Power Lunch - Talking technicals, Wall St layoffs and is a soft landing off the table? 12/16/22

Episode Date: December 16, 2022

The Nasdaq hit hard this week but do the charts signal a bottom is near? Plus, Goldman Sachs is reportedly planning layoffs adding to Wall Street’s belt tightening. And we’ll debate whether the Fed is on the verge of making a big mistake. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. I'm John Ford in for Tyler Matheson. Here's what's ahead. Breakdown or breakout. The NASDAQ hit hard this week, but do the chart signal, a bottom is near. We're going to take a look at the technicals to find out which two tech stocks are about to bounce. Plus, storied Wall Street Bank, Goldman Sachs, reportedly has plans to shed 8%, up to 8% of its workforce. Are there more layoffs to come, those stories, and more in the hour ahead? First to Kelly with a check on the market. Thank you, John. Welcome. Hi, everybody. Stocks getting slammed once again. The Dow's three-day losses now totaling more than 1,300 points. We were down 548 at the lows. We're down 484 right now at about a 1.5% drop across the board here. 3833. That's your level for the S&P 500. Big options expiry day as well. Keep an eye on the close. Now, meta is bucking the trend and is the best performing stock on the S&P after an upgrade at JPMorgan to overweight. It's of 3%. They're talking about easing cost pressures. The stock eeking out a gain for December.

In December. Meantime, the energy department will begin repurchasing crude for the SPR. The first purchase since that record, 180 million barrel released from the stockpile, but with crude prices now around 74 and change, now seems an opportunistic time, John, to replenish it. All right, and on Wall Street, the soft landing crowd is on the defensive, as calls for a recession, a hard landing recession grow. Our next guest says the recession is likely, and that could shift stocks into neutral. Let's bring in Mark Machini, the chief investment strategist at Jenny Montgomery Scott. Mark, why, first of all, are you convinced that a recession, perhaps a harder landing, is in the cards?

Well, John, first of all, I think if we do encounter one, it's more likely to be mild and relatively brief than even a typical Fed-induced recession, which would be much more severe in nature and likely protracted. But having said that, it seems, by all accounts, particularly reinforced by. this morning's release of the S&P Global PMI readings for both manufacturing and services that are not only below 50, which is the line of demarcation between basically expansion and contraction, indicating contraction, but then secondly, dipping even further into levels that historically have been indicative of a recession or recessionary-like conditions. In addition to that, the leading indicators, the yield curve being inverted, these are very prescient indicators that signal the prospects of a recession. It varies, but seven to 12 months hence,

which would put one likely sometime, perhaps, in the middle or second half of next year. And so for us, we remain generally cautious about equities in the near term, thinking that largely, because of the discount that's already been applied to the stock market, perhaps a lot of that risk has already been pulled forward. But at the same time, we may have to plumb more lower, lower, levels before a durable bottom is formed. So what's an investor to do if stocks are going to be stuck for a while? Raise cash. Hold tight. John, I think hold tight. I think it's very difficult to raise cash because obviously the timing of that decision requires two correct decisions, when to get out, and then ultimately when to get back in again. And the failure tends to come

in the second one, when to get back in because cash has incredible magnetic quality, even though today it's yielding something that doesn't require a magnifying glass to see what kind of interest you're earning on it. But, you know, having said that, like I said, we've seen a pretty severe discount already applied to stocks. On the October low, we are down 27%, which is a typical drawdown if we avert a recession in a bare market. So I still think there is perhaps low odds, but some chance that we avert a recession. And if so, we've already perhaps seen the worst. If not, we may have to go a little lower yet, but at the same time, I still think the prospects out over the second half of this year into 2024, Brighton enough to suggest investors should perhaps stay cautious

in terms of their positioning sectorally or with regard to companies that are of high quality in nature and have a lot of ballast on their balance sheets or pay high dividends as a way to sort of weather the tumult that we might encounter between now and when things begin to brighten. Markets, Kelly, our guest last hour, we're sticking investors with utilities. talk about defensive, also some health care, and you have United Health as one of your picks. Service Now as well. I mean, why these two stocks? Why Service Now? Yeah, Kelly, I mean, service now, obviously a technology company in a space that we like, we think is very strong sectoral, secular that is tailwinds in terms of software as a service.

It's a cloud IT management company, been beaten up like the rest of the tech sector down about 40% on a year-to-day basis, not necessarily cheap on a pure PE. basis, but relative to its 30% plus growth rate that has been operating at and is projected to continue to looks more reasonably valued than in quite some time. And again, because of the thesis of business spending that disproportionately is directed towards software services and companies that have a subscription tend to do better because they have more persistent, more predictable results, were attracted to them at these levels. Is there a lesson from earnings like those of Adobe, which have that stock up?

3% right now today, despite the market being down. And even those like MongoDB, Samsara, the types of stocks that some people were saying stay away from because they don't have profits yet, but they continue to grow and faster than some expected. Well, John, I mean, that's obviously for investors who can, I think, have the risk budget for those kind of speculative investments, that you're making a judgment on price-to-hope ratios. And in this environment, in which, again, we think the economy is more likely moving

towards contraction than re-acceleration, which under a re-acceleration scenario, perhaps you can price things to work out perfectly, and they will bail you out. But if that's not going to be the case, which again is central to our view, then we suspect those companies will continue to be challenged. And while perhaps tradable for the most nimble investors aren't prudent for most longer-term or conservative investors. All right. People are warned. Mark Lachini, thank you. Thanks, John. Now the NASDAQ is extending its losses. today after closing below its 50-day moving average for the first time since early November. What are the charts saying about this latest round of market weakness? Let's ask a Craig Johnson,

who's Piper Sandler's chief market technician. I'm almost afraid to ask, Craig. What do you see? Well, it's not a very constructive setup on the triple Q chart that we brought in here today. We've been in a downward training channel now for the better part of the year. You're below a declining 50, 200-day moving average. And when you look at that, chart, we just can't seem to reverse a downtrend. We've seen the Dow, which is my mother's favorite index, has already reversed the downtrend. And at this point in time, it looks like we're setting ourselves up to come back and perhaps retest 259. But I got to tell you, even with the Dow, even with the triple Q's week, that doesn't mean the rest of the market can't work.

But how often do we really see that big of a difference between the NASDAQ, say, and the other, you know, the Dow and the S&P? Well, if we just kind of remember what happened, post the dot-com bubble in the 2000 period of time, there was a long period over two years where people were talking about the market X, the technology sector. And I suspect that we're probably entering a phase like that. Again, this is going to be sort of X the Fang stocks. Because if you look at Amazon, you look at Netflix, you look at even Tesla, if you want to add that into a Fang plus type scenario, all those charts still continue to be trending

lower in here. But when you look at what's worked coming off of those October lows, the Dow was up over 15, 16 percent coming off the lows. And yet you can see that the NASDAQ was left far behind along with the Fang stocks. So some individual stocks, looking at Flex, that chart, what do you see? You know, this is a great defensive play here inside of the technology sector. It's been a big consolidating stock for the better part of a couple years in here. It's finally broken out above that consolidation range, back above its 5,200-day moving average.

These are the kind of stocks inside of tech sector right now, defensive tech name, that we think are going to continue to work here for a while, and it's one we'd be buying. I'd also just mentioned this is a great play. Nancy at our firm has been talking about the reshoring theme. Clearly, Flex is going to be a play on that. Do you buy now, though? I mean, there's talk about a Santa Claus rally,

and perhaps, even though it might not feel like it today, there's been one. We're just hearing about dark clouds, perhaps on the horizon for the beginning of 2023. Do you really need to buy the, even with the charts, if you're looking at Broadcom, something like that. Is now, the charts telling you now is the time to buy? I think now is the time to selectively be adding to some of these positions.

And I think Flexronics and I think AVGO, Broadcom fit into that category too. You got a very nice downtrend reversal. I think a lot of what you got going on plays into the segment. You were just discussing about options and with the expiration happening today. I just remind everybody, you got $4.2 trillion of cash sitting on the sidelines. and you've seen over $90 billion going to money market funds over the last month. There's a lot of investors out there that have been spooked to the sidelines and any sort of downturn reversal in the S&P 500 is going to drag some of that money back into the market.

And yeah, I do hear the bells and I do think we're going to have a Santa Claus rally into your end. Okay. We'll see how high those reindeer can fly. Craig Johnson, thank you. Thank you. Coming up, the Fed's fight with the market is the central bank losing control and what could that mean for rates and for stocks. Plus, Centine adjusting its 2023 forecast slightly below estimates.

We will ask the CEO about her strategy to grow earnings, improve care, and bring down medical costs. She joins us exclusively in her first TV interview since taking the help. As we had to break, a look at Tesla, down another 4% off 15% this week. Wow, stock trading at its lowest level since November 2020. Be right back. Welcome back to the Fed. Very clearly tells the market it's planning to do more to fight inflation. And while stocks have sold off, bond yields have not reacted the way you might think. Steve Leesman joins us now to explain what this means for the Fed. No respect, Steve. Yeah, and right on cue with that outlook, San Francisco Fed President Mary Daley, once one of the most of his Fed members, is out with a uniformly hawkish outlook.

She said this afternoon that the Fed, once it reaches its peak rate, may hold there for 11 months and that everyone on the Fed, thinks it's going to be on hold for all of 2023. She lined herself with the median outlook for the funds rate at the end of the year at 5.13%. Compare that with this chart over here with how the market is priced for a peak funds rate of 485 right now and a year-end rate that has a 50 basis point cut built into it. Treasury rates are flat to down, but this 436 year compares with the 515 or 513 of the Federal Reserve right now. Influencing financial conditions is a major way for the Fed to steer the economy, and bring down inflation falling stock prices.

There are a piece of that. Interest rates are probably a more important piece, and they're not helping the Fed. The result is that the Goldman Sachs Financial Conditions Index, it is eased since November, while the Fed that supports economic growth, not less economic growth, raises the question of whether the Fed is losing its ability

to control interest rates and what it may have to do to get it back. Most Fed observers I spoke with said, Fed likely to raise by a quarter point in the February meeting, but all agreed 50 is possible for February or, later if the Fed does not get the response it needs on financial conditions from the markets, guys? The only, and we, you know, have really dug into this, Steve, but the only thing that you wonder about is whether the Fed itself is so lagging that they're the last person we want to look to for leading information. In other words, I think I read that last December, they,

writ large as a group, expected like two rate hikes for all of 2022 or something. We're obviously way past that point. So whatever they're expecting. for 2023, does it even matter? Or are the facts just going to change so much between now and then? Well, if you're asking me, are they going to be right? I think there's an even chance they're wrong. Are you asking me if it matters what they think? I would say there's 100% chance you ought to be paying attention to what they say. And it is, like I say, a forecast has nothing to do with the actual future. It is 100% accurate for what people think right now about the future. And if you Ask the average Fed folk right now.

They think it's 5.13% for the funds rate for 2020. 17 of 19 above 5%. Seven of them are above 540. Yeah. No, it's stay right there because our next guest, Steve, says the Fed's goals and objectives are out of sync with reality. Let's bring in Ron Insana. He is CNBC's senior analyst and commentator, also a senior advisor to Schroeder's North America.

Ron, what say ye? What's going to play out here? Kelly, I don't think the financial markets are acting any differently. than any other cycle like this that we've seen in the past, where of course, they lead the Federal Reserve. Interest rates are falling. The yield curve is inverted because the financial markets, particularly the bond market, believes that the Fed is overdoing it and is driving us into recession. And the worry has shifted from inflation, which is clearly over the last five months in a downshifting mode. And we've seen that in commodity prices, lumber's at 380,

unleaded gasoline's at 211, real estate's in recession. You know, the market's discounts, a future where growth is weaker, not where inflation is higher. And I think the Fed obviously is jawboning its position to make sure that financial conditions stay relatively tight. But in my estimation, and Steve will probably may disagree with me, I think the Fed's got this almost entirely wrong at this juncture. Because you see a much softer economy. Let's put it this way, Ron, if you basically think the labor market's going to crack on its own and doesn't need any further push from the Fed? Well, I don't, there's some weird things. Obviously, Kelly, going on in the labor markets is we're short four million people.

So whether or not companies lay folks off en masse remains to be seen, given that there are four more, four million more jobs than there are available unemployed workers in the United States. That's somewhat anomalous. But I think as in prior cycles, you know, the Fed typically breaks something. I think that's where they're going. And the markets, you know, discount that well in advance. And so, look, if you look at it and you annualize the last five months of inflation data, we're running at about a 2.4 percent rate.

I think they've already achieved their objective, whether they know it or not. I just, and I'll believe the markets cumulatively and their message over any individual forecast, even from the Fed. Ron, you ignorant? Never mind. Friday, it's a long day. It's a long week with the Fed meeting. I'm a little punchy. Ron, I don't disagree with what you're saying, and I'm not going to be in a position of standing 180 degrees from the market's outlook.

My attitude is nobody has a lock on predicting the future, not the market, certainly not the Fed. What I would point out is missing from your analysis, though, is this idea of wages and labor. And the Fed has this problem where it has a, not a cyclical problem of wages and labor, but a secular problem. It has too much demand for not enough labor. And if you look back at the Brookings speech where Powell laid out what he thinks is happening with the labor market, he pointed out, retirement is still going on an accelerated pace. We haven't solved the immigration problem. we lost what may be more people than we think from the labor market from COVID. So that's three areas.

And he looks down the road, doesn't see that changing, sees an ingrained problem of a lack of labor driving up wages over time into that critical sector of the core services X housing, which is 55% of the core. And he sees that continue to go up. He does not see a way to stop and reverse himself until he gets wages under control. And Steve, neither of us, and I conclude John and this as well, can tear our hair out over this particular point. But if you have a structural shortage of labor, higher interest rates won't solve it. If you raise the unemployment rate so that people who currently have jobs that are paying and in seeing increases above the inflation rate, the spiral has stopped. And all you're asking them to do is to give up their jobs, go home and come back to the same job 12, 18 months from now at a lower rate of pay. That makes absolutely no sense to me when the problem has nothing to do with interest rates.

It has everything to do with what you and Jay Powell have described is a structural shortage of labor, immigration, birth rates, and the like. So then, Steve, what does capitulation, you know, hypothetically look like for the Fed in this scenario? I can't imagine them doing exactly what the market thinks they're going to do, but they say they're not going to do. But does it mean that they actually pause sooner next year if it starts to look, instead of, of raising and then cutting? Look, first of all, let me just give you the risk scenario here. I think it's much riskier if the market is wrong, because if the market is wrong,

the level of adjustment needed, I think, for bonds and stocks for a real funds rate of 5.12% or higher is pretty still dramatic, I think, from this point in time. I think it's much better if Powell and the Fed end up being wrong, have to turn tail. I frankly think there's a hit to the Fed's credibility, and this is really a conundrum for, for Powell because everybody I talk to says if the Fed does not get the response in the bond

market that it needs to tighten conditions, its only recourse is to tighten more. And that creates this problem. But really what they want to do is they want to slow down and go to quarters here and try to feel their way as to where that right moment is. But I think you have to pay attention to bond markets and that GS financial conditions index that I showed you earlier. If that doesn't tighten, I think Powell has a right. problem if he doesn't get growth down substantially below potential.

I just see that they've already overtightened. And they've already done it. They've tightened financial conditions. Real estate, residential real estate's crashed. You know, lumber prices have crashed. Gasoline prices have crashed. Oil prices have crashed. Retail sales are down, 0.6% last month.

So you wanted to stop, Ron, at 6% year-over-year inflation? Well, Steve, first of all, I mean, year over year, I mean, I want to extrapolate the last five months, whether you look at core, whether you look at CPI headline, whether you look at PCE, all of those inflation readings peaked in June or earlier and have fallen precipitously since. We're running at a 2.4% annual... Housing was still going up. Housing was still going up now. And rents are going down really, really fast, more than most people had anticipated, including the Fed. So I don't know what else they have to do. And again, housing's like labor. We have a physical shortage of housing. We don't have, you know, a

problem with respect to, you know, demand at the moment being so overwhelming for housing that we're short full supply. We're short somewhere between four and six million units. It's just the labor market. I know we have to go around, but it feels like that has to crack in order to really get us down to 2%, you know? I guess. I mean, you know, Kelly, I heard you mention this and it's something I referred to the other day. If wages are rising above inflation, which is falling, that's not a wage price spiral. That's wages being above the inflation rate, which is actually reasonably healthy for the economy. As long as it stays that way. All right. We'll end it there. We got to go.

Every little thing's going to be all right. Way to go, Ron. You don't have any hair, but you can do it. No, this is the argument for 2023. Ron and Sana, Steve Leesman, always a pleasure. Thank you both. Very, very much. We appreciate it. I, for one, hope to keep working in 2023. Well, another down day on Wall Street. S&P 500 down more than one and a half percent and down about 20 percent so far this year. those numbers, a stock down only 2%. Doesn't seem so bad. Take a look. Centine, the company seeing higher earnings

plan to spend $2 billion on a buyback plan. The CEO joins us coming up on Power Lodge. Welcome back. Let's get to Kate Rooney for the CNBC News Update. Kate? Hi there, John. Here's what's happening at this hour. Alex Murdoch, the disgraced lawyer accused of killing his wife and son, has been charged with tax evasion. Prosecutors say he dodged nearly $500,000 in state taxes on $14 million he earned and another $7 million.

He stole from his law firm. With the nine counts of tax evasion, Murdoch now faces more than 100 charges, including murder and fraud. In Berlin, rescuers managed to save about 30 fish from the massive aquarium that burst this morning. The 80-foot-high tank held 1,500 fish and 260,000 gallons of water. before it rupture and city officials are still investigating the cause, but there is speculation that sub-freezing temperatures may have cracked the aquarium's acrylic walls. And in Chile, smoke from wildfires has triggered a public health alert for the 6 million residents of the nation's capital. Santiago is also suffering from a heat wave that has brought temperatures near the highest

level ever recorded in that city. The fires have already burned more than 17,000 acres. Guys, back to you. Wow. Kate, thank you very much. Ahead on Power Lunch, we're talking to the CEO of Centine. The company seeing higher earnings but lower revenue next year. We'll ask CEO Sarah London about that in her first television interview since taking over the health insurance company. And check out shares of Moderna, which is now the worst performing stock in the S&P today down 7%, but still the best performer on the week after that positive news on its cancer vaccines. Power Lunch is back in a moment.

Welcome back to Power Lodge. A volatile week closing on a down note. Let's head to Bob Bassani for a look at the latest market numbers. Bob? We're down about 2.5% for the week at the lows for the day. In fact, at the lows for the week, it's been a very rough three days. Not a lot of new lows, but some notable ones. I just want to show you some things.

Credit cards have had a tough week. Capital One sitting at a new 52-week low there. There was some data yesterday on charge off is increasing. Discover was down. Amex is really weighing on the Dow this week. It's probably down 5, 5.5%. for the week. Not a lot of new lows elsewhere, but some of the financials, some of the big large regional banks that had been terrible performers since the Goldman Sachs Conference a week

or so ago. That's a new low for Comerica, M&T Bank. They both dropped rather dramatically after presenting at that. Elsewhere in Techland, Salesforce, that's a Dow component. That's also a 52-week low. That's near a two-year low, in fact. And I've been talking about the reits. There's been a lot of concerns about the office reits. And to a lesser extent, about some of the regional mall reeds. So S.L. Green, that's a new low. The fact, that's the lowest in many years for S.L. Green. Macerick and Simon property have had a tough year as well. Those are, of course, mall properties. They're down about 30% for the year. So where are we? I think it's notable here. We are close to down 20% again for the year on the

S&P 500. We're probably about a half a percent away from that. And guys, that's pretty significant. It was only eight times since 1926. We've been down more than 20%. on the year. So you avoid that. That's obviously a little bit of a point to be wary of at this point. Another half a percent or so. Guys, back to you. Yeah, well below that key 3,900 level on the S&P. Art Cashin warned us about this week. Bob, thanks. Meanwhile, Centine, moving in and out of positive territory after the company increased its share buyback authorization by $2 billion, issued new guidance at its investor day. CEO, Sarah London, joins us exclusively in her first appearance since taking over the top job. She's talking with our own Bertha Coombs.

Bertha. Hey, John. Thanks very much. And Sarah, thank you so much for joining us. You've just had your first analyst day since taking the CEO job in March. You are lowering your revenue guidance. And part of the reason for that is the public health emergency possibly causing tremendous disruption in the Medicaid market. Yeah, well, first of all, thanks for having me. to be able to deliver guidance today that was in line with expectations from an earnings standpoint. But as you said, we lowered our revenue guidance mostly because of the PHE and the impact of redeterminations in Medicaid.

Centine covers more than 15 million Medicaid recipients. And so we've been watching the PHE and the redetermination factors very closely for more than nine months now and actually working really closely with our state partners because we realize that whenever that does start, there will be a number of Medicaid recipients who will probably fall off of the roles. And one of the things that's unique about Centine is that we take a very local approach in each of our 30 markets,

and that means we're able to partner closely with our state agencies and the Medicaid agencies to actually figure out a collaborative process, to make it as efficient and seamless as possible for members to go through that process. And then for those who are no longer eligible for Medicaid because we're the number one marketplace carrier,

we can actually offer them an affordable alternative. So hopefully there is some kind of a smooth transition as states begin to look and lift that pause on people being kicked off the Medicaid rolls. You talked about, you know, sort of the local approach. That is part of your focus as you look to bring the company forward. For so long, we've known Centine as a company that has been very acquisitive, bringing in a lot of different carriers in different states to get a wider footprint. but now you're trying to integrate them all and trying to use data-driven strategies to do that. Yeah, you know, interestingly, for as much as we have been inquisitive, the local approach has been a pillar of Sintin's strategy from the very beginning.

And so in each one of our health plans, we are embedded in the market. We have team members who live and work in the communities, and that gives us access to a kind of data that in addition to traditional health insurance data around medical utilization and clinical care, you actually can understand the factors in the community, right? Because 80% of health outcomes are driven by what happens outside of the doctor's office and happens in the community. And so we understand what are the resources that we can activate when we think about the whole health of the individual

and we think about transforming the health of the community. That ultimately has better health outcomes long term. And so that's really been our focus, and we're amplifying that and investing in that as we go forward. Kelly Evans has a question for you now, I believe, Kelly. Thank you, Bertha. Hi, Sarah. And thanks for joining us. I know this is your first TV interview.

My question is going to be, can you give us an update on the health, generally speaking, of your population? We're coming out of COVID. We've had a lot of horrible, now flu, awful viruses, awful colds going around, and much higher mortality than is normal for the U.S. What are you seeing and what do you expect going into next year? Do things look like they're on an improving trend or are we still going to be facing some pretty tough times? Yeah, so I was just thinking of the data this morning. We're starting to see a little bit of the probably expected uptick in COVID as we come into December.

Nothing really alarming, but I think we all expected this just because everyone's seeing one another for the holidays and we're indoors. But interestingly, the acuity of the cases. and the overall cost of the cases continues to go down, which is consistent with the trend that we've seen over the last three to four spikes. From a flu and RSV standpoint, we are seeing an earlier spike in the flu season, which is actually very consistent with what we saw in Australia's flu season. It peaked very early, it peaked high, but it peaked high on a relative basis. It looked a lot more like 2019, which is what we're seeing nationally as well.

And so the expectation is that we'll peak back to pre-pandestine. levels. So it feels like it's a big deal, but in some ways it's because we haven't seen a lot of flu in the last two years. No, I wanted to end on you're talking about local and working with people who are in the community. He's told several stories during the Annals Day about people within the community who really understand the experience of the people that they're servicing. And one of those communities is Ubaldi, Texas, where you guys have been very much involved. since the horrible school shooting there. Yeah, so Superior Health Plan, which is our Texas Health Plan,

has been in Yuvalde and serving the Yuvalde community for almost 20 years. And so when we heard about the tragedy, we knew that we needed to get involved in a fundamentally different way. And so we have been down in Yuvalde for the last six months, working really closely with community officials and talking about how we can help invest in the long-term health of that community, understanding that the impact of the tragedy is going to last for decades. And so we recently announced a $7.9 million investment to build out an expanded community center

that will take the health clinic that's there and expand its services to include behavioral and mental health capabilities, youth development, and counseling services. And then additional services, again, to really address the whole health of the community. in addition to health care. And that's really a perfect example of how Sintin believes in partnering long term with our communities. We're going to leave it there.

Thank you so much, Sarah, for joining us. And Kelly, we're going to send it back to you. Great. Sarah London and our Bertha Coombs, thank you very, very much as we keep an eye on Santine. Shares health care overall, by the way, again, having an outperforming year. Still ahead, Banker Blues, Goldman Sachs, adding to the list of Wall Street firms trimming staff.

We have all the details in what it could be telling us. us about what happens next. Plus, FedEx's tough talk about the economy in September. That's soured investor sentiment sent the stock sinking. We'll trade the name ahead of its next report, which is next week. Power lunch is back in two. Goldman Sachs planning to cut jobs starting in January, up to 8% of the workforce.c.com's Husson reporting on that story. joins us now, Hugh, given how much they grew over the past couple years and how in-demand talent was, what is? What is What does this mean? It means a couple things.

First of all, the bull market for talent on Wall Street is over. So if you've been at home and sort of playing it out and waiting to see and resisting your manager's calls for you to get back to the office, that is over, and that's over very soon. And a couple of things. I mean, first of all, comp has been up, you know, has been up pretty strongly. Last year was such a strong year. The boom obviously has turned into a bust. And when that happens, I think people have to be a lot more sort of humble and open-minded

about what comp is this year. the people who will get bageled. You know, there are hundreds of people at Goldman and doubly thousands of people on Wall Street who are going to get zero bonuses this year. And if that's the case, that's a message from management to say, you know, look elsewhere. Why? What changed? I mean, we all know that the environment for equity performance has been pretty woeful. Bond performance has been pretty woeful. Has deal-making offset any of that? I mean, fundraising has dried up. So talk us through all the reasons why this has happened. Yeah, I mean, you hit on all the highlights. You know, the deal pipeline is down 40 percent, not as bad as, you know, equity capital.

markets, which is down closer to 80 or 90%, obviously IPO markets completely frozen. When is it going to open up? Do you know? I don't. And so, you know, there was a strain. And, you know, I went on with you in June and talked about, you know, what we thought was going to happen. It came to pass. So the lack of activity in capital markets has sustained, we don't know when that's going to come back. And if you're David Solomon, you're sitting at your desk on 200 200 West and saying, when is it going to come back, do we maintain the capacity, hold on to a or do we just cut bait, close up now? And if we have to hire again, you know,

and again, this gets back to hire to fire, right? Which is unfortunately the cycle on Wall Street. So where are we in this weather pattern? A few weeks ago, you broke the news about was it Wells Fargo and the mortgage business and the layoffs there? Now we got Goldman Sachs coming up beginning of January, 8%. It's kind of a significant number.

Is this rolling through? Is there another shoe that we should expect to see drop in February March? I didn't think there was, and now I changed my mind. So, you know, last week reported 1,600 job cuts at Morgan Stanley. For them, they have a stable business, wolf management, annuity-like returns. I think they're done. I suspect they're done for the cycle, at least for a few months. Folks like Goldman Sachs are much more highly levered to these capital markets businesses, unfortunately.

That's why they try to go into markets. They're retrenching there. That sort of failed. So if you're really levered to these sort of boom-and-bust capital markets businesses, can you maintain your troops in the ground? And I think for a lot of folks, this is a sign that there will be potentially rolling cuts between now and through the first half of 23. It's pretty significant when we talk about Goldman's Marcus foray having failed.

And if that's true, and that strategy of kind of build a consumer business from within to kind of rival the steadiness that maybe a Morgan Stanley now has, if that didn't really work, what does it do now? And does it invest in something further here at a time like this when it's otherwise retrenching or not? And if not, is that going to come back to haunted again in five or ten years' time? This tells me the people at Goldman Sachs, the partners and managing directors who never agree with this foray, this adventure and a consumer, they won. And, you know, it leaves David Solomon with the same pickle, which is he's leading a company that is over levered 60% capital markets trading or invested banking.

And those businesses don't merit a great return because they're up and down. And so how do you diversify it? Now, it seems like they're going to get further into wealth management. Everybody wants to get into wealth management. It's not easy. If you want to buy your way into wealth management, it is high multiples. And so he's stuck in a position that he was when he took over his CEO, which is he's in charge of the best brand in investment banking and trading, arguably,

but over lever to investment banking and trading. Right, exactly. The danger in being an Apple supplier, right? You don't necessarily get Apple's results, even if you're supplying financial services, as Goldman Sachs was with Marcus. You keep breaking the news. Yeah. Thank you.

Thank you, John. All right, coming up, Can FedEx get out of its own way? Will Nike's big quarter continue? And can Micron escape the semi-slump? That's all ahead on three-stock lunch. Power lunch is back in two. Two days, three-stock lunch focuses on three big earnings reports due out next week.

Nike, FedEx, they both report Tuesday and Micron, which reports on Wednesday. Let's get the trade ahead of the results, and we'll do that with Gina Sanchez today. She's chief market strategist at Lido Advisors and a CNBC contributor. Gina, welcome. Let's start with Nike, which is actually up 26% quarter to date. Yeah, Nike is a stock that Lido has owned for some time, and this is because it has a quality brand. People have brand loyalty towards this, and yes, everybody's getting hit by the spending slowdown. We're seeing rare discounts out of Nike, but the China reopening is going to help, and if we see some more dollar weakening, that could also help.

And look, this is a brand that has tremendous eyeballs. Just look at what's going to happen on Sunday. Nike will go up against Adidas, or Adidas, as they say, in France. And I don't know about you, but I'm going to be rooting for Nike, the proud sponsor of the Argentine World Cup team. All right. So next is FedEx. That's up 15 percent so far this quarter. But once we get past the holidays, and I imagine they've got to be thinking in that direction, do things get iffy for them? How does it look? Actually, no. One of the reasons that FedEx has had a drag on it all year is because of its exposure to either. And if you look at FedEx compared to UPS, UPS has done very well.

But its biggest liability is about to turn into its biggest asset as China reopens. And so we actually think that there's some upside to where FedEx is here right now. And right now you're looking at a stock that's trading at eight and a half times PE versus a long-term average that, you know, is 13. Even if you assume that that's lower now, that we're in a higher rate environment, it's still an attractive opportunity to take advantage of the China reopening. through a good logistics company. All right. So what about Micron, up 3% so far this quarter? Yeah, so this is a tough one. You know, Micron obviously had negative guidance.

People were very, investors were not happy to hear that they were going to cut their memory chip supply. They were going to reduce CAPEX, but we're in a supply glut right now. And guess what? We have been in supply gluts before. Just in 2019, we had a massive supply glut and all the DRAM stocks all got hit. and then eventually we went into a supply shortage, and everyone started piling up, and we're doing that again. The long-term on DRAM and demand for memory is very strong.

You just look at the kind of demand that's going to come from Smart City Buildouts. So we believe in the long-term story on this, and MyCron is actually one of the more steady, kind of more steadily priced stocks. This is a stock that tends to trade at 10 times. It's currently trading at six and a half times. And, you know, we think that it is a more stable way to play than, let's say, a big flyer like Nvidia. Gina, let me ask you about the market more broadly here. A lot of people are pointing out that we're down, I think, 5% pretty sharply since the Fed meeting.

Bond yields even are lower. You know, what is the message here? Do you fight it? Do you stick with it? What are your thoughts? Look, we've continued to go out telling investors that in this kind of slowdown, you have to stick with solid demand, you know, solid demand stories, high quality. It's one of the underpinnings that the leader portfolio continues to have.

And the reason is because there's really nothing. If the Fed was damned if they did and damned if they didn't in terms of what was going to happen, they slowed the pace of their hiking cycle. That's good news. It means that we're getting toward the end, but it also signals to the market that, yes, we probably are going into recession. And that's just to be expected. And when you know you're going into a recession, then you can't.

care about how robust the demand is for the products of the companies that you own. Right, exactly. You got to get back to fundamentals, see who can weather it. And as you indicated, maybe a couple of names we'll hear on that front next week. Gina, we'll leave it there. Thanks for now. Thank you. Gina Sanchez.

Well, up next, we just talked about chips. Is the bottom in for semiconductors? Wall Street remains divided. That's next. It's been a rough year for stocks. Tech in general, chip stocks specifically, the Philadelphia Semiconductor Index, the socks down 33%? That's a third this year. But is the bottom in? Well, it depends on who you ask. Christina Partsenevolous is looking at what Wall Street analysts are saying. Sounds like they're saying everything.

Yeah, it seems like that's the theme of the day, right? You mentioned the SMH, so it's a great barometer for the semispace. That's why we always talk about it. That is down almost 3% this week with back-to-back weekly losses and on pace for its first monthly loss in three. Both Bank of America and Count, so now I'm going to get into specific names, are betting big on NVIDIA, the Bank of America analysts say, quote, a soft landing could drive hard takeoffs and chip stocks. So really, that's a bet that the recession won't be that bad. And we can see NVIDIA's shares are down over 41% right now year to date. And Cowan also bullish on NVIDA says Russia problems and crypto pain are already out of the equation as well. And so that's why NVIDIA is going to be a winner, especially in AI.

But we're talking about an even bigger call, and this is coming from Evercore. They are arguing that the bottom is in. The SOX index is clearly falling much more than the S&P 500 year-to-date. That was the chart that we just had before. And the drivers for that rebound is the China reopening. This is according to them, memory market bottom. And although we've talked about this quite a bit, inventory levels have been high with a lot of customers. They believe that companies will continue to keep that buffer, higher level of inventory,

to avoid any future problems like a possible problem. pandemic. And so that's why they're bullish on Marvell. You've got over here, 53% higher over the last year, ASML, 24, and then Wolfspeed, 26% on a one-year basis. Whereas Morgan Stanley, saying the exact opposite, they think we are in the first phase of an industry-wide correction. They believe AMD, Qualcomm, and Lamb Research still have much more revisions to come in the near term. And you can see, though, AMD, the worst performer out of the group, 52%, almost 53% lower on a one-year basis. And Micron reports next weekend, did they just issue a warning?

No, that was in November. But that just shows that memory. We were talking about just the memory pricing. They are warning that memory prices have come down and they're going to reduce their production. You also had a call on Western Digital as well. Same problem. Memory prices are coming down.

That's going to lower the average selling price, hurt margins and therefore reduced production going forward. So you remember we were talking about industrials just the hour before? It's literally the same. It's, do you believe that we're heading in a recession? If you believe it's a soft landing, then bet on these guys. If not, bet on these guys. That seems to be how we're dividing them.

But maybe I'm just assuming. No, it's simple, but it's not easy, as they say. Christina, thanks. Christina Partsena of the list. Sticking with tech, we want to show you a tweet by Elon Musk earlier this hour. It reads, and soon, ladies and gentlemen, wait, John, what, how do I say it? The coup de grace.

There you go. Coup de grace. This, after tweeting earlier today that Twitter was on fire, Musk's takeover of Twitter has been a thorn in the side of Tesla shareholding. shareholders. The stock is down 33% since his deal for Twitter closed in October. Since he made the offer for Twitter in April, the stock has lost more than half its value. That's 580 billion in market cap, which is more than it's currently worth right now. Imagine Steve Jobs bought MySpace, right, like 15 years ago, and then like got distracted and stopped paying attention

to iPhone development. And Apple lost half its value. I mean, I don't know. But he says in the long term, Tesla shareholders are going to get benefit from Twitter. I don't know. All I know is I see more and more people insisting that they want, you know, different leadership or more professional leadership, PR teams, IR teams, all the rest of it, at Tesla to kind of separate it from all the drama that's going on at Twitter. And to, you know, people have made this point that the creditors as well.

I mean, Musk's personal fortune is at risk here. And so the creditors might be the ones who try to force something to ensure the value of their collateral. Yeah, more than at risk. Maybe he's a Tesla shareholder. Maybe he's just repeating that to himself. Eventually, there will be a benefit here. You say it enough time.

Maybe it comes true. Thanks for watching Power Lunch. Closing bell starts right now.