok CEO was on the hill. And that press conference featured many TikTok users. And I think in the United States, United States, it's about 100 million TikTok users right now. Those are a lot of votes for whoever wants to run for office. And so, you know, if you're a Jamal Bowman or let's say, for instance, an AOC, Casio-Cortez, that is the line they are taking when it comes to why TikTok shouldn't

be banned. But on the other side of things, on the other side of the coin, you have lawmakers who are trying to move for a ban or some sort of impactful legislation on TikTok because the concerns about national security surrounding TikTok and bike dance. So these are the two debates going on in Washington right now. We're going to see who ends up winning it. But right now, as of today, the people pushing for some sort of ban on TikTok appear to be in the lead of this fight. We'll see when it ends up in the next few months. Gene, when we're seeing this back and forth on TikTok, does it raise concerns for you

about the broader issues with tension with China? Great reporting today. And I think it did a great job of framing in kind of the surface of everything that's going on, which is really important and agree with his take that the momentum is moving against TikTok here. But below the surface, I think that there is this question about U.S.-China tensions. And this would be an escalation. This banning of TikTok would be an escalation as petty as it would sound between U.S. and China relations. And I suspect, given other geopolitical things that have between U.S. and China and the last month, two months, that that's something that the Biden administration probably doesn't want to pursue right now.

They're getting pushed towards that end, but I don't think Biden's going to do it. I think that there will be talk of it, and ultimately he's going to want tensions to cool down. Fast forward six, 12 months from now to the next presidential campaign, I think this is going to be a unifying topic. between both sides of the aisle on the presidential candidates. And I suspect that when the new president comes in, whatever side they come from, that a TikTok ban ultimately happened. So I think it's going to happen.

I don't think it's going to happen the next year. Gene Munster, Brian Schwartz. Thank you both for joining us for the conversation. Thank you. Up next, losing orbit. We're going to take a look at the collapse of Virgin orbit. And as we had to break, throughout the month of March, we celebrate women's heritage,

sharing the stories of women leaders in business and those especially of our CNBC teammates and contributors. Here's Wanya Lucas, Hallmark Channel CEO. What makes me proud to be a woman is watching other women excel. You never know what you can achieve until you test your limits. I was brought up to believe that if you see it, you can be it. And every time a girl or a young woman sees a woman at the pinnacle of her career, she can believe that her dreams can also come true. Welcome back to Power Lunch.

A news alert now from Micron, the company out with a statement on China's regulatory review of the company's products announced this morning. Micron says, quote, we are aware the cyberspace administration of China has announced plans to conduct a cybersecurity review of Micron's products sold in China. We are in communication with the CAC and are cooperating fully.

Micron is committed to conducting all business with uncompromising integrity, and we stand by the security of our products and our commitments to customers. Micron's shares have fallen almost now 4%. All right, two once darling space SPAC companies getting lost in the space race. Virgin orbit, a satellite launch service owned by Richard Branson's Virgin Group, failing to secure funding, ceasing operations, laying off almost all of its workforce. But this isn't the only Branson-backed space odyssey that is struggling. Virgin Galactic down 64% since its public debut. At its highs, the stock traded as high as $57 a share, currently sitting at 4. A company once touted by major investors like Chumath Pallihapitia, for more on Virgin Orbit's collapse,

let's bring in CNBC.com space reporter Michael Sheets. Michael, good to have you with us. Just for clarity's sake, I can't pronounce Polly Hopatia, but whatever. Virgin Orbit does what? Virgin Galactica does what? So Virgin Orbit is a spinoff from Virgin Galactic, and the former company, Virgin Orbit, launches satellites into space all the way up into orbit,

which is much further, whereas Virgin Galactic is a space tourism venture that's taking people on short rides just past the boundary of space for a few minutes of waitlessness. Very different technical parameters there, as far as what the technology is trying to achieve. So what has the success or failure rate been of virgin orbit? And obviously they're unable, seemingly, to make money at what they were trying to do. Well, they actually had a decent success rate.

Of their six missions that they launched, four were successful. Their demo first mission was a failure, and their most recent mission out of the United Kingdom was a failure. But for a lot of privately developed rocket companies, getting to orbit at all is a great achievement. But if I'm running space on that rocket to launch a satellite and two, and I'm just got a two out of three chance of success, I'm not riding that horse. Over the long term, absolutely not. And, you know, you'd see insurance rates go up for something like this. But for them, it was really a story about not launching quickly enough. They weren't hitting the launch cadence they needed to actually generate the revenue to even get close to sniffing profitability.

When their cash burn was at something like $50 million a quarter, And that unfortunately has gotten them to where they are today, which is really on the brink of bankruptcy. So Richard Branson, I see, owns 75%. Who else is going to lose money on this? And what does it mean for the broader industry? So the other folks involved, I mean, we're talking about some retail shareholders on a company that's effectively been a penny stock for a while now. But you also have seen the Ameranis sovereign wealth fund, Mubidallah, who's also invested in Virgin Galactic and has invested alongside Branson and other ventures. they were of heavy investor with 18% equity ownership in Virgin Orbit. So there are the other ones that are at stake here. Now, an important thing to think about is that over the last few months,

Branson actually secured his position fairly well, offering debt raises over a period of time where he lent the company about $70 million. That puts him first in line in terms of the value of that asset, which is somewhere in the ballpark of maybe $250 million in terms of what the actual tech and everything is. Is this game set and match for it? virgin orbit or could they come back? It would take someone who's really willing to put themselves out there because one of the biggest problems is even if the technology is still there, even if the airplane they use

to launch these missions is still there, you're talking about losing quite a bit of talent that are going into a very talent hot and competitive market, especially in that Los Angeles area where we see other companies like SpaceX, Rocket Lab, and others who are all craving this type of engineering talent, and that's going to be going elsewhere. All right, Michael, thank you. Michael Sheets. Appreciate it. A big quarter for Tesla. One of the names leading the S&P will trade the name and others in today's Free Stock Lunch. All right, folks, time now for Three Stock Lunch. We are going to sip on some big movers of the

week and the quarter. Tesla, yes, Tesla, on pace to close the first quarter as the third best performer in the S&P 500, up 68%. Caesar's Entertainment, one that Contessa knows. well, trying to finish as the top S&P performer this week of 13%. And Blackberry? I know. Yeah, Blackberry on pace for their best day in nearly two years, despite missing fourth quarter. Well, there was a Blackberry. Here to help us trade them all.

Danielle She's vice president of options at simpler trading. Let's start with Tesla, Danielle. What do you think? You know, I like Tesla here because if you look at, at the way that it gapped up last quarter on earnings, it experienced a 10% breakaway gap. And when you have that kind of pattern, I love to trade it long into the next quarter's earnings report. Right now, you have some really nice momentum and I have an overhead price target at about 215 and 220. But I'll tell traders, there is overhead resistance there.

So watch out for that level. And if it can break through up above November highs, then it will really be off to the races. All right. I can't wait to talk about Caesars. Would you bet on it? You know, I like this one to the downside. Right here, I think it has another $2, $3 of upside up until about the $50 price point. But the overall downtrend is down, so I would short it up at that level. All right, let's move on now to BlackBarre. I thought it was like Polaroid, but it still exists. What do you think?

I don't like this one, Tyler. I think this one's in an overall downtrend and below $5.25, I would continue shorting it. especially when it has a strong move like today. So let's talk about the broader market as we finish up the first quarter. Did it surprise you in terms of the magnitude of the rally we've seen, particularly this month? And what do you, what are you looking for as we move into the second quarter? You know, I think it was somewhat surprising just because when we had the bank crisis, it ended up causing a rally in the NASDAQ when you saw the 10-year fall so substantially.

But you know what happened was we had a really high put call ratio and we still have a lot of shorts in the market. And now we're going into earning season. So I do typically like to trade the NASDAQ to the long side going into April. I think that with the momentum in the market that we're seeing right now, things are coming along really well for that trade. We have Microsoft, Tesla, Apple, all breaking out to the upside. So I think we're seeing rotation into tech. And I'm going to continue looking for that going into April. And of course, some of those stocks that you just mentioned, not including Tesla, but a lot of the tech stocks,

the Microsofts, the apples, the alphabets, they are huge percentage portions of the S&P 500. They do well. The index does well, right, Danielle? Yes, absolutely. That's what I'm looking at here. And I love the rotation that we're seeing into the NASDAQ. You know, the NASDAQ being the relative loser last year when compared to the spiders, it has a lot more upside here. And what I'd really like to see is some continued money flow into this area that we're seeing right now.

With the brakes and the overhead resistance that we've seen this week, we have more upside. All right, Danielle, we have drained the cocktail glasses. Thanks to you. We appreciate it. Daniel Shea. Thanks. And up next, the investor Barry Sternlich, resigning from the board of... Conno Health.

Conno Hill. I was going to say Robinson Canoe. Conno Hill, he's a baseball player. Throwing grenades. One guy got it. Brian got it over there. Throwing grenades as he leaves. The details of this boardroom brouhaha.

Coming up. Shears of Kano Health plummeting today, you can see. Look at that. Following the resignation of three board members, one of them, Barry Sternlicht, who heads up Starwood Capital, was particularly scathing in his resignation letter, which he released publicly. In it, Sternlich writes that his interests are 100% aligned with shareholders.

He points out that he personally invested $50 million of the $1.4 billion, total raise, Sternlicht concludes the management team has spent nearly all of it without showing any improvement in core profitability. He writes, I do not believe Marlo Hernandez, the CEO, should remain the chairman and CEO of the company. And goes on, I have never witnessed such poor corporate governance at any company, let alone a public company. In a public statement in response, Kano says those three directors are focused on the short term. And it accused Sternlicht of being particularly reckless by exposing the board's internal confidential deliberations, which it says undermines shareholder confidence.

The company says it will focus on cost discipline, efficiency, and free cash flow. I did, Tyler, reach out to both Marlo Hernandez and the chief clinical officer, Dr. Richard Aguilar, for comment. I have not heard back. But I had had the opportunity to interview them several times. The last time in September, after there was news that Humana might. be considering buying Conno Health. And we saw the stock rise at that time. And Hernandez played coy about it and said, you know, it's a great partner. There was also rumors about CVS health

being interesting. None of that has come to fruition. For those of us who don't know Conno, what do they do? They have health centers in some seven states. And basically what happens is they'll take a fee from the insurer, mostly Medicare or Medicaid. And then with that fee, they're responsible for all the costs of that patient. Primary health care, mental health care. If the person has to go to emergency. Yes, they go to their facility. But if the person has a hospital stay, Kano's on the hook for that cost. Their theory is if you treat people holistically, that they won't have to go to the hospital, that you lower the cost overall. More emphasis on prevention than on curing. Yeah. Okay. All right, it's good to have you here, contest. It's always fun to be with you,

Taylor. Thanks for coming. And thank you for watching. We appreciate it.