Power Lunch - Student Groans, and Apple's Big Milestone 6/30/23

Episode Date: June 30, 2023

The Supreme Court just struck down President Biden’s plan to cancel $430 billion dollars of student loan debt. We’ll look at what this means for the economy.Plus, Apple’s market cap now tops $3 trillion, as the shares soar to a new all-time high. But the question investors have – can it go even higher from here? We’ll explore. 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. I'm Contessa Brewer. Coming up, the Supreme Court strikes down the president's plan to cancel. $430 billion of student loan debt. We'll look at what it means for the economy. And we expect to hear from the president live this afternoon on the next steps for the White House, grappling with the cost of higher education. Apple hits the $3 trillion mark as it soars to a new all-time high. But the question here for the company and all of tech, can it go higher from here? first to check on the markets as stocks higher across the board. There you're seeing them. The tech stocks outperforming as they have most of this year, NASDAQ up 31% in the first half of the year, while the Dow managed only a 3% gain.

Those huge gains leading many people to wonder if we're in for more growth in the second half of the year in the face of really a lot of economic uncertainty. We asked investors, strategists, and our own CNBC contributors for their opinion in the delivering alpha investor survey 61% of the 400 people polled say, we have entered a new bull market. 39% say this is a bear market rally.

80% say there won't be a recession this year. Maybe not at all. Let's bring in Jim Tierney, CIO concentrated U.S. growth at Alliance Bernstein. And joining me here, Ron Insana, CNBC's senior analyst and commentator, co-CEO of Contrast Capital Partners. Gentlemen, great to see you. I can see you out of my peripheral vision, Ron. When I say the survey shows, no, there won't be a recession. Yes, there will be a bull run.

Which of those statements do you disagree with when you're shaking your head? When I'm shaking my head, it's the definition of a bull market contest. In my learning education over time in the last 39 years, a bull market really starts when you've taken out the old highs from the last bull market. So whether or not it's a bare market rally remains open to speculation. It has certainly been a tradable rally in the NASDAQ, the NASDAQ, the NASDAQ composite, and the S&P 500. But NASDAQ, I should say the S&P topped out at about 4,800. So you'd have to go through that and stay above it on a consistent and persistent basis in order to define it as a new bull market. That's just my understanding of how you measure bull market.

It's not 20% off the level. What about the recession question? Because you've, in fact, with me, you have said before that there is likely to be a recession based on the data that we're getting from the economy. Past performance. This is no guarantee of future results. So I wrote a column today about we might be entering a Goldilocks phase and outlined some of the reasons why I might be wrong about the recession call. Despite the fact that the yield curve is inverted, which since 1968 has 100% accuracy rate in predicting future recession six to 15 months down the road, leading economic indicators down for over a year. Typically all of that suggests recession manufacturers, contracting real estate's in recession.

But we've got three things that would suggest that maybe that recession call can be put off. And that is number one, households are not as interest rate sensitive, nor are corporations as they were in prior cycles. They all locked in long-term mortgages or long-term debt. You've had manufacturing, I should say, construction boom in manufacturing and residential real estate. And then you've had some other factors that have maybe offset more of the feds tightening than we would have otherwise thought, which is fiscal spending, which is stimulative, not contract it. Jim, when we're looking at how far the tech rally has gone this year, AI gets a lot of the credit here. Do you think that there is still enough enthusiasm over AI to keep fueling growth for the second half of the year? I think when you look at the market performance up 17% this year, on estimate cuts since the beginning of the year,

you have about a 20% PE expansion. I think that's going to be very difficult to duplicate in the second half of this year. Getting to AI specifically, I think we have to see benefit for all companies. That will come. I'm just not sure that's going to happen in the second half of this year. and the fundamentals get tougher. And you looked at consumer spending today, the consumer's pulling back. So all of that suggests that the fundamentals are more stretched here than not. We were just showing your picks that you said Abbott Laboratories, Automatic Data, and American Tower are stock picks that you think can weather whatever's to come in the second half. Where are you seeing these cracks?

I mean, you were talking a little bit about consumer spending here. Do you think that those gaps will widen for the broader economy? I think they have to. When you look at the totality of what the Fed has done over the past 18 months or so, 500 basis points of hikes and maybe a couple more to go, that will eventually have an impact. You look at existing home sales down 20% year over year. That's because people just can't move out of their house. They can't give up that 3% mortgage and take on a 6% or 7% mortgage. So I think there are things that have delayed the recession, and they may continue for a few more quarters, but ultimately we probably get into a recession here. That issue of the rate hikes and where people have bought into their debt,

not just, it's not just an issue for homeowners, it's also an issue for companies that issued corporate bonds. And they issued long-term debt, so they, what we call termed out their debt at extremely low interest rates, so they don't have the near-term concern of having to refinance that debt, Contessa, you know, and that is a big deal, because normally if you were a corporation that was running with short-term debt or adjustable rate debt that was coming due in the intermediate term,

Now, we'll see some of that, and in fact, a lot of that in commercial real estate. We won't necessarily see it elsewhere. But it's a different environment. And so the interest rate sensitivity of the economy may be less than we would have otherwise thought. The other item that I would add that I didn't mention was that energy prices have continued to come down. And everybody was expecting them to go up, up, up. OPEC has cut three times. We had a war in Ukraine with Russia.

And yet, here we are at around $70 a barrel. Gasoline, as you mentioned, is cheaper than it was a year ago. So consumers, although they may be slowing their spending, have more disposable. income than we would have thought otherwise at this point in this cycle. That's a really important factor, what gas prices cost for how people feel in their pocketbooks, regardless of other factors that are going on. But, you know, Jim, the same can be said for what you spend at the grocery store. And even if you're seeing inflation moderating, that doesn't mean it's gone away.

It certainly doesn't mean that prices have gone down once again, which I think is part of your point, looking at the cracks that the consumer demand is presenting. What do you think about this issue of the U.S. becoming energy independent and becoming such an incredibly important producer of oil and gas? I think that's such a key point. It's a key point politically around the world, and it's something that we have to pursue, and it would resolve a lot of different things.

Well, we're actually there, Kedessa. We're back to being the largest producer of oil in the world. Certainly we have surplus natural gas. which helped to offset some of the concerns about Russian supply. And, you know, it's hard to underestimate, although I did originally, the impact both the Chips Act and the Inflation Reduction Act. I was at an event a week or so ago, an Department of Agriculture official was there talking to power companies about the incentives that are built into the Inflation Reduction Act

for them to make transitions, to spend more on infrastructure, zero interest loans, all kinds of incentives to do this, which may spark, you know, additional economic activity. You know, it's interesting because you heard the president this week really trying to send that message to the American people. And yet at the same time, he's getting a lot of blame for inflation for how much government spending is going on. Not to weigh in on politics here, but it's part of what the White House is trying to navigate in terms of that message. If I were in their shoes, I would suggest, look, the money that we're spending is productivity enhancing disinflationary dollars. This is not the type of stuff that just stimulates excess demand. Ron, thank you for being here.

Jim, great to see you. Thank you for joining us on this Friday. Thank you. All right, from stocks to bonds, traders in Chicago are digesting the latest economic numbers, including the Fed's preferred inflation gauge. Rick Santelli joins us live from the CBO. Yes, Contessa, it's been a wild week. Look at the intraday of twos and tens on one chart.

Rates have gone up. And even though for today's session, twos are only up a little. Tens are nearly unchanged. They're both up smartly on the week. But yes, you're right. GDP was better and expected, consumption better and expected. So strange, considering it's a third revision. But we had eight quarters in a row, eight quarters in a row above 4% on that core PCE on GDP price index yesterday,

even though it moderated to 4.9%. You had the lowest deflator year over year in today's data since April of 21. But the PCE core deflator year over year, the 20th consecutive month over 4%. Chicago, 10 months of contraction in the PMI. And finally, if you look at the one-year Michigan inflation, 3.3, the lowest, since March of 21. But it was the same as two weeks ago, not really new. So what's going on? Let's go talk to Danny, the trader.

Hey, Danny, what's going on? How you doing, Rick? Okay, so we see all the metrics today, and for the most part, here's what I hear. Inflation is coming down. We're unlike the U.K., no outliers to the upside, but it's coming down like a helium balloon with a slow leak. What does it mean? Why are equity so happy? Well, right now, I mean, we see everybody here on the floor getting ready for the quarter and big collar trade that's coming through.

So that's a big collar trade. So there's a big rebalance that happens every quarter. So both sides of the market. So the market's coming in, getting ready for it. So that's what these guys are. So they're kind of corraling where they believe price are going to stay somewhat contained. Correct. Correct.

And how is that trade? Is it big? And what are the ramification? It's big and it moves off of what the, you know, whatever's happening with the data points that we've had yesterday and today. Okay. So this is the last trading day of the month, the quarter, the half year. So on the close today, did you? expect you're going to see some action based on where all of those things line up.

Absolutely. And is there any kind of a notion? Is it going to be more bullish, or it's hard to tell? It's hard to tell. It's just good. Okay. In the end, here's the biggest question I have. When Central Bank looks up at the screens on days like today and yesterday, and they see that we've made progress,

do they want to still continue to put rates higher and put the economy in a deep freeze or leave it where it's at and let it work for a while, pretty much like the Atlanta Fed Fed. President has talked about Raphael Boston. I mean, I think we're just getting ready to see the feds done a good job at trying to anticipate a soft landing and got a couple potential rate hikes left and continue to be data dependent, which the market's like. I guess one other issue we should revisit, and that is this fact that we kept interest rates virtually at zero for a long time. You could argue since a little after the credit crisis. So they really think things are going to clean up smartly in a couple of years.

I mean, there has to be some common sense. here, the central bank should keep rates high, but they can't expect this progress to be overnight when it took so long to screw it up. That's right. That's right. No, things take time and usually before we see, as we get out of it, we're going to be out of it, but two rate hikes, maybe three, we'll see what happens, but things do take times. As one of my favorite people, Doc Sanders is, rather be early than late. So we'll see what happens. Oh, absolutely. Doc Sanders, the man. Danny, you're the man today. Thank you for joining us. Contessa, I hope you have a great independence. and back to you. Thank you very much Rick Santelli for that lively report coming up a mega milestone

market cap of three trillion dollars for Apple. What could fuel the tech Goliath to another trillion dollars in valuation? That's ahead in today's tech check plus further ahead. Supercharged shares Ferrari hitting an all-time high this week. Now it's worth more than GM and Ford. Power Lunch is back in two. Welcome back to Power Lunch. Markets near session highs now. The Dow's up. 317 points. And look at Apple up 1.78% at 192.97, which means with those gains, it hit an all-time high and crosses the $3 trillion market cap level. Let's get to tech check. Joining us to talk more about Apple's run, Deirdreboza and Steve Kovac. Deirdre, let's start with you. Just symbolic milestone only? It is really only a symbolic milestone. But what it does tell us is

just this incredible run that Apple has been on this year, really leading the pack, keeping up with the rest of Mega Cap, that magnificent 7. It is notable, too, that, you know, growth is slowing at Apple. Revenue is expected to actually decline this year, yet it has still been here. And, you know, that begs the question, what is Apple? It's a defense play in a way because of its huge amount of cash on the books. It also may be becoming sort of this can't live without Consumer Staples company. The ecosystem, the mode has the installed base of 2 billion people.

This is what the Bulls point to. All right. So Dan Ives was with me as, you know, a well-known Apple Watcher. And I would say slash believer. Big time. He thinks it's going to $4 trillion very soon. Yeah. It's exactly what he said to me.

But a lot of it is based on services and what AI does for Apple. What's your take on the new ecosystem that Apple is trying to push about, you know, the headset and the way the AI gets you there? Yeah. It's a little less about the headset. I think, Contessa, because that's, first of all, that's not coming out until early next year and in a very limited way. U.S. only, Apple stores only. They're going to do a very slow roll out $3,500. It's not going to be a huge seller.

They're not positioning it that way. But look, City had a great note today in initiating coverage, and they kind of laid out a very bullish case. I think their price targets 240, the highest on the street. It's at what, what, 190 right now? And part of that is, it all goes back to the iPhone a little bit more so than services, because one trend that we saw in the last year in this cycle of iPhone is people are gravitating towards the more expensive pros. So even though sales might be down, which they would be a lot worse if people weren't buying those pro models, which costs $1,000 and more. So they think, City analysts who wrote this note,

they believe that the margins are going to improve even more because of those more expensive phones. On top of that, like Deirdre saying, that 2 billion active devices like we're looking at right now, that's 2 billion opportunities to sell more services. Well, Deirdre, how does this, the broader issue about consumers pulling back on their spending, how does that factor into what Apple's facing? Because honestly, I still have an iPhone 10. I haven't upgraded my personal cell phone. If you're one of those people and you're looking at perhaps looming recession, do you do it now?

I mean, a lot of the bulls think that Apple is that, and the iPhone is that one product that you're going to shell out for. And that has sort of been the case so far. The fact contested that you haven't upgraded since your iPhone, 10 means that you could be a customer in this upcoming cycle when we see the iPhone 15. So I could just add to that bulkcase. I will say, though, the flip side of this is that Apple, remember, briefly hit $3 trillion at the beginning of this year. And then all the China supply chain risk came up.

So I feel like this is an area that always sort of rears its head. I don't know if Steve agrees with me every once in a while. And investors are sort of caught a little bit flat-footed because even though Apple is trying to diversify that supply chain, it is still hugely dependent on China. That's maybe sometimes taken for granted. Yeah, and they learned their lesson in the hard way last year with those Chinese shutdowns. That's why we've seen that expansion into India to kind of diversify the supply chain, but it's not going to happen. If for some reason, China decides to lock down again or there's another crazy wave of COVID or something to that nature or a conflict with Taiwan, whatever it might be,

they were stuck in the, or Apple stuck in the same situation that they were in the last holiday quarter and sales are down. I would also say, just with what Deirdre is saying, that sales are going to be, I've been down the last two consecutive quarters. It will be down again this quarter. They've already guided towards that. Unless the iPhone 15 just really knocks her socks off, the chances of someone like you going out there and upgrading are very low. But at the same time, Contessa, I bet if I looked at your Apple account,

you'd see tons of subscriptions in there with you and your family. So they don't, they almost, I mean, they would love for you to buy a new phone, but they almost don't care because you're still spedding on services. Deirdre, it's almost as though Steve knows me. I don't know. So you're not buying the phone? you're not upgrading or you're TVD. I have no plans to upgrade because my phone still works and it's fine.

And iPhones are expensive. But between you, your family, your kids. But he's right about the subscriptions. He's right about the Apple TV and all that. And now I've got a seven-year-old buying all these subscriptions. Oh, great. This is how the cycle works, right? Get them in early.

There's accidental Roblox charges, right? Dear Dr. My friend. Thank you. We haven't gotten to Roblox just yet. All right, coming up, student loan groans, losing Shien and Home Depot. embracing the electric future. We're going to take a look at these three stories in retail rundown next.

The White House is bracing for the fallout from a Supreme Court decision reversing President Biden's plan to forgive roughly $400 billion in student loan debt. Emily Wilkins joins us from Washington with more on this. It was widely anticipated, Emily, but it's still, I think there's a lot of people who are hanging on what's the White House going to do next. That is a huge question, Contessa, and we are expecting to hear more about that. You know, today's ruling, it's a huge blow to some 43 million borrowers who are expected to have some or all of their student debt canceled under this program. Biden will be delivering remarks later this afternoon on the outcome of the case. But in a statement earlier today, Biden emphasized that his plan would have primarily benefited Americans making less than $75,000 a year. President Biden said he would stop at nothing to find other ways to deliver relief to hardworking and middle class families.

And he vowed his administration would continue to work to bring the promise of higher education to every American. Barwars are going to be hit here with a one-two punch, Contessa. Not only are they not getting any of their current balance canceled, but they'll have to restart making payments this October after a two-and-a-half-year hiatus for COVID. Biden said he plans to announce new actions to help borrowers. One of those might be coming as soon as next month. The Education Department is working on a new program for borrowers that would tie the amount they owe each month with how much they make. Under the proposed program, which is more generous than current ones, borrowers would not

have to pay more than 5% of their discretionary income and any amount left over after 20 years of payments would be forgiven, leaving more in their budget for other things like clothes, electronics and stuff that retail would like. Contessa, the department could finalize this rule as soon as July. All right, Emily, thank you for that. So with student loan relief now gone for those Americans, we're wondering whether it trickles down to retail. The resumption of payments in the fall means borrowers will likely have to cut back spending on, as Emily was saying, clothing, electronics. Let's discuss that and some other key retail headlines that we're watching with Melissa Repco. Okay, so Melissa, first of all, we've even seen animals.

analysts talking about the hit for specific retailers. Where do you see this reflected in the share price? Yes, the two primary factors at play here are retailers that skew towards discretionary goods, like electronics and clothing, but also skewed towards having a lot of younger consumers that are college-educated. So think names like American Eagle, even companies like Target skew towards those items that people might frankly say, I can't afford it anywhere. I'm paying this bill again.

And so we're seeing not a lot of movement today with the retail ETF, because as you mentioned, this was widely expected. But we are seeing Target down a bit, American Eagle down a bit today, and some of those other names, Urban Outfitters, were in the red today slightly on this news. Well, we were involved in a very heated workplace conversation about the student loan forgiveness and the end thereof and how that's factoring into personal budgets upstairs

with some of our colleagues. It is an issue. If you're talking about younger consumers, I wanted to ask you about this whole thing about Sheehan because the social influencers are in all kinds of trouble because they took a trip to this. What is Cheyenne? Yes, so Sheand is basically an ultra-fast fashion company.

It's grown to be huge. It's valued at around $64 billion at this point. But it's been in the hot seat for a lot of different reasons from both lawmakers and from consumers. It recently filed for an IPO reportedly, according to Reuters. That's something the company has denied. But also, the company sent some influencers over to China for a tour of factories. The influencers posted a lot of glowing results.

online commenters were very skeptical saying, hey, they don't really buy it, they think it was staged, and just kind of adding to the company's heading. Yeah, usually investigative journalists don't take paid trips to see the factories in China. All right, let's talk a little bit about the electric lawn tools that we're now seeing everywhere in Home Depot. Why is this a big effort for these home improvement companies to focus on the move to electric tools? There's a couple of different reasons. Of course, those home improvement names were big winners during the pandemic. They saw a lot of growth. Now the tide has turned.

They're seeing a lot of people pull back, not buy those big ticket items. And frankly, they need something that gets people excited again. And they're seeing more interest in these electric tools because the electric tools are much quieter. And so there's a bit of an upgrade cycle going on. California also notably is banning sales of these new tools starting in 2024. So there's a bit of a buzz. The gas powered tools. Yes.

They want you on the electric ones. Exactly. You know, the only thing I'm going to say, and I am a huge DIYer, and I own a lot of electric lawn tools, an electric chainsaw is simply not as powerful as a gas-powered chainsaw. Well, you're not the first person I've heard say that, but when did you buy those? Well, 10 years ago? Well, there could be a difference if you try some of the tools today. I spoke to Home Depot about it, and I also spoke to some of the manufacturers of the equipment, and they say, hey, give it another chance. They're actually doing demos with a lot of landscaping crews and even golf courses saying,

try it out and maybe you'll be impressed because the battery life has gotten longer and the power has gotten stronger. They're not trying to convince me. They're trying to convince these landscaping crews so that they can sell lots and lots and lots of electric tools. Exactly. That's where they see the opportunity. I hope that you and everyone at home has, you know, has a different picture of me now, knowing that I have wielded a chainsaw before. Yes. Let's get to Bertha Coombs for the CNBC News.

update now. Hi, Bertha. Hi, I don't have a chainsaw, but I do have a power drill. A majority of judges in Brazil voted today to block former president Jair Bolsonaro from seeking public office again until the end of the decade. The judges ruled the 68-year-old far-right leader violated Brazil's election laws by abusing his power and casting unfounded doubts on the country's electronic voting system. Bolsonaro called the ruling unfair and vowed to appeal. Mexican Navy officials say they seized a submarine that contained over three and a half tons of drugs earlier this week, believed to be cocaine. Five people traveling on the vessel were detained and turned over to local authorities in the country. And a new law goes into effect tomorrow in Hawaii that will ban people

from packing guns in their beach bags. The measure prohibits firearms from a wide range of places, including on beaches, in hospitals, stadiums, bars, and movie theaters. Three Maui residents are suing to block that law from going into effect. Contessa, back over there. Bertha, thank you. Ahead on Power Lunch is corporate debt crisis coming? Some warning signs pointing to potential default. Plus, flag on the parlay, more and more NFL players suspended for violating the league's

gambling policy. What does that mean ahead for the expansion of sports betting? And Ford versus Ferrari, how Ferrari is beating American muscles. We'll discuss all of this. One power lunch comes right back. All right, we're seeing stocks at session highs today. Dow up almost a percentage point. The S&P 500 is up one and a third, and you've got the NASDAQ up a percent and a half.

Well, stocks, of course, are soaring through the first half of the year, but investors by nature are always looking for the thing that could derail the rally. Our next guest, sounding a warning on corporate debt. A lot of high-yield debt is coming due in the next few years. Let's bring in Chris White. He's the founder and CEO of BondClick. It's a startup company that's building an innovative central market system for corporate bonds. I like it because you can watch bonds trading the way we normally watch stocks trading. All right.

So first of all, we've been watching this year of extraordinary rate hikes. What has that meant for investors? Where do we stand today? Well, the story really goes back to when the Fed changed policy. and they went from trying to help companies to really trying to fight inflation by raising rates. And so if we go back all the way to the beginning of January, 2022, that's when the policy shift occurred, and it really had a profound impact on bond market yields. You've got, you know, the doubling of current rates, a five-year AAA-rated credit today

provides more yield you say than a five-year BB-rated credit did this time last year. That's remarkable. Yeah, well, actually, it goes back a little bit further. Like if we start at January 22, when you're looking at double B rated debt, it's a five-year double B rated debt is yielding less than what current AAA rated five-year debt is rated, is yielding. So that's actually just showing you how profound the shift has been in terms of credit yields. And then you see investors just rushing into short-term debt. Is that going to remain the case? Well, as rates started to rise, investors jumped into short-term debt because of a lot of uncertainty, and also long-term

debt gets hit in terms of its value going down when rates rise. And what we've seen, for example, even today, Contessa, there are over a thousand investment-grade bonds that are trading between 50 to 80 cents on the dollar. So, for example, I saw that you did a stock segment on Apple a few minutes ago. Well, Apple long bond right now is yielding about 470, but on a dollar price basis, it's trading at less than 70 cents in the dollar. So there's some huge values. out there for investors who like, who are okay with holding long-term debt for, you know, a couple of decades. However, initially, if you were holding that debt in the beginning, it lost several points. You know, Apple was issued at par and then now the debt's down to something below 70 cents in the dollar.

I mentioned all the corporate debt that is reaching maturity now and through the next couple years. What impact does that have on the companies themselves and then what opportunity is there for investors? Sure. So let's use an analogy that I think you and I can relate to, which is, you know, when you have to refinance your mortgage, you're hoping that rates at the time are going to be favorable to you. So if you got a mortgage at, let's say, four and a quarter percent, and now you have to refinance at eight and a quarter percent or eight and a half percent, that's going to hurt your household income. Well, that's what's happening really for the high-yield market. Lots of high-yield debt is short-term in nature. And what we're seeing is a significant wall of high-yield debt that looks like it's going to mature in the next three to four years. Many of these high-yield companies do not have the money to pay off their debt in full. So they're going to have to refinance in an environment in which interest rates have effectively doubled since 2022. So I think for investors, something to pay attention to is how are some high-yield companies, not only for their debt, how is their stock going to react to these higher debt capital costs? Because it's ultimately going to hurt their net income. Are there specific companies that you're seeing warning bells

about that? Well, I know that, for example, Sprint is one of the largest issuers of high-yield debt, and they have a ton of debt coming due in the next few years. But this is where, I'd say, looking at bond data becomes really advantageous for all investors, whether or not you're investing in bonds or you're investing in stocks or even other asset classes. By looking at the debt profile of the companies that are out there, you are going to be able to predict who's going to have some headwinds and what other companies are looking at a bright future. And what about market liquidity? How does that factor into this bigger bond picture? Yeah, I think the one thing that all bond investors were worried about the institutional investors

was how are overall trading volumes going to stand up in the face of more volatility? And what we've seen is basically trading volumes have remained steady, which I think is a really positive indication that just overall liquidity conditions have been solid and that investors aren't getting beaten up

when they have to trade in the marketplace, which certainly happens at times of really pronounced volatility where the market's whipping around and transaction costs go up. Chris, nice to see you. Thank you for coming in right before holiday weekend.

Appreciate it. Thank you, Contessa. Time now for our weekly ETF tracker. This week we're looking at small-cap stocks, mega-cap tech, getting most of the attention and money so far this year. But small-cap funds seeing net inflows of more than $300 million in the last week, according to our partners at Track Insight. And you can see gains of more than 4% this week for Vanguard, spider and dimensional

small-cap indexes. More information is available on the Wilshire ETF Hub. As we head to break, June is Pride Month, and we're celebrating by sharing stories of corporate leaders. Here's Sally Sussman, Fizer Chief of Corporate Affairs Officer. On my journey, I was very fortunate to come out early when I was in my 20s, and it's given me a lifetime to build true, deep, authentic relationships

based on honesty and truth. We can never stop celebrating and honoring Pride Month. The important rights that we've won, those that I hold dear, the ability to be married, to have adopted a child cannot be taken for granted, and we need to think about that at least once a year. Welcome back to Power Lunch. After years of shying away from gambling sports leagues

have fully embraced it, but this balancing act of condoning it while also making rules for players in league personnel, it's proving rather difficult. The NFL suspended three players indefinitely this week, with a fourth player getting sidelined for six games for violating the league's gambling policy. Five other players were suspended.

spent it in April. Joining us now is Chad Milliman, the chief content officer at the Action Network. It focuses on the sports betting space. Chad, good to talk to you. First of all, the NFL has made it clear that integrity is the priority. You talk to other league commissioners, team owners. They will all say the same thing. So where's the disconnect between what's the priority for the bosses and what's happening with the players? Well, look, it's like any other element of regulation that the players have to abide by, whether it's what they're doing on the field or how they're taking care of their bodies and what they're allowed to put into their bodies. The NFL is in the gaming space. All the leagues are in the gaming space at this point. It's legal. It's regulated. It's a lot of

money for them to ignore if they're not in it. So now they have to figure out how do we police the players? And that's where it gets a little bit trickier because a lot of the rules are very clear. There's one story about Isaiah Rogers, a player for the Colt. This story was broken by Sports Handel. He had gambled on players on his team and their individual performance. That is a no-no. That is going to be a no-no. That is a black and white no-no.

Everybody should know that. There's other regulations that are a little bit harder to follow about where you can gamble and where you can't gamble. And some players are finding themselves tripped up by these gray areas that all the leagues are trying to navigate. Like you can't place bets on sports from team facilities. That's the rule. And so when they go on and they make a, even if they're betting on golf, it still violates the rules. Okay. So that's one. I think that that's, I just want to put it in perspective for the investing audience about why this matters. Because what we've seen is when integrity in sports comes under suspicion or skepticism, what you see is a regulatory backlash, both in sports and for the gaming regulator, and this regulatory crackdown, we've seen it happen in Europe, it ends up hurting the bottom line. So there is a cohesive effort to make sure that there's broad education in sport about the rules for gaming.

We've got to talk about this. You know, there's a forbidden word that would be like a, you know, it's like a match between two guys who are out there and seeing who, you know what I'm saying? Like, I don't like to say it on TV, but draft kings and fanatics. You've got two charismatic, invested founders running these companies, and they make a play, both of them for points bet. It's going to fanatics. But fanatics had to significantly ramp up its offer because of what Draft Kings did. Can you set the scene about what happened and where we're going? Yeah, this is when it gets really fun to be in the sports betting space.

And this is what's fun about it being so new. we're getting these exciting corporate rivalries. And on the one hand, you have Fanatics owned by Michael Rubin, who is charismatic. He is brilliant. He is competitive. And he has built an incredibly successful business through Fanatics. And he decided a couple of years ago he wanted to get into the sports betting space, and he's being very patient.

But they are inching closer to launching as an operator in multiple states. And part of that plan was to acquire a little. lesser performing operator like points bet. They made an offer for $150 million. As they were getting closer to the finish line, which was this week, Draft Kings came in and decided to offer more, offer up to $195 million. Now, Draft Kings is struggling to reach more market share. They are consistently second to Fanduil. So they thought we better block a competitor because Fanatics is a little bit like the boogeyman for all the operators right now. They know how much cash Michael Rubin and fanatics have. They know they are going to be able to acquire customers. So Draft King decided to try to

block it. It didn't work out. Their bid fell apart. Fanatics came up by about $75 million, which for Fanatics is really nothing. And it gives them a little bit more of a competitive opportunity once they begin launching in many more states. A gaming insider, a highly placed gaming insider had texted me. He's like, you know, Draft King spent a couple thousand on the legal paperwork here. And then they cost Fanatics, $50 million, $70 million to ramp up their offer for points bet. But they got it done. One more thing. My whole team back there, everybody in the control room loves sports betting.

They are bemoaning the All-Star game. And then the fact that there's nothing the day before, the day after. What are we going to do? What are we going to do with our time? Is there anything to gamble on? Well, look, you can always gamble on the home run derby, which last year people were gambling on it. And it's incredibly fun. I don't recommend anybody invest a huge number of dollars in it.

It's one of those you don't really care. You're just watching it. It gives you a little bit of a sweat to have a good time while you're watching it. Then you got the All-Star game the next day. And then you just take Wednesday off. And you know, you got the Barbisol Championship, the PGA event starting Thursday. So take Wednesday to reserve Barbisol and enjoy the Home Run Derby in the All-Star game. It's supposed to be fun, guys.

Taking a break from it is fine, fine. Chad, good to talk to you. Thank you. That was fun. Thank you. Coming up, a special July 4th edition of three-stock lunch because, you know, what's a holiday weekend if we don't talk about beer and barbecue, right? We're trading PepsiCo, Beyond Meat, and A.B. InBev on the other side of the break. Welcome back to Power Lunch. Time for a special Fourth of July edition of Three Stock Lunch, and we're looking at companies whose products just might be enjoyed over this long holiday weekend. First on our list is Anheuser-Busch. The stock has been hit after a controversy bubbled up over its partnership with a transgender influencer.

The company's CEO is trying to get the focus back on beer, saying it will assist wholesalers and distributors, which have been affected by the backlash. Here with our trades, David Wagner, who's with Aptus Capital Advisors, and you broke out your special Fourth of July shirt for us. I love it. I'm a big fan of America. I had to. Okay. Let's talk about beer. What's the problem here? Where do the sales go? Yeah, well, Contessa, I'd be remiss to say that this is a very polarizing company right now. And most importantly, for some Americans, I definitely think it calls into question.

The old July 4th adage that if you leave Budweiser and firearms outside your house, that Kid Rock's going to bring you fireworks. So that really creates the question here. Are consumers going to be trading out Budweiser for course like this weekend? But we all know this story here. And, you know, I think the biggest question is, if the recent price movement conforms to the underlying fundamentals of the actual stock. Yeah, we know Bud Light sales are down 30% year every year, but I think, you know, investors

need to look forward and focus on the second derivative here. And that's basically, does this lead to changes in shelf space allocation in favor of, say, Molson Coors or, you know, consolation brands? And secondly, how much this can affect tap handles? Given the recent craft beer boom, most restaurants and bars, well, they only have like one tap for light beer. could that move to another brand here? So Contessa, there's just a lot of unknowns here, and it really begs the question, you know, how does Bud Light really get their core consumer back? Because it appears that price discounting just really isn't solving the problem, and nor is it enticing me to want to own the stock.

Well, they've issued a big rebate for the July 4th weekend where it makes a case of Bud Light almost free. I don't know that that's going to move the stock. But anyway, that's what they're doing. All right, let's talk PepsiCo, the company introducing, I can't even say this, Pepsi colichup. It's like ketchup, but for 4th of July, which, you know, ketchup is supposed to be tomatoy and Pepsi. I don't get it.

Yeah, that almost basically puts me on the sidelines just there. But I actually am a bull on this name. And, Contessa, I will be honest that, you know, Staples, they're pretty expensive here right now, even after they've underperformed the S&P 500, by about 13% year to date. The sector tends to trade at a 20% premium to the market. and it's currently trading at a, you know, 30% premium to the market. And then you look at Pepsi and it's the most expensive house and the most expensive neighborhood trading at like a 35% premium.

But I do think that investors are getting a lot of earnings resiliency here with this name as about two-thirds of their revenue comes from North America where demand and in elasticity. Well, it's been pretty darn stellar. And even if you look at market expectations from the sell side, they're still pricing in Pepsi to continue growing at like an 8 to 9% organic growth rate with only a volume hit of, say, you know, 1%. So what that tells me, Contest, is that, you know, consumers, they're continuing to pay for what they want, and Pepsi basically sells affordable indulgences.

So, you know, Contessa, I think this is a sneaky trade in a safe space. Okay. Lastly, beyond meat, shares down more than 40% over the last year. What do you make of it? Would you get in here? No, no. And I think in paying homage since this is the Fourth of July weekend to the great American of Hank Hill, you know, the propane salesman.

He basically taught Americans that if someone asked for their stake, well done, You should ask them politely yet firmly to leave. And that's exactly what investors have been doing to this stock. It's well done and it's basically been shunned from portfolios. I mean, the fundamental problem here is that, you know, they've had a product that everyone wanted to try because it materialized overnight. But it's obviously not meat and, you know, it's not a craveable aspect. Honestly, when it comes down to this, without mention the balance sheet, this stock is basically

just DIA, no growth, no margins, not my style. David, I'm a Yankee doodle dance. Indeed. Thank you for being with us. Now I'm going to get in trouble. The bosses have told me not to sing, never to sing. Don't sing. Still to come, Ferrari revving up to new heights, now worth more than Ford and GM. Robert Frank has all the details looking very Miami vites.

Italian sports car maker Ferrari on a record run, 50% game this year, helping drive its market cap to more than 61 billion. That's higher than both Ford and GM. Robert Frank joins us with more. So, Robert, what's behind this power move? It's a lot of wealth, basically. Contested Ferrari shares hitting an all-time high today, now up more than 50% for the year. It's market cap now over $60 billion.

It's worth more than Ford or GM. Now, keep in mind, Ford GM sell more than 4 million cars a year. Ferrari sells about 13,000. The reason for that valuation is faster growth and much bigger profits. The gross margin on a Ferrari is. now over 50%. That's more than twice. Tesla, more like a Louis Vuitton or Gucci margin than a car company. Ferrari's earnings grew 16% last year. Analysts expecting even stronger growth this year with the launch of a lot of new models. Like yesterday, they announced the 1,000-horsepower

hybrid SF90 Stradale, zero to 16 under two seconds. Price tag over $800,000. And by the way, they're already sold out, so sorry you can't get one. But if you walk into a Ferrari dealer today, You try to buy a car, any car, they start at $230,000. You're looking at a three and a half year wait. Try ordering its new SUV that putosangue. You can't even get one until at least 2026. Unlike most cars, Ferraris gain value over time because demand far exceeds supply. They're also one of the few brands slow rolling the EV transition.

Their first EV not expected until 2026, but still the best performing auto stock after Tesla this year. Okay, so this is a company that is not at all worried about consumer pullback at all. Now, yeah, and we haven't seen it. And even if there is one, they've got that three-and-a-half-year buffer to take them through any kind of recession or slowdown that we get. So when you talk to the auto analyst, they say if you're looking for safety in the auto sector right now, it's Ferrari. Okay, and what does this mean about the luxury sport car market, like the appetite for the and the need for speed? Right now, it's super strong, partly because people worry that these internal combustion engine that Ferrari is famous for are going to disappear. So they're buying them now.

We'll see what happens in the EV landscape. I love it. I'd go for a ride. Robert, thank you. And thank you for watching Power Lunch. Closing bell starts right now.