Power Lunch - Stocks vs. Bonds, and Im-balance Sheets 3/8/23

Episode Date: March 8, 2023

With yields soaring and stocks tumbling, many investors seem happy to take a 5% yield on a 3-month treasury bill.But will those same people have a serious case of “FOMO” if stocks start to rally? We’ll debate.Plus, we’ll look at the impact that rising rates are having on corporate balance sheets, and what it means for your money. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, everybody, welcome to Power Lunch. Good to have you with us alongside Kelly Evans. I'm Tyler Matheson. Coming up, stocks and bonds duking it out for your money with yields soaring and stocks kind of stumbling. Many people seem to be happy to take 5% on the three-month, six-month T-bill, including my wife. But will those same people have serious case of FOMO fear of missing out if stocks start to rouse? T-bill and chilled are calling it. I love it. The impact rising rates are having on corporate balance sheets. Companies are rushing to issue debt before. four rates go even higher. I will walk you through it. But first, let's get a check on these markets. We had yesterday's big selloff. Looked like a better tone initially today, but we've seen the NASDAQ, which had been positive, turned lower by 15. The S&P below 4,000 down a quarter percent. The Dow down half a percent. We are going to get to Chair Powell's day two of testimony in just a minute, as well as the breaking news on the beige book, my most favoritely titled book of all time. But before we get to do that, we're going to go to two people who are anything but beige,

Dom Chu and Christina parts of nevelas. Dom. Blue and looks like yellow over there. Anyway, let's talk about first. Shares of Brown Foreman right now, Tyler, which are down, just about 6% now 5% off-session lows. One of the worst performers,

if not the worst, than the S&P 500 today. This is the beverage alcohol company, brands like Jack Daniels whiskey, Woodford Reserve Bourbon, Finlandia vodka, my wife's favorite Sonoma Katreira wines, amongst others.

They reported what's being seen as more mixed results. On the one hand, Brown Foreman was helped by more demand for premium bourbons and tequila. On the other hand, margins were hurt by inflationary pressures and supply chain issues, so a big down day for Brown Foreman. Sticking with consumer earnings, there's Campbell's Soup, which is higher by over a percent. This is the packaged food company behind namesake soups, pepperage farm snacks, and V8 juices.

Better than expected profits and revenues here, helped along by more demand for its ready-to-eat meals. Campbell also, by the way, raised its full-year profit and revenue growth forecast. Those shares up 1.5%. And let's end on a pay raise for American Airlines pilots. C.E.O. Robert Isam said the company will match the pay increases that competitor Delta will pay its pilots. The package at American will include a 40% cumulative increase in pay over four years. Remember, Delta kicked things off last week after it agreed to a four-year deal to up its pay for pilots by 34% alongside other quality of life improvements. So American airline shares up fractionally helping with that bit of news.

So let's send it over to Christina Parts and Nvelas from the NASDAQ with a check on the tech trade. Well, what we're seeing is semiconductor names that are leading the NASDAQ higher today. Marvell AMD are up over 2%. But I want to focus on Lamb Research for a second. It's one of the top performers of the NASDAQ 100 and Texas Instrument, because both management of both those companies are speaking at a Morgan Stanley conference today. And they're both pretty much saying that lagging edge semi-capital expenditure should remain elevated for a while. So that is seen as a positive for equipment makers.

There's a lot of news, though. Constituent on semiconductors leading the S&P 500. today. Recall that just last week, Elon Musk said that Tesla aims to use 75% less silicon carbide in its next generation EVs, whenever that happens, and on semi-fell dramatically last Thursday in reaction. But today, you're seeing shares up over 4%. There was a Bank of America notes naming this silicon carbide producer's a top auto pick that could jump another 25%. The stock is already up 30% just this year alone. And lastly, I'll end on Qualcomm, because it was trading a lot higher this morning and is still in the positive territory after announcing a 7% increase in its

dividend. Their annual shareholder meeting just ended too. I just listened there. No new news, but nonetheless, the stock is higher, eight tenths higher. All right, Christina, thanks very much. Christina Parts and Avales. Let's go to the bond market now and Rick Santelli. Rick? You know, Tyler, before 10 o'clock Eastern, pretty much the markets were a lot different, especially in long maturities. Look at the intraday of tenure and realize some of the news at that point was pushing rates lower. Long-dated treasuries like the tens prior to 10 o'clock Eastern were trading. Let's go to the two-day chart under yesterday's low yields.

One of the reasons, well, Bank of Canada, a pause, a large central bank pausing. They paused at 4.5%. They want to let it simmer a bit and see what happens. That did have an effect here. But it quickly diminished because at 10 o'clock Eastern, you had powell, you had stronger and expected jolts. All of this, of course, hitting, and as you look at the two-day chart of two years, affecting them in a much

dramatic fashion, then long-dated. Hence, they were making more of an inversion in the yield curve as investors really started to parse the notion that on the back end of this, at some point, not too distant future, they're going to be successful in controlling prices because they're going to knock out the patient. They're going to put the economy in a slow-mo coma, and that coma is what's affecting this spread. economic growth ahead. And if you look at that chart, that one-week chart of twos versus tens, just yesterday morning it was, what, at minus 92, it's now minus 108. And Fed Fund futures for October, and if you notice, this is a one-week chart, they're moving lower, which is a hint about

beige book to come out, but we continue to see that Powell over two days has really raised the percentages of an aggressive Fed. Kelly, back to you. Well said. Thank you very much, Rick. The Fed releases the beige book moments ago. Steve Leesman digging through all the red and yellow and green highlights, and he joins us with the details. Steve. Thanks, Kelly. Yeah, the Federal Reserve's collection of economic anecdotes from the 12 Federal Reserve Districts, has economic activity increased slightly in the six weeks over the period. Inflationary pressures did remain widespread, though price increases moderated in many districts. So that's good inflation,

news, labor market conditions, however, did remain solid. Six districts indicated activity expanded at a moderate pace. Supply chain conditions continued to ease was another of the big headlines. Their consumer spending held steady. Auto sales were little changed. Inventory levels did improve. Inflation continues to reduce consumer income and discretionary spending, according to the base book here.

Concern was expressed about rising credit card debt in several of the districts. Travel and tourism. a stalwart of this economy these days. It did remain strong. Manufacturing activity stabilized. Interesting comment here because there had been a period of contraction. Housing market remaining subdued. Labor availability did improve slightly, so a little bit less tight maybe.

I don't think you say it's a loose job market. Firms were beginning to reduce remote work options. We've all heard stories about that. Wages increased at a modest pace and wage pressures eased somewhat. A few more headlines here. The input costs rose further for energy and raw materials. There was some price relief, however, for freight and shipping costs. We've been reporting about that.

Firms were finding it more difficult to pass on price increases. That, of course, is bad for profits, but good for inflation. And selling prices increased moderately in most districts. Several districts, however, saw a deceleration in price increases. And, Tyler, that's as far as I got. That's pretty much. That's that. It gives us the heart of it, Steve.

Thank you very much and do stick around as we continue. Not bad for three minutes at work, right? That's not bad. You jam it in, my friend. Let's continue the conversation because one consequence of the Fed hiking so aggressively, higher rates, got now attractive competing for cash in savings accounts, T-bills, CDs. According to bankrate.com, you can get more than 4% on high-yield savings accounts or money market funds

and over 5% on some CDs. or you can log on to Treasury Direct and get greater than 5% yields on T-bills that all mature in a year or less. So is cash king again. Let's bring in Greg McBride, Chief Financial Analyst at bankrate.com. Greg, I think the last time this conversation was relevant, you and I were probably in our 20s. But at any rate, and that's a long time ago for me, less so for you. Investors, savers who want to find a good place for cash, what's the best place? for it right now. I'm looking at a yield of 5.3% on a six-month T bill. Why not just go on Treasury

Direct and put some cash in there? The best yields in 15 years, Tyler, how can anybody's count? But yes, it yields over 5% on those short-term treasuries. If you can look at the money for six months, that's certainly very attractive. I think for the majority of individual investors and households that are short on emergency savings. Keeping that money liquid is better. After the Fed is still active. Even though those shorter-term securities have minimal interest rate risk, you don't want to find yourself in the position on having to liquidate it prior to maturity. You'd rather just have that couple of clicks away than all that seems. And you find that combination of yield and liquidity in money market funds, for example.

I guess in some savings accounts you could get that. But it's basically money market funds and short-term bond funds. Am I correct, Greg? savings accounts money market funds great for the brokerage account you've got money you're putting into the market for time or you want to be able to move quickly if the market has a bad day the money fund is great for that those short-term bond funds I think that's a little bit made more of an asset allocation decision but again with short-term treasury yields over 5% there's some pretty attractive yields there in those short-term treasury funds I don't know that

you're necessarily being compensated for the risk with very narrow corporate bond spread so I don't think it makes a whole lot of sense to stretch for yield in an environment like that. Steve, let me turn to you and I'm looking, we're looking here if we could take that picture of the wall over there with a six-month bill yielding 5.3, the one-year bill yielding 5.25. Is that a reflection of the inverted yield curve, one, Steve, or number two, is it a reflection of edginess about what might happen if the debt ceiling is, is, is. is breached. In other words, we do, we get into a situation where we're not paying our bills, and that could happen within six months, not a year's time.

I think all of that is a yes, Tyler. I don't know that you gave me the option of all of the above, but I think all of that is built into rates. The increasing, by the way, outlook for the Fed funds rate, I did want to get a current quote here. I've got, yeah, $5.69, which is a new high for the funds rate for the October contract is out there. But Tyler, I want to make an argument that would cause some viewers at home to throw papers at their television here for the 10 year, okay?

Because it's like, why would you do a 10 year at 5% or at 4% when you can go into these great accounts here that Greg is talking about and get 4% and all that liquidity? Well, the argument, and I'm not necessarily advocating this, I'm just telling what the argument is. The argument is if you believe that over the... the time here, the time horizon we're talking about at 10 years, that the Fed will get inflation down to 2% over that period of time. Then you get 2% real every year for 10 years and you

lock that in over that period of time. And for that surety, that certainty, you pay the differential between what you would get, say on a two year or what you would get in a money market fund. So that's something to think about if you have that kind of time horizon, you're going to get that and it really depends on your long-term outlook for inflation. If you think inflation is going to go high, stay high. The Fed over the decade will not meet its target. Then by all means, stay away from the tenure. If you think they're going back down to two, then there's an argument why over 10 years you get 2% real.

I'll also, Steve, there's the argument that, okay, why would the tenure be so much lower? So yeah, you can get, you know, you get your money back, hopefully on that six-month bill. and in six or 12 or 18 months, maybe the macro is so bad that you can only get two and a half percent on the 10 year, for instance. I mean, that's why he'll go, why would I lock in the 10 year now? Well, maybe if it's going to drop a couple points. You see what they're saying with the forward charts into 2024. It doesn't look pretty in terms of now maybe big expected rate cuts and all of that.

Right, exactly. The other thing that people ought to be aware of is what institutional investors are very aware of, what they call rollover risk. And all that means is six months, two years from now, you've got to make a decision as to what to do again with your money. And it's worth pointing out that those accounts that Greg is talking about, Greg, am I right, they can change those rates overnight, right? On the liquid accounts, the savings accounts, yes, and money market funds,

those will change with the market. CDs, on the other hand, you're locked in, much like the box. Right. All right, gentlemen, we have to leave it there. Greg, it's good to see you again, my friend. It's been a long time. Thank you so much, Tyler. I appreciate it. Great to be with you.

All right. Steve Leesman, I've seen you more recently, but it's also good to see you nonetheless. You too. Thanks, dude. Coming up, all this talk about rising yields has people turning to bonds, taking that 5%. But will they have a serious case of FOMO if and when stocks take off? That's next. Stock sliding for a second straight day, and Fed Chair Powell reiterates his hawkish tone. Let's go to Bobazzani at the New York Stock Exchange for more on today's market action. Tyler, good to see you. You notice the Dow is underperforming the S&P 500, and that's because we've had problems in health care and problems in banks the last couple days. Let me focus on health care for a minute here. So these pharmacy benefit managers, they're all having a tough day. United Health is the biggest stock in the Dow by price. The Dow's price-weighted. So you've got, look at that almost 40 points in the Dow being affected by United Health there. And of course, Lilly cut the prices on insulin. That's affecting the potential.

potential profitability of the pharmacy benefit managers. CVS Health has a big PBM. That's a new 52-week low. Signal also down bit. Lillies had a tough year. All the pharmaceuticals have had a tough year. Lily's down 15, 20 percent. Bristol Myers is right near a new low. Pfizer 3990. That is a new low, I believe. And Johnson & Johnson's been just a horrible performance. It's had issues, of course, with the talc litigation for a long time. Elsewhere, the regional banks, you've got a triple Whammy here. Pretty simple. You got higher deposit costs for them potentially with higher rates. You've got lower economic

activity and you've got very big exposure to commercial real estate. So a lot of the big regional banks, PNC 144, that's a new low, signature, M&T, Zion, they're within one or two percentage points of a 52-week low. Is anything holding up? The global industrials

are doing really well. GE's been on a tear ever since it's spun off the health care division. Eaton sitting right near a new high. Packard, Rock, well, some of the airlines have also been doing well. But that's about it, Kelly, some of the big global industrial is one of the only sectors having any positive momentum. Back to you. That's a great point when we've been highlighting, Bob, thank you. Meanwhile, the Fed being blamed again for the latest sell-off on Wall Street. Investor fears are rising as they weigh the likelihood of rates

staying higher for longer. And you just heard what you can get on CDs and bonds. Those higher rates are sending people into those asset classes. But our stock's still the best place to be. Joining us now to make the case is Jerry Castellini. He is president and CIO of Castleark Management. Jerry, have you been tempted yourself by some of these, you know, TreasuryDirect.gov and all the rest of it? I mean, why not? For the part of a portfolio that needs consistent returns and doesn't have risk, you bet. I mean, it's a gift. But let's not forget about the gift you have in stocks right now at the same time. And all the negatives that I think by this point, there's not going to be any real surprise that we're in a tough economic environment and one that

will probably find its way out at some point. Right. So you are supposed to be here to make the case for people to stay in the market. Why should they, Jerry? Why shouldn't they just go, you know what? This is so uncertain. I will take the certainty of that, you know, 5% or what have you. Granted, depending on the time frame, they may have to figure out how to reinvest that in six months' time. Three points. First point is we're overly about obsessed with the Federal Reserve and all the things they've done and they tell people about and we analyze. The reality is Fed's done their job. Long-term inflation is expected somewhere in the twos. That's their target. We're there. We're worried about where short-term stuff is and they're telling us they're

going to stay hawkish and that's great. They've taken all the excess out of the system. Close to 100% of all economists and 70% of all CEOs expect a recession. There's no surprise here if one comes. So if there's no surprise, then all of investors in equities have to be looking at stocks where a recession has been dialed in. And I guess my point is, why would you have further downside risk when everyone's already expecting the worst? And think of the other side at some point. I want to come back, Jerry, if I might, to something you just said, forgive me for interrupting. I think I heard you say that the Fed wants inflation in the twos, and I think I heard you say we're there. We're there on the forward.

On the five-year. On the what? On the five-year inflation, the three-to-five-year inflation-justed tips. But we're not there yet, but we're not there now. I mean, we're not there today, and that's why the Fed is going to continue to raise interest rates. I mean, I don't know how you can possibly say that we're there. I mean, the market, the three-to-five-year market may be betting that we're going to get there, but we're not close yet.

And that's why Powell sounds so concerned about a hot economy. So that's the point, that economy, that expectation for a slowdown has been discounted in stocks. It's been discounted in the forward 10-year return and it's been discounted in the far-out bond market. You can argue that there's more to come in terms of pain. But when you break the economy apart, you don't have the classic. So if you go look at consumer balance sheets, you look at corporate balance sheets, you look at the labor markets, all of the things that have historically caused really bad recessions aren't present today, or nearly all of them. And meanwhile, all you have is the Fed with a big stick trying to swing at something. My point is they're going to need to unemploy about a million and a half people to reach these kind of goals of higher unemployment and loser labor markets.

And they're not going to need to. We're already at the point now where all these indicators have given you enough room as an investor to say, you know, maybe there's more upside than downside risk here. You're sounding like I'm going to lose with Warren, Jerry. I don't think she's an expert in upside downside risk, but I could be wrong. The point is if you abandon stocks just because you can have 5% T bill yields, you're asking yourself to act as though you can see beyond something that none of us can see. But if you look at MasterCard or Las Vegas Sands or Exxon or these big companies that are doing just fine whose earnings estimates have already been adjusted lower, why wouldn't you take the chance today that that's actually going to be a conservative outlook a year from now? And that's the job of an investor. Our job isn't to sit here and angst over what the Fed's doing in March of 2023.

But we have to look forward at what's going to be the economic environment in 2024. If we go to new highs this year, so some have said, Jerry, to me, that they think the market can make a run to new highs this year before we reverse lower. I mean, is that a situation where you ever at some point say to clients, you know, okay, this rebound has come too far. We're moving to the sidelines? I mean, where is it going to come from? I'll use the example. In January, the rally came from a lot of the bounce. moves in some of the high-tech names, I would say those will expire and they already have.

But if you ask me the places, and think about this, the S&P 500 is trading at 14.8 times every name except the top biggest, the Fang stocks. That's a very attractive target-rich environment for investing in stocks, even if you have to pay 5% interest rates. Historically, we've been able to value stocks at 20 times with 5% interest rates. And now we get them at 15. And that gives you a broad universe of names to buy without worrying about what some, you know, some business with no earnings is going to do.

MasterCard, ExxonMobil, Las Vegas, Sands. He's taking them to the bank. Jerry, thanks for your time today. We appreciate it. You bet. Jerry Castellini. Up next, the White House planning a tax hike on those earning $400,000, including controversially, targeting small businesses to pay as well.

We'll have the details plus imbalance sheets, corporate bankruptcy filing, soaring to levels not seen in 12 years, we'll discuss when Power Lunge returns. Welcome back, everybody. President Biden to announce a plan to increase taxes on people making more than $400,000. But one detail is creating some controversy, and Robert Frank is here to discuss it. This all leads back to Medicare, doesn't it? Yeah, and there are two parts. Yeah, there are two parts of this, Tyler. One is that they're increasing that current Medicare tax from 3.8 to 5% for wage earners who earn more than $400,000 a year. The other part of it is that this would apply to business profits.

Right now, if you're a partner in an S-Corps, that's LLCs, that's accountants, that's lawyers, as doctors, celebrities who use pass-throughs, they don't have to pay this Medicare tax on business profits. Under this plan, would then have to pay the 5% under business profits. So add all that together, what does it mean? It means a new effective top tax rate of 42% versus the current 37%. Or over 50 in some cases. Yes, and there's also an expectation that tomorrow Biden will announce a new proposed top tax rate from 37 to 39.6. Add all that up, if you're in California, that's the top combined rate of 58%.

Wow. New York, it's 59, New Jersey. It's going to be around 55%. So if all that happens. So there's the Medicare part of this, and then tomorrow there's the budget announcement, and in that he is going to propose raising the top marginal rate from 30. 37 to... 37 to 39.6.

There's also an expectation that he's going to reintroduce that plan to tax unrealized capital gains for those with $100 million or more. So this is tax a Paloosa tomorrow. What are the chances in a Republican-controlled house that any of this goes through this year?

Less than zero. Less than zero. But it reminds us it's important, number one, to understand how the tax system works and that there is this business profits that a lot of people are using to avoid this. Number two, just how much the top earners are going to have to

pay to start to reduce the deficit. You start to realize what's going to need to happen. If we do get serious about reducing the deficit by, he says, $2 trillion, we'll see. But it just makes you realize who has to pay and how much in order to start tackling these real problems in D.C., which whoever is in charge at some point, we should do. What is it, 2028 for Medicare? They need to start filling the funding gap that is going to be created. So, okay, if the money doesn't come from here, then from where? Right. And that's why he says this is the plan. At least we have a plan for where the money is going to come from. The Republicans, according to Biden, don't have that, haven't laid out that plan. And we focus again on the impact to kind of like the traditional household, but the small business impact is probably a lot greater. And I have to imagine they're going to be lobbying in full force. I mean, if their rates on this piece are going from, is it zero to five percent?

Exactly. And that's the huge change. Now, some would argue and have said that the 85 percent of that tax increase will be paid. paid by the top 1%, that most of the big money earned by small businesses or that business profits is a million dollar plus. But there are a lot of mom and pops who maybe wouldn't pay a large share of the overall pie, but for them it would be meaningful. If you're a small business and you earn more than $400,000 or more, every dollar above $400,000 would now be subject to that Medicare tax at a 5% rate. At a 5% rate compared with what today?

Zero, zero if it's business profits. So that's where it's a big. But if I'm below $400,000, if I'm a small business that has less than $400,000 in reportable income, what would my rate be then? You just got to make sure your business never makes more than $400,000, Tyler. That's a cap on incentive. Exactly. All right. Robert Frank, thank you.

Thank you. Well, I was going to say good news, but not really there. No. Let's get to Bertha Coombe speaking. Well, let's see if she has any good news in the CNBC News Update. Bertha? Hi, Kelly. Here's what's happening at this hour.

America's intelligence community expects China will deepen its ongoing cooperation with Russia to challenge the United States. At a Senate hearing today on a new comprehensive threat assessment, the spy chief said countering China remains their unparalleled priority. United Nations Secretary General Antonio Gutierrez is in Kiev today meeting with Ukrainian President Zelenskyy about what he calls a matter of critical importance, renewing a deal with Russia to allow grain exports from both. both countries. And in West Virginia, an empty CSX coal train derailed after hitting a rock slide along the tracks. Three crew members are being treated for non-life-threatening injuries. And you've heard of that movie, Cocaine Bear, based on true events. Well, the Cincinnati Zoo is treating an exotic serval cat, which is native to Africa, after it was found in a tree

in a residential neighborhood, and then tested positive for cocaine exposure. Its owner cooperated in the investigation and is not being charged. No one is saying how the cat came into contact with cocaine. Apparently, the cat is okay now. It's not clear what's going to happen to the cat next. That's not a house cat. No, it's a serval cat. And apparently that particular exotic type of cat is illegal in Ohio,

but it is legal to have one in nearby Indiana and next door in Kentucky. So it's not clear whether the cat wandered into Ohio. Yikes. A lot of mysteries there, but I don't think I'd want an exotic animal high on cocaine. No. The cat got out of the bag. Oh, oh, Tyler. All right.

Thank you, Bertha. Ahead on Power Lunch, Wedbush is standing by Apple. The firm says demand remains strong. We'll trade that name and some other key analyst calls in today's three-stock lunch. Plus further on, today's tech check. A rare bright spot of deal-making activity, our software company, companies and a plan Coupa sale point, all multi-billion dollar take privates. Who could be next? We'll discuss. As we had to break, a quick programming note. The premiere of Last Call with Brian Sullivan airs tonight at 7 p.m.

Eastern, don't miss it. We'll be right back. Welcome back, everybody. Time for today's three-stock lunch. A little early today, so don't get carried away. We're going to take a look at some stocks in the green on another kind of down session. We've got Apple with a slight gain as the street continues to get more bullish. Wedbush reiterating an outburst. form raising their price target. Crowdstrike hanging on to a 2% gain today after a stronger than expected Q4 report and Campbell's Soup also gaining about 2% after an earnings beat and raising their annual profit forecast here to help trade them all. Delano Soporo is founder and CEO of News Street Advisors and a CNBC contributor Delano. Welcome. Let's start with Apple. What do you do with the stock here? Hi, Kelly. Thanks for having me. This is a buy and hold for me. So, you know,

it's been trading well despite a mist on earnings and obviously up 17 for roughly 17% year date. And the growth story, I think, is holding up well, despite what's going on in the macro level. So if we see, you know, global inflation continue to cool for Apple. I think the FX pressure, foreign exchange pressure, will start to dwindle down a little bit. And I think if you look at other big tech names, as you call them competitors, not obviously the state industry in all respects, but look at Amazon, look at how Google is trading. For those looking for safety in big tech, Apple's kind of been to play here, so I still like it going forward. All right, Delano, let's move on to Crowdstrike. Or let's play some guitar music.

Go ahead. Yes. Go, Lano. Yep. So if you look at IT spend, I think, you know, for a little bit of what we thought would happen with IT spend, it's been done a lot better than security portion. So that's where I like it. If you look at the last quarter earnings record and your recurring revenue at $22 million,

they have a lot of cash on the balance here at roughly $2.17 billion and they have minimal debt. So I think those are some of the positives for CrowdStrike right now. All right. Let's remind folks that CrowdStrike CEO, George Kurtz, is going to be on Mad Money tonight at 6 p.m. Please tune in for that. CrowdStrike CEO with Jim Kramer tonight at 6. And let's turn from tech to Campbell's Soup. This one came in.

I'm pressing people, I guess, Delano. Would you be a buyer of the stock here? So, yeah, this is an interesting one because it had a really, really strong 2022. If what we thought was going to happen, 2023 happened with the recessionary out, for a lot of people had. And this would be a really good pick here. But it's actually doing, obviously, year-to-date a little bit lower than it did in 2022. But if you look at the positives, it's trading well compared to its competitors. It's around 17 times forward earnings. And they're executing well in a tough environment. So I think this is one that you can kind of look at if you're

looking for a safe value play. Safe value. So are you three for three today, Delano, with these stocks? I think so. I hope you guys are the ones that would judge me on that, hopefully. No, I guess it's a good sign. Thank you so much for your time today. It's good to see you. Thank you. Delano Siporo. Well, U.S. corporate balance sheets start 2023 on some shaky footing with bankruptcy soaring to more than 10-year highs.

We'll talk about that next. And as we head to break throughout the month of March, we celebrate women's heritage, sharing the stories of women leaders in business and those of our CNBC teammates and contributors. Here's Carol B. Tomé, UPS's CEO. 100 years ago, UPS hired its first woman into our company. That trailblazers name was Jesse Bell, and she worked as a clerk stenographer in Los Angeles. Today, Jesse's legacy is thriving, with women playing a critical role at every level of our workforce. And I'm honored to be the first woman to serve as our CEO. Today, one third of our C-suite is comprised of women, and 46% of our board.

of directors is made up by women. But it doesn't stop there. Beyond our walls, we provided resources and training to more than 100,000 women and small business owners, helping them expand their reach and achieve their goals. Shattering glass, that's a reason to celebrate. Welcome back to Power Lunch. We've talked a lot the past couple days about rising rates and their impact across the economy and on consumers. What about on corporate balance? sheets. Christina Parsnevilleis is looking into that for us. And I don't know if scary is the right word, Christina, but what did you find? You would think, Kelly, just last November, I reported on the low number of bankruptcy filings rounding on 2022. Today, I'm talking about literally the opposite.

So January and February registered the highest total number of bankruptcies for any year since 2011. Consumer discretionary and industrials were the top sectors. Healthcare was, you know, up there with nine as well. Telecom infrastructure firm Avaya and Sorrento Therapeutics were the biggest bankruptcies last month, $1 billion in assets. Well, Party City and Serta Simmons Betting were the more well-known names that you might recognize, primarily driven by higher interest rates and contracting corporate earnings. The bankruptcies, though, come at a time when other U.S. companies, and these companies have high credit ratings, are rushing to take on more debt to satisfy investors looking for yield and get ahead of any other further interest rate hikes.

February was actually a record for corporate borrowing. But one expert I spoke to says, don't worry just yet. What I don't think we see yet are companies that have been doing really well with great business models that have just suddenly run into trouble caused by the current economy. We're still looking at a set of names that have been suffering for a while. And when that changes, that's when you know we've really entered a new economic cycle. And his comments were echoed in Fed Chair Powell's congressional testimony yesterday, who said, quote, commercial business debt is moving sideways as a percentage of GDP.

And he's not seeing major spikes just yet, but is watching business debt carefully. So I guess the long-term question, Christina, is what is the impact going to be then on stocks? Yeah, excellent, because I know that you just spoke about this with Steve Leasman. And the big question is, are we, are people going to be shifting from stocks to bonds? Well, I spoke to public.com, which is a retail trading platform. And what they said is that it's not a question of no. It's a question of or. So according to new research from public.com, what they're saying is that the yields,

sorry, let me, I just lost my spot there, but it says the shift from high yields is an end and not an ore. So in March alone, so this is the sad I didn't want to mess up. There is a 30% increase in high yield bond ETF, investors compared to last year. So already a massive jump. And then, according to research from UBS, this is another completely different report. The quality of high-yield debt is starting to be a little bit riskier. They say, quote, 18% of high-yield debt do just in 2024 and 2025, quote, much worse than one year ago and prior years. So the good thing, though, that I need to reflect right now is that that high-yield debt for corporations may be riskier,

but you may not see it reflected in high-yield ETFs that investors care about, like YG and JNK. So there's a lot of stats I just threw at you right there, but know that, yes, people are shifting to more high-yield debt. They want to get that yield. And according to public.com, they're not sacrificing their stocks for it. Talk to me at a freshman sort of economics level, if you would, about the rollover issue. If I'm a corporate CFO or a corporate treasurer and I have a company that has low-rate debt that is coming due over the next six months to a year, I've got to be concerned that the rate I'm going to have to reissue, at which I'm going to have to reissue that debt,

is going to be double, maybe triple what it was. Right, which points to just that UBS. Unfortunately, I didn't have the chart to show you, but which points to why it's so risky in the near term for a lot of these corporations because they're trying to refinance, but they're refinancing going from a much lower rate to a much higher one in the short term.

So we can't discount that, which runs contrary to what Powell spoke about yesterday, which is why I, find this whole topic extremely confusing given that these corporate debt balance sheets is going to, they're going to get a lot worse very quickly soon and yet we're not raising the alarms just yet. All right, Christina, thanks very much. Christina parts of nevertheless on balance sheets. Up next, more software company deals ahead. We will discuss that in today's edition of Tech Check. Time for today's Tech Check and let's get to Deirdre Bosa in San Francisco. Hi, Dee.

Hey, guys. Well, rising interest rates and the macroeconomic concerns. They've made for a tricky buyout and financing environment, but the exception remains software. You've got SalePoint, Anna Plan, Cupa, Avalera, all take private deals worth $7 billion in up. Here's Orlando Bravo, one of the most active private equity buyers this year on the opportunity that he sees. These multiples of revenues have gone from 17 times on average at the peak to about four now. Now what that does is much more important than valuation is what it does is it produces a an environment where some of the highest quality largest software companies are looking to go private. So the latest deal could be for a digital survey software company Qualtrics. It is fielding a $12.4 billion

bid from Private Equity Group, Silver Lake and Canada's largest pension fund. And it would represent one of the biggest bias of the year. The price, $18.15 per share. That is a 6% premium over last Friday's closing price, but it's a 40% discount from its 52-week high. And therein lies the opportunity for private equity buyers, what Bravo was alluding to. Software and cloud valuations, they have, of course, reset from the pandemic or from their 2021 peaks. And management and boards, they may now be more willing to accept that lower valuation. Qualtricks, though, also represents a risk. Now, before it was set to go public back in 2018, SAP swooped in with an $8 billion acquisition offered. The idea here was that Qualtricks, customer and user data, would give SAP a huge leg

up on competition. That didn't happen, though, when Qualtricks was spun out in an IPO. Now, SAP with the remaining 71% stake in the company, it stands to make about 10% return. That's fine, but it's nothing to write home about, and it really wasn't the game-changing deal that it was once thought to be. Silver Lake may have more luck. In terms of the next take private software targets, when Morgan Stanley did a screener a few months back, and they looked, for about $5 billion in enterprise value or less large enterprise customer base, 75% plus subscription revenue, 80% subscription gross margin, and 90% plus gross dollar retention rate. When you screen for those, top candidates, they included PagerDuty, J-Frag, HashiCorp, and SmartCheet.

And on the private equity side, guys, we know that there is a lot of dry gunpowder, a lot of money that they have to continue to do these deals. Aside from where interest rates are going, you're seeing more all-cash deals. happen as well. Yeah, and not just in tech. There was, was it maybe Arconic? I saw a similar sort of scuttle butt about recently, but Deirdre, as you mentioned, not a great return for SAP here, but pretty terrible position for the rest of the public investors in Qualtricks. I mean, you're talking about the company getting taken out at barely a 5% premium.

Yeah. Now, maybe you could say, look, it's their fault. They went into this eyes wide open knowing it was basically controlled by SAP, but it's, I mean, that's such a terrible premium to they come in when it's at a low value. There's no, there's no, it's, I guess it just speaks to the desperation some of these investors and companies have right now. It's a difficult market moment, right? During 2021, they saw a lot of these software companies run up so much. I mean, for Qualtricks, it was at $30. Now you're accepting $18 in change. That is, however, better than where it was a few months ago. So this is the constant dilemma when you're looking at private equity groups and whether

they want to take these companies private. They think that they might be getting a good deal now, but you have founders and CEOs on the software side saying, hold on a second, our stock was worth 80% more just a year ago. Maybe we can get back there. So there's that dislocation, but it's starting to come more in line, especially the higher that interest rates go, which makes their future earnings less valuable and the market volatility that we've seen. All right. Thank you, Deirdreta. Deirdre both, and we appreciate it. Coming up, on International Women's Day, we're putting women-led companies under the microscope. What will we find? That's next. Today is International Women's Day and we're looking at representation in the workforce and the C-suite and Dom Chu is here to help us do that.

Hi, Dom. We've come a long way and we're pretty much at parity right now with regard to gender representation in the overall workforce in America. So if you go back all the way to 1980-81, according to the Labor Department, female participation in non-farm payrolls in America was closer to around 41% overall. If you look at just kind of before the great financial crisis in 08 and 09, we got up to about 50% or parity at that point there. During the pandemic lows, it dropped down to about 49% here. And we're just below that 50% mark right now. So interestingly enough, as the economy has gotten better, as COVID has kind of been more of a non-factor, more women have come back in. And they're arguably driving a lot of the job growth that we're seeing right now.

With regard to the C-suite, though, it's a little bit of a different story. it's still, though, trending at least in the right direction for right now. According to data from S&P Capital IQ, in the latter part of 2015, there were about 21 female CEOs in those S&P 500 companies. Fast forward to today and the folks over at Catalyst, which tracks a lot of the women in the workplace kind of data and statistics, note that there is 41 of them. So that does represent, by the way, just about 8% of C-suite jobs at the S&P 500 that are occupied by female CEOs. There also then becomes, as I come over here to talk to you guys a little bit more about this, there tends to be a discussion about whether female-run companies, publicly traded ones, tend to outperform those by their male counterparts.

There's been some academic research that suggests based upon timeframes that you look at that certain female-led companies do better than their male counterparts. Now, what's interesting is that there's enough of a trend here where, of course, ETFs will develop around that kind of a product. W CEO. There are certain one of these ones. Now, you mentioned that one. I wasn't going to mention it.

What I will say is if people do want to take that view, there are ETFs out there that do it. I would just caution that some of these ETFs that track, like the one that you just mentioned, are very small in size and have very thin trading volumes, sometimes only a few thousand shares a day. So if you're going to go do it, there could be dislocations that develop based upon money either coming in or going out of these funds. So just be careful. Do your research, but still, it's an interesting topic to talk about. So there are ETFs where the concept is invest in a female-run company.

So that would be if it was S&P 500 company. 41 of them. It would be 41. Well, what's interesting as well is there is a bigger, bigger one out there, but even then it's only about $200, $250 million. Just, it's an interesting concept on this international weapon. Dom, thanks. We got it.

We appreciate it. Thank you, Don. And thank you for watching, Power. On more line. Closing bill is Scott Wobner starts right now.