Power Lunch - Tech Tumbles, Semi Smackdown 7/17/24

Episode Date: July 17, 2024

The Dow is higher and setting records, crossing 41,000 for the first time ever. But the S&P 500 and Nasdaq are both down. We’ll dig into the numbers. Plus, semiconductors are getting hit the hardest today, and both sides of the political spectrum are targeting the sector too. We’ll bring you the latest details. 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 alongside Kelly Evans. I am John Fort. And the Fed is releasing the beige book right now. We're digging into that and we're going to bring you the details shortly. But we've got another interesting day for the markets. The Dow is higher by about 200 points, setting records crossing 41,000 for the first time, led higher by United Health and J&J, among others. But the S&P is down. And the NASDAQ is really getting smacked down nearly 3%. Yikes. One stock deserves most of the credit for the Dow's two-day run. It's United Health. The highest priced and therefore most influential stock in the Dow, and it's up 11% this week, while dragging on the blue chips, have actually been the huge tech names, Apple, Microsoft, and Amazon. And what's really hurting them today is the trouble in the chips, concerns that no matter who becomes president,

they'll be tougher on semis and China, but Global Foundries and Intel have managed to avoid that problem, as they may be seen as possible U.S. alternatives. Global Foundries, above, call that 7% today until 1.5%. Yeah, alternatives on the manufacturing side. And though the Russell 2000 is down today, it is still up 9% this week compared to a 3.5% loss for the NASDAQ over a week-long period. Let's bring in Mike Santoli for more on this dramatic change we've seen in the market with small caps, overtaking mega caps at least for a few days, Mike. Yeah, John, it's almost as if the laggard parts of the market tried to get all that underperformance back in, you know, one big bite. It probably isn't going to be as smooth as today's

action shows. Obviously, you mentioned that the big aggressive selling in semiconductors on some news, and then broader mega-cap tech had been crowded. It's been kind of unwinding. And the rest of the market today can't really quite absorb that with an offset of buying. That's mostly because of that run we've already seen in small caps and the majority of large-cap stocks as well. Today, you actually do have more like two stocks down across the market for everyone that's higher. So that's profit taking in small caps. The one area that I'll say is still pretty consistently green right now is financials. So bank stocks, both regionals, you know, the broad SIFI banks as well as, you know, non-bank financials. So it seems as if that's where the backdrop of a soft landing in Fed cutting rates

and who knows maybe some lighter regulation seems like has more traction as opposed to this real quick silver trade in smaller cap stocks, which are levered to this Fed rate cutting story. Interesting to me, Mike, that the Russell 2000 isn't performing as badly as the S&P today. The Russell's down a little less than 1% while the S&P is down almost a percent in a half. Does the Russell reflect more with the equal weight S&P is doing? Is it the bigger stocks that are underperforming more, as you were just saying? Roughly so. I think the equal weight actually is not down that much.

honestly, in the context of a 12 or 13% gain over five days in the Russell, what we're seeing today is really just skimming off the top. The problem is it did get really stretched in the short term. It's also very just money flow basis. It's just this reflex into the indexes. There's a lot of data about how many options in ETF buys just kind of flooded into that segment of the market, which isn't that big. As we used to keep reciting, the Russell 2000 is smaller than Microsoft or Apple in terms of market value. So I don't think it has any special powers of prediction or bellwether status, but it does show you that this market wanted to rebalance. We were very crowded at the top, and it's trying to rectify that, even if it's a little sloppy

today. By the way, Mike, also watching the tenure, which continues to sink lower, still above 4%. I've read some who argue if it goes 4%. It should ignite more hard landing concerns. But the way it's acting now amid these markets seems to be more part of the Goldilock story. Yeah, at this point, Kelly, I agree. You know, around this 4-2 level in the 10-year, it's kind of where it was in December when Powell pivoted, whether he meant to or not, in terms of saying we're going to be cutting rates next year, and the market immediately extrapolated that into multiple cuts. That's when we crack below, you know, around that 4-2 area. So we're right back there. And right now, the market, based on what it sees ahead of it, is saying, yep, we got multiple cuts on the way.

I agree, though, there's a limit to how much you'd want to see this go down in a hurry on the long end because it probably would mean that we were getting a little more uneasy about the economic fundamentals. All right. Mike, thank you for now. We appreciate it 415 on the 10-year, Mike Santoli. For more on what's next for the markets and the economy, let's bring in Mike Clarfeld, managing director and portfolio manager at Clearbridge Advisors. Mike, what do you do here? Do you think the Russell thing is a head fake? I think, I don't think it's a head fake, but I also don't think it's necessarily a straight line from here. The markets overall have become highly concentrated, both by individual name and by sector. They're extremely cap-weighted, and that reflects a lot of the phenomenal attributes of these platform tech companies. But as so much investor emphasis has been focused there, it's created opportunities elsewhere, such that it makes sense for people to be looking elsewhere for value opportunities.

Like elsewhere, I mean, so you have some names. kind of energy utilities and so forth. But what's the fundamental case that even those who say, okay, a Trump administration, but you go back and you look at the performance of some of these areas during those four years, it's not always clear there was a, you know, a massive opportunity there. Yeah, I don't know that, you know, the opportunity so much outside of the big tech companies is really about Trump. So, and a Trump administration of what that means for economy.

I think it's more just that they've been underinvested in as money flows have gone into index mimicking portfolios. And as these great companies have risen so much, capital has just become so concentrated, right? I mean, the top three names in the S&P 500 are over 20% of the market. So any opportunity to lighten up on those and look elsewhere, given the small sizes of the names we're talking about elsewhere, again, I think the stat you just referenced, right, that the Russell 3,000 is smaller than any one of those companies, a small amount of money moving, moving out of mega cap companies can really have profound effects on these smaller cap companies. And you combine that sort of trading dynamic or tactical dynamic with attractive valuations in

some areas of the market. And it's a pretty attractive setup on a risk-adjusted basis. Speaking of looking elsewhere, I'm going to take a chance here and ask you about Comcast, which you like. It's down 8% year-to-date. Of course, we love it like family here since CNBC is owned by Comcast. But explain to me where you see the opportunity, especially given the challenge across both broadband and with cord cutting in general with a consumer that seems to be pinched and looking for ways to pull back and spend less? Yes. So Comcast has a number of phenomenal businesses, most notably, obviously CNBC and its terrific talent. But really, what makes Comcast so attractive right now is a combination of attractive franchises, and most importantly is its high-speed

data business, right? It's broadband connectivity, which is over half the company. And I'll come back to that in a second. The valuation is extremely. attractive. Comcast is trading at about 10 times earnings. It's a strong free cash flow generator, so it's about a 10% free cash flow yield. You're getting a 3% dividend, which is growing nicely, and the remainder of the free cash flow is going to share buyback, which is shrinking the flow, which is highly accretive to returns and earnings growth when it's done at such low levels. And the main concern around broadband and Comcast is broadband growth and subscriber growth. And there have been two dynamics weighing on broadband subscriber growth over the last couple years,

which we think are about to inflect the other way. So the first would be move activity. Obviously, with higher interest rates, we've seen less people moving and buying homes, and that's created fewer what the industry calls jump balls, which is opportunities for Comcast to compete to get new subscribers. With interest rates coming down, we expect more move activity, which should increase the opportunity for those jump balls. The secondary for Comcast and the broadband providers, which has been a challenge,

has been fixed wireless access. And so obviously the wireless companies, Verizon, AT&T and T-Mobile, have been offering fixed wireless internet as a competing product to broadband. They just launched it a couple years ago, and it had nice growth from its start. We think, though, that it's about to inflect towards slower growth, and really for two reasons. Number one, simply from a comparison perspective, the base of subscribers for fixed wireless has gotten bigger, so the growth rate would be lower. And then the second aspect is just that by its nature, it's limited in how big you can offer it. It uses a lot of bandwidth, and so there's natural constraints to how, sorry, spectrum,

and there's natural constraints to how big that can grow. So as we sit here today, we see actually Comcast continues to have very nice pricing power in this broadband business. They're raising prices despite the fact that subscriber growth this week. We think subscriber growth is about to inflect, maybe not hugely so, but at least stop getting worse. Right. And you have a stock that's trading at 10% free cash flow yield when the market's over 20 times

earnings. And we think it's just we see very little downside and very meaningful upside when the subscriber trend improves. As I am to say, oh, go on. I do want to hit something else with you, and that is utilities, arguably an underloved area for quite a while, but maybe for good reason. You think that there's an improved growth outlook here with the energy transition and the data center AI trade, yes?

Exactly. So obviously, I'm a dividend investor, and so maybe not surprising that we talk about utilities, but utilities right now are actually exciting for a broader range of investors. And it's not often you use the word exciting in a sentence about utilities, but it's really true today. So not surprisingly, the utilities enjoy a low-risk business model and the valuations are undemanding. You can buy high-quality utilities today, trading at 15 or 16 times earnings, again, versus a market that's in the low 20s. But what is unique about utilities for the first time in decades is the growth outlook. So utilities have had very little growth for the

last probably 20-plus years, but that's inflecting meaningfully higher. And you highlighted the drivers, there's three drivers. The first is the energy transition. So obviously more people plugging in their electric cars, et cetera, you need, there's increased demand for electricity. So that's the first driver. The second is obviously AI and data centers, which people have been talking about a lot lately. And the third is grid hardening and resiliency, whether it's wildfires in California or hurricanes in June in the Gulf Coast or windstorms across the Midwest, climate change is wrecking havoc on the electric grid and requiring substantial investment to harden it. So we see all those aspects coming together to drive meaningful growth.

growth for utilities. And this is not a one or two year phenomenon. This could be a, you know, a 10 or 20 year phenomenon given what people are forecasting. And so you combine a low risk business model trading at 15 or 16 times earnings and the best in class utilities, we think can grow their earnings at 8 or 9% a year. And we think that sets up as a very attractive risk-adjusted return proposition. Listen, maybe dividends in general just become more appealing if rates are headed lower. Mike, Mike, thanks so much for your time. We appreciate it. My pleasure. Thank you. Let's go to Megan Kassella now for the details from the Fed's latest beige book.

Megan? Hey Kelly, so it's a little bit of a softer beige book overall here, especially on the labor side. Economic activity maintained a slight to modest pace of growth in a majority of the districts. Seven saw some level of increase, but five were flat or declining. That was three more than the prior period in late May. Prices were generally reported to have risen just modestly. Auto sales were varied. Some districts saw lower sales due to both higher interest rates and that cyber attack.

on dealers. Demand for both consumer and business loans were softer. There was a big range on manufacturing. Some districts were seeing moderate growth, but others were reporting a brisk downturn of expectations for the future. The economy of slower growth overall these expectations, this was a big one. They thought over the next six months growth would be lower due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation. On the labor side, I thought these were interesting. Employment rose at a slight pace in most in the most recent reporting district.

Most districts reported employment was flat or slightly up, while a few reported modest employment growth. Skilled worker availability remained a challenge. That's been a challenge for months now across all districts, but several districts did say that there was some improvement in labor supply conditions and that labor turnover was lower, fewer people leaving their jobs. Several districts said they thought they could then be more selective on who they were hiring, not backfilling all open positions.

So again, seeing some softening in the labor market. growing modest to moderately, but some districts even saw slowing again due to that more worker availability and lower competition and hiring. On prices, just to wrap up here, prices increased at a modest pace overall. A couple districts saw only slight increases in prices. Consumer spending was mostly unchanged. Almost every district mentioned that retailers were discounting items or price sensitive consumers were only purchasing the essentials. They were trading down in quality, buying fewer items, and shopping around for the best deals, Kelly. So that was really a big theme here that as that labor market gets a little bit slower, consumers once again being very

price sensitive and reacting to high inflation. Kelly. All right, Megan, thank you very much, Megan Casilla. Markets are kind of, has the doubt hanging on to gains. Big Tech still under pressure. And coming up, a semi-smackdown, both sides of the political spectrum, targeting the chip space. The SMH ETF down 6% as nearly every stock in the group, unless they make the chips themselves in the U.S. takes a hit. Got more on that next. Further ahead, some big moves in small caps. We will trade some of the names in three-stock lunch when power lunch comes right back.

Welcome back. Semiconductors are under severe pressure today. The SMH ETF is down 6% on these worries of U.S. restrictions on China export. Sima Modi joins us with more on this story. Sima, what can you tell us? Well, here's what we know. Both leaders really taking aim at the semiconductor industry at a time when companies, Nvidia, Microsoft, Google,

and others are investing billions of dollars in artificial intelligence. So former President Donald Trump is calling out Taiwan Semiconductor's dominant role, which he's not really wrong about. Taiwan Semiconductor makes about 90% or more of high computing and smartphone chips. The company does report earnings tomorrow morning, where the company's geopolitical strategy, according to Morgan Stanley, is expected to come up in the discussion. You'll see shares of Taiwan Semi are selling off. Separately, President Biden is reportedly considering further restrictions on chip equipment sold to China. Now, that's overshadowing ASML's strong earnings report last night. Susquehanna says other names to take into account is AMD, which makes about 20% of its sales in China.

Intel, under CEO Pat Gelsinger, has emerged as one of the few beneficiaries of a more contentious U.S.-Taiwan relationship, investing heavily in U.S. chip manufacturing and fabs with private equity firms Apollo and Brookfield. Shares are higher today, as is global foundries and Texas instruments. And Morgan Stanley does point out that their ships still do not compete with TSM. C's most advanced three nanometer needed to build out AI. It's interesting saying all this in front of the godfather of tech here, John. I'm going to tell you all of this. But clearly there's a lot of price action here and people reevaluating the opportunity.

I feel like stroking my chin after you called me the godfather there. But I think it really is an interesting dynamic given that it's not like you can shut down the Taiwan situation. You know, if Trump says, oh, the U.S. isn't going to defend them unless they pay up. and Nvidia can suddenly shift all of their capacity to some U.S. operation. It just hasn't been stood up here, and it won't be ready for, you know, four or five years. For their U.S. operations? So the thing I'm confused about is, is the issue, if TSM has capacity in the U.S., does that solve the issue or no? Well, if they had capacity at the scale necessary to satisfy Blackwell demand and all of the demand for iPhones

and all of these things operating at higher nodes that really need that manufacturing capacity. But, I mean, it's a juggernaut. TSM is, and it would take the U.S. and Intel a couple of decades to be able to replace that kind of capacity. It has already said at its Oregon plan that costs are too high, and therefore the chips that they produce here in the U.S. will be much more expensive than what they're producing back in Taiwan.

So that's sort of an open door here for Washington to provide some type of subsidy to the companies here that are producing. Wow. But these things aren't quick to bring online. It takes years. So it's one thing if you're saying, could we produce the same sort of thing over here that we can produce over there? They're backlogged, no matter where you're producing it.

So you can't really take the majority of the capacity offline and just be fine. No, I know. Or I was thinking if you just said to them, it can be TSMC, but it has to be in the U.S. in order to make it, but you still run into all of these problems. You don't have the workers. You don't have the capacities. Well, CMA stick around.

We're going to do a lot more on this semi-smackdown. Let's bring in Matt Bryson and Senior Vice President of equity research and hardware at Red Bush securities jump in here, Matt. I mean, there aren't really easy alternatives if there's the threat of losing that juggernaut capacity in Taiwan, is there? No, you've got it exactly right. Right. You look at the next couple process transitions, and so it's not decade at this point, but the next three, four years, there is no alternative. Companies are already designing their next set of chips using TSM. And so that's where those ships are going to be coming from.

And so, no, that business can't move from TSM to Intel or TSM to Samsung. Yeah. It is on TSM. And to clarify, I wasn't saying a decade until they're able to reach that process node. I'm saying until there's any possibility of being able to replace the volume that can be produced out of Taiwan because it's one thing to say we can make the same thing over here in smaller batches. It's another thing to say, oh, everything that you would have made in Taiwan, we can make it here in the U.S., right? Because it's chips for like every single, almost every single iPhone.

Oh, absolutely. The TSM has been spending $30 billion a year on adding capacity. So, we're replacing that in, I mean, you can do it at some point, but it certainly would, take a substantial amount of time, not even talking about the fact that to bring a new fab up, it's at least two to three years. Is there anything else, the U.S. administration, whether it's run by President Biden or former President Donald Trump, that can be done to expedite and make the Chips Act more efficient? I was speaking to the Council on Foreign Relations about perhaps easing some of the regulations

around environmental concerns, permitting just to help companies like TSM really expedite their manufacturing here. I mean, certainly you can make it easier to bring up a chip fab. And so, yes, if you use permitting, that certainly helps. One of the reasons that TSM has said that it's more expensive to build chips in Arizona, even with subsidies, is they don't have the front-end operations in the U.S. today that already exists in Taiwan. So you could subsidize, for instance, the chemical makers who supply into the fabs.

There are certainly things you can do at the same time. You know, TSM has successfully executed on 7 nanometer, 5 nanometer, 3 nanometer. It looks like they're going to successfully execute on 2 nanometer. And this isn't easy. And so replicating their strength in operations, can you do it? probably, but there's no certainty that you get it right, say this time or next time. Matt, if this dynamic continues, and I'm speaking specifically about former President Trump, who's doing quite strongly in the polls right now, I don't know whether to call it saber-rattling,

but wallet waving a bit in the direction of Taiwan, if there is that risk about Chinese capacity, does it make global foundries and particularly Intel, does it make their strategies more viable, or do you have to kind of shift the math on the number of signups they're likely to get for their fab capacity, given that companies might want to hedge? So I certainly think from a risk perspective, when you think about the global risk, that for a global foundries, if tensions between China and the U.S. escalate, then using them versus, say, a UMC in Taiwan or a TSM in Taiwan, that they see some benefit from that. With Intel, it ends up being a bit more of a mixed bag.

So from a longer-term perspective, if the U.S. and China and Taiwan subsequently end up disassociating more, Intel is, along with Samsung, arguably the other choice for Foundry. at the same time, remember that Intel is also still supplying compute products into China. So you gain longer term if you're able to gain share in fab capacity, but you potentially lose in the shorter term if we end up with the president who all of a sudden doesn't allow China to import ships. Is there any, Matt, any other reason why you think the chip stocks might brand a pressure, not just today, but going forward?

In other words, we've had this huge surge of enthusiasm and excitement around AI. And could this reaction be more than just the market's usual reaction to comments like this? Yeah. So I think certainly from a valuation perspective, all of these stocks have been doing extremely well. But I also think that one of the reasons that we've seen such a run in the chip stocks is demand is really, really strong. We had a bunch of Taiwanese companies report their due numbers. They were all really good, particularly AI and server-related numbers, but also to some extent, handset in PC.

And so, you know, I think what we've seen in the chip stocks reflects the end markets getting better. At the same time, when you have valuations that are elevating, you get bad news, you get a sell-off and maybe disproportionate to what it should be given current conditions. Yeah. And next we've got to see what PC demand Simomodi looks like in this quarter, right? Sure, there's so much focus on AI and the higher, the more advanced chips. But of course, the sectors like PCs, smartphones, that always gives us a good indicator of chip demand overall for sure. So Taiwan's send me tonight, but then next week we hear from NXP, among others.

I'll get more needed data points right now. Thank you both, Simomodi, Matt Bryson. We really appreciate your time. Further ahead, it's not an illusion. The Mirage is closing. Hard Rock is closing the famed casino to make way for a new resort. Our lunch will be right back. Welcome back.

Some nice gains. Well, yeah, 244 points higher for the Dow. Continuing its outperformance lately helped once again by strength and United Health. But the S&P today is going the other way. It's down 1.2% back under 5600. And the NASDAQ is down 2.5% on part of that weakness in tech and semis we were just discussing. As for the bond market, we're seeing yields soften there as well. Rick Santelli standing by in Chicago.

Rick? Yes, Kelly. Well, yields are near unchanged. They've been a little higher. They've been a little lower. As you look at a chart starting in February 2-year notes, realized yesterday we had a five-month low-yield close, and it is hovering near unchanged today. Same is true for the 10 different month.

Look at a 10-year going back to March, hovering at a 4-month low-yield close. Why? Well, just think, holding on to most of their gains that really were incited by the drop-in CPI last Thursday. Now, we can talk about the strong policy, resident that may be gaining in the polls definitely seems to be having an effect on markets. One of those is foreign exchange, the strong dollar giving way to a weaker dollar, and it's being led in many ways by the dollar yen.

Now, here's a two-week chart of the dollar yen. What you really want to look at here is the middle of the chart. That was Thursday, Friday of last week. Perceived intervention, not confirmed. Was there intervention again last night? Possibly, because these are really big moves. And if you open the chart up, we're hovering near, actually a little longer than a one month high for the yen against the dollar, going back to a close on the 6th of June. And finally, here's your weaker dollar.

You can see the chart there. We're hovering near a four-month low close. Haven't closed at these levels since the 20th of March. John Fort, back to you. All right. Rick Santelli, thank you. Now we've got some news coming out of Washington today. Let's get to our Emily Wilkins for those details.

tells, Emily. Hey, John. Well, yeah, so we have another more Democrats coming out today with concerns about President Biden continuing his candidacy. Adam Schiff, he's a congressman from California, ally of Nancy Pelosi, is very big on the January 6th panel, and perhaps most critically, very likely to be the next senator from California, is out with a statement saying that Biden now needs to pass the torch and that he believes that another candidate stands a better chance of beating Trump come November. Now, he didn't say specifically who the party's nominee should be, but these concerns are coming a day after a number of Democrats were circulating a letter on Capitol Hill to get the DNC to delay a virtual roll call vote that would have locked down Biden as the nominee. Now, you have

had Chuck Schumer and Hakeem Jeffries, of course, the Democratic leaders of the Senate and House, go to the DNC with concerns from their members asking them to delay. In a letter today, the DNC said they would still hold that virtual roll call vote, but not do it until after August 1st, which of course could give time for more lawmakers to come out and publicly register their concerns about President Biden continuing his campaign. Guys? Yeah, and all this comes as the Republicans are closing ranks quite nicely at their convention. Emily, thank you.

Now let's get over to Kate Rogers for a CNBC news update. Kate. Hi, John. The FBI and Secret Service are reportedly briefing all House members this afternoon on the attempted assassination of Donald Trump Saturday at a campaign rally. Among those leading the briefing will be FBI director Christopher Ray and the Secret Service Director Ronald Roe. That's according to NBC News.

It comes as House Speaker Mike Johnson and other top Republicans call for the resignation of the Secret Service director in the wake of the shooting. A source tells NBC News President Biden is expected to meet with Israeli Prime Minister Benjamin Netanyahu on Monday. It comes a couple of days before Netanyahu is expected to address Congress amid criticism in his own country over his handling over the Israel Hamas War. And it was a good day for FX. The network's hit show The Bear grabbed 23 Emmy nominations today, setting a comedy series record. The nods included Best Comedy Series and Best Comedy Series actor for Jeremy

Allen White. Meanwhile, FX's 17th century drama Shogun dominated, rather, overall with 25 nominations of its own. The awards will take place on September 15th. John, back over to you. Kate, thanks. The bear has to be the least funny comedy series ever. But so good. Come on. Yeah, I mean, my wife loves it, but it's not a laugher for sure. Kate, thanks. Dark humor, dark humor. Indeed. Still to come, a rising U.S. rate cut optimism steering gold to all-time high. We'll have more on that. Next. Welcome back outside of stocks. We are tracking moves in currencies and in the commodity space. The dollar, by the way, hitting its weakest level since the yen since around May. It comes as the Republican ticket, Trump and Van Gogh. have both called for a weaker dollar.

And we're seeing the opposite reaction in gold. Flip side of weaker dollar, although it's down as well. Been on a strong run to just under $25 an ounce, giving up some of that today. Here to discuss Yenz, Norvig is CEO of Exanti Data and Ryan McIntyre's Sprott, Inc.'s managing partner. Good to see you. Yenz, it's good to get your point of view on a time like this. There are a lot of people, Mark Cuban, had some thoughts about this earlier today,

saying, this is all a ploy for Bitcoin to do well in a dollar debasement kind of environment. I mean, how seriously should we take some of these forecasts? So I think when you have very, very violent moves in the market, it's often because somebody has been wrong-footed, right? So I think when people think back to the first Trump administration, we had initially in 2016, a very strong dollar. And a lot of people have been looking to do the same kind of trades, right? And now what has been happening in the last few weeks, right, is that, as we heard earlier, like the CPI came in low. that's starting to put some pressure on the dollar. The Japanese are starting to intervene, as we heard, right?

That's by instance to generate a bit of a turn in dollar yen. And then on the day-to-day, we've had a pretty severe risk aversion that has been very specific to the U.S. equity market that is also causing some unwinding of positions. So all those people were kind of looking to try to repeat the trades from 2016 and Trump gets a more likely can. And they probably are facing some disdainting. difficulties in stopping out of those dollar longs now. And that's a problem today.

So in other, you know, maybe the most direct line of thinking here might, there's two ways it could run. It could run through the Fed. If there was on the margin pressure for rates to be lower, I guess that would weaken the dollar. It could run through the Treasury if they were going to use the purse to kind of run up deficits and try to kind of weaken the dollar that way. I mean, do you see dollar going below 100 significantly? So, I mean, is that possible? What would the conditions have to look like for that to happen? So in order to get the significant dollar weakness, right, the way to do that is, or the way that happens is that you have the Fed cutting rates and we don't have monetary policy easing around

the world, right? So that doesn't look particularly likely now. I think the part of the picture that is surprising people this week is that there's more and more talk of tariffs. And when Trump implemented tariffs in 2018, we had dollar strength, especially versus China, right? So people are surprised that we're going in a different direction now. And we look a lot of positioning in the market, right? And I think what is happening is that this turn in dollar yen is creating like a squeeze in the market where people have to stop out of their dollar longs.

And they came from very, very elevated positions. and that's part of what's going on tactically. I think if you look at it longer term, and we do have increased tariffs, especially in China, it's pretty unlikely that the Chinese currency is going to rally significantly, right? So we have tactical moves, we have structural moves, and sometimes those can deviate from each other.

So, Ryan, what do you think is the protectionism trade in commodities if tariffs are higher in the future in Europe and Europe and, you know, Europe and Taiwan are, less certain of U.S. ally ship and protection? Well, so I think all roads lead to gold. Yeah, I think all roads lead to gold in this category. You know, it's interesting when people talk about currencies, the devaluation of various currencies.

What's interesting is they measure currencies relative to other currencies. And as we all know, all currencies are being debased at the exact same time to sum at different rates. And I think measuring it versus gold is the true way to look at it. And I think gold is one of the things that is the antidote to a lot of the things that people worried about, whether it's protectionism, whether it's inflation, whether it's increasing global tensions. I think gold is the one thing that's been unloved as well. And so that also helps its favor.

I think it's such a great point. I remember back in my early reporting days, when I would say to people it's dollar up or they talk about it against other currencies. And I'd say, well, but what's the value of the dollar in and of itself? How do we know? What do you measure it against? And they said, well, I guess goal. or real estate or, and we all know what's been happening on that front.

So to put it differently, maybe if the foreign exchange rates are stable, you think there still could be debasement happening and that holding gold is kind of a hedge against that or maybe other similar assets. Exactly. I mean, gold has historically been a great store of value over time in terms of protecting purchasing power. And I think today, people want that more than ever, whether that's individuals just wanting to protect their own wealth or even central banks and countries who have been buying

huge amounts of gold over the past three years. You've seen, you know, the BRICS countries in particular ramp up their purchases significantly to the point where they're buying about half the central bank purchase gold now. Do you think we have to go? I know you're, I don't know if you have a view on crypto, but do you think it's plausible? And so if I read Mark Cuban's tweet and said, you know, it's possible Bitcoin does well, the dollar kind of in a stealthy way does not do well. Do you think that argument would apply to gold as well as being a winner? Absolutely. In fact, I think it's probably the endgame winner of it all just because it is physical, and I think it has a long history of being able to protect against significant uncertainty

in almost any environment. Yeah, still feels weird to buy like a gold ETF or something, which I think, you know, you can do a gold bar, but anyway, gentlemen, thanks for your time to be continued on both fronts. We appreciate it. Ryan McIntyre and Jens Nordvig. Still ahead, the end of an era, staple of the Las Vegas Strip for more than three decades, shutting its doors for the last time. We will break down what it means

for the Sin City economy when we return. A landmark of the Las Vegas Strip is closing its doors today, and Contessa Brewer is here with that story. Yeah, this is really the end of an era. The Mirage is hosting a send-off ceremony to say goodbye. Steve Wins' first mega resort,

opened in 1989. It was the world's biggest hotel, and it started a building boom on the Las Vegas strip. Hard Rock bought it two years ago and plans to take advantage of its vast experience in entertainment and sports and music, and its rebuild will change the Las Vegas skyline. When we're building a almost 700-foot guitar, you know, the building will be shaped like an actual authentic guitar.

And that becomes very unique. So I think that creates another dimension as far as tourism and interest in the Las Vegas market. And that's obviously something very unique with the hard. brand. 3,000 Mirage employees will lose their job as a result of this closure. CBRE analyst John DeKree says in the short term, the Mirage closure will take nearly a million room nights out of circulation every year. So that's expected to boost Caesars and MGM resorts, which already are experiencing record occupancy and room rates added to the closure and the impending demolition of the Tropicana to make way for that new baseball stadium to host the A's.

The strip will lose about 5% of its rooms every year. But Hard Rock anticipates reopening spring of 2027. And Jim Allen told me he is going to shock the world with the caliber of music entertainers that he's talking to about a residency. And I said to him, is it Taylor Swift? And you know what he said? No. Yeah. I mean, come on.

We know it's not. Well, you shock the world. I mean, but really, so if it's not Taylor Swift, who else could possibly shock us, nobody? Not in Las Vegas. I wouldn't say either, but that's not going to happen. Maybe. Britney Spear is shocking people left and right, but she's done it already. So what's driving Vegas creativity right now?

It's famously, you know, you build it up, you tear it down, you do it over again. There was a time for circus, circus, and Luxor. It's like, oh, it's like you're in Egypt, but you're not. It seems like there's a different sort of modern, not immersed in a place, like the Venetian thing happening. What is it? It's luxury. And you can see it with the cosmopolitan. You can see it with the brand new fountain blue that opened.

although, you know, some reports that I'm getting are that it's struggling to find a foothold. There's two things. One, sports may become the driving factor in how well Vegas does because the conventions, of course, drive at midweek, but the sporting events are bringing people in from all over the world. That's one. Number two, I don't think you can underestimate the power and the allure of the sphere. If you love the band that is going into play the sphere, people will spend boatloads of money because that's a bucket list event.

And I've been, and I'm not, look, I'm not trying to give MSG or the sphere any extra business. I'm just saying as a consumer of an event, it was bar none like nothing else I'd ever experienced. That's it. We're turning the studio into a sphere. It kind of is already, actually, you know,

but there's less singing than I would like. Well, we could change that. Yeah. Coming up, small caps are in danger of snapping a five-day wind streak thing you contest. We'll ask our trader for some opportunities to buy the dip. Power lunch will be right back. Time now for three stock loans.

Let's see if we get to all three. Today we've got our eye on small caps. The Russell 2000 is lower today, but the index is riding a five-day win streak and up more than 9% over the past week. And here with his top small-cat picks is Chris Grisanti's chief equity strategist at MAI Capital Management. First up, KB Home.

shares taken a breather from its recent rally. surging more than 22% over the last week, Chris? John, thanks. It's nice to be with you guys again. You know, a home builder in this environment is actually really well set up for what I see as the economic environment ahead. Rates will probably be coming down by year-end. KB homes, 60% of the homes that they're selling, and they're selling well, but they have to give 60% of the mortgage breaks. They have to subsidize the mortgage. So as the rates come down, if the sales can keep up, and they're selling, they're selling,

they don't have to subsidize the mortgages so much, this can be a winner. And remember, all these small-cap stocks, the float is not nearly anything like the large caps we usually talk about. So a little investment flow their way can make a big difference for a stock that's at 10 times earnings. I admit I didn't even think about KB as a small cap. So it's interesting just to kind of drill down on who's here. Floor is another example, the construction engineering company. Those shares are up 60% in the past year. Is it too late to get in? I don't think so, Kelly, because if you look back at a long chart, these guys had some serious problems. The stock was down a lot.

Again, this is another stock that you might not even realize is in the Russell 2000. I was surprised when I was doing my research. So this is something that is benefiting about half their business is energy. So if Trump wins, this would be a good energy infrastructure stock. But the other half is really interesting. You know, the weight loss drugs, the new facilities that are being built all over the place, They have contracts for that. They're doing semiconductor fabs.

They're doing data centers. So infrastructure is all over the place, and these guys are in the middle of all of it. So I'm excited about them. All right. Final name, Uttes brands, you know, the girl with the afro and the bow and her hair. Shares are down more than 10% in the past month. Chris, you see this as a buying opportunity? You know, I do, John.

And you and I know about the girl with the bow and her hair, except folks in Chicago and folks in Los Angeles, they probably don't. And so the key here is geographic. expansion all over the place. And most snack companies can't do that because, you know, Fritos and everything else, they're already all over the place. So you and I love the pretzels, and we're going to spread them to Chicago and Los Angeles. And this is a great hedge against an economic slowdown. Terrific 100-year-old Staples company operating out of Pennsylvania, Dutch country. Love the stock. Yeah. And it's not really an appro. I was just kind of kidding. It looks a little like one at first glance. Chris Cassanti, NAA Capital Management, Chief Equity

strategist. Thanks for being with us. And remember, you can always hear us on our podcast. Don't miss moments like these. Follow and listen to Power Lunch wherever you go. We'll be right back. Welcome back. Let's get a check on these markets as the NASDAQ remains under pressure, down nearly 3%. The Dow is higher, John, but again, the reasons why are kind of narrow and almost idiosyncratic. United Health has been up almost 10% in two days. Yeah, a lot of big stocks, not doing that great. I was looking at stocks I follow most closely. A lot of them tech, Not all of them, tech. And I'm going down the market caps of what's actually in the green Walmart and Visa.

And then you get T-Mobile, Cisco, Verizon, sort of in the carrier arena. Comcast as well. I'm not going to argue about that. IBM, Intel. It's a very interesting. And then we're getting down into the $100 billion range far away from the trillion-dollar ones. It'd be interesting to see where things go from here. I never like when Walmart's the leadership.

It's never a really great sign. And speaking of some of the retail carnage we've seen lately, have you seen five below? Oh, yes, it's 25 below. We were talking about that on overtime yesterday. It's an interesting contrast between the discretionary in five below and the must have in Walmart. Yeah, we had the CEO of a firm last hour who said, according to their data, the consumer is still holding up okay. But the selectiveness that we're seeing, or you could just call it disinflation, it is coming out of some of these stocks and some of these parts of the market. And it's not just at the low end anymore.

We're seeing some luxury names having trouble as well. And of course, you can track all of this action on overtime at 4 p.m. Very much looking forward to it. You guys have earnings to United Alcoa and so much more. We'll see you then, John.