Power Lunch - The Bulls Are Back, and Bad Signs? 7/17/23

Episode Date: July 17, 2023

Stocks are higher once again today, with the Dow heading for its 6th straight day of gains. The perfect scenario seems to be playing out, with inflation subsiding. But is it enough to keep the Fed on the sidelines? We’ll explore.Plus, we’ll discuss some bad signs for Hollywood. The strike rages on, while a crucial stretch for the box office just started off with disappointing numbers for ‘Mission Impossible.’ Can Tinseltown count on ‘Barbie’ to save the day? We’ll discuss. 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 Launch, everybody. Alongside Kelly Evans, if she would assume her position over there correctly in time. I'm Tyler Matheson. She's actually there. Stocks once again hired a day. The Dow heading for six straight days of gains. Five for the S&P 500 in NASDAQ. Perfect scenario seems to be playing out with inflation subsiding just a bit, maybe enough to keep the Fed on the sidelines. Plus, we've got Hollywood's bad signs. The strike raging on, no writers, no actors, and a crucial stretch for box office. starts off with disappointing numbers from Mission Impossible. Seems like everyone, Kelly, is counting on Barbie. Indeed they are. Thank you very much, Tyler. Quick check on the markets. And as he said, the Dow's up 75-521.

And the NASDAQ composite, having another strong session up 116. 1. Russell Smallcaps are doing nicely today as well. Flip side of this, weighing down the Dow in particular, by the way, are the telco stocks, AT&T down 6.5% to a fresh 3%. 30-year low today. City downgraded the stock to neutral. They're all concerned about these risks from lead and cable that were documented in the Wall Street Journal last week. And elsewhere, some big moves in biotech, starting with Argenics. Its drug for a neurological disorder met its main goal in a trial. You can see Argenics shares up 26%. Bridge Bio up 82% after saying its drug

reduced deaths among patients with a heart condition. And lastly, Alln-Lam, announcing positive results from an ongoing trial for its treatment for Alzheimer's. That's only a 5% pop though, Ty. Well, Kelly, stocks continuing their winning ways today, as you aptly pointed out. But is this recent wave of optimism starting to get just a bit overdone? Mike Santoli joins us now from the New York Stock Exchange. Mike, welcome. Good to see you. It has been a nice little run, a sprint really for stocks lately. Can it hold? Well, I do think it's, first of all, the correct question to start asking. The S&P's up 25% from the lows. We've also had another acceleration upside in this rally from the NASDAQ 100.

So the leaders are starting to look a little bit stretched relative to their trend. But we've also had this very tight public embrace, very recently of this benign soft landing economic scenario last week seemed to really tip people into the direction of assuming that might be the more likely path from here. And it went from being a long-shot case before.

This market has fed off of persistent skepticism against that case and persistent caution in positioning. And so everything I'm looking at, sentiment surveys, professional and individual investor positioning toward equities, and just the general chatter and the speculative mood and things like options, it suggests that, you know, the sap is rising, but it maybe isn't at that extreme. If we're in a bull market or a durable uptrend, this is relatively normal behavior. However, it looks very, very balanced in terms of the outlook from here. In other words, it's going to take genuine incremental good news to really get this market going up and staying up, as opposed to just sort of feed. off that negativity that we had coming into this year. Well, you certainly had some incremental good news last week on the inflation number, right, Mike? We absolutely did. I think the way I would view it is the market itself has been expressing more comfort with the disinflation story all year and with the fact that the Fed is going slow and going in small moves.

And now it seems like the public, the mood is lining up with what the market's already been saying. Not to say everybody's late to it because the market doesn't all of a sudden punish everybody for getting comfortable. right away. But I do think that's the thing to keep in mind that the market has been in that mode for a while. All right, Mike, stay right with us. Our next guest also striking a bit of an optimistic tone on the market, saying inflation data should continue to reassure for the next few months. But he does worry about slowing corporate earnings later this year, among some other things. Let's bring in Chris Grissanti, Chief Equity Strategist and Senior Portfolio Manager at My Capital Management. Did that pronounce that correctly?

MAI. MAI. I didn't know whether it was a word or... What does it stand for? It stands for all good things come to those who wait. All right. That sounds fine. Let's talk about how you see the market. Now, I know you're encouraged by the inflation numbers, but you're also a little bit apprehensive, shall I put it,

about the fact that interest rates have risen at the fastest pace in 40 years. That's number one. And number two, the yield curve has been and remains inverted. These are typically very difficult things for a bull market to overcome. Right. And I'm getting a little impatient Tyler with the Goldilocks metaphor.

I think it's overplayed. Get her out of here. Get her out of here. Look, the porridge is fine right now, but in a little while, it'll get cold. And what I mean by saying is that right now, the Bulls and the Bears both agree that higher rates will lower inflation. So we've seen that. So that doesn't really prove much. But the big question is, what happens next?

What happens when the porridge cools? So will we avoid a recession? And to say that we're going to avoid a recession and be a bull here, you have to think that the fastest and highest interest rate hikes in 40 years won't cause a recession. And I think that's just a difficult bet to make historically. I don't want to be on the wrong side of that bet. But you've got a lot of countervailing issues. I mean, you've got the AI boom that is lifting a lot of technology stocks. There is certainly going to be investment by companies that are not in technology in technology to prepare.

to prepare for the AI boom. You have a strong consumer economy as well. Housing is doing okay. So there are a lot of things that would argue that, boy, if there is a recession, I don't see it right now. And a lot of people have been talking about it for a year and a half. And it doesn't come. The year and a half is almost the magic number, though, Tyler.

That's about how long it takes for these interest rate hikes to really kind of grab on. So the curve's been inverted for about nine months. I'd say six further months down the road, you're really going to. see corporate earnings slowing, you'll see housing start to slow down as the mortgage bites, and folks are holding their houses off the market right now because they don't want to sell and double their mortgage. Why would you sell and go and take a 7% mortgage and pay a hell of a lot more for the next house you own? Right, right, right. Now, I'm not saying the inflation numbers will get worse. I think they'll continue to improve, and that's going to buoy the market

for two, three, four months. And that's an exciting time to invest. That's good. The problem is it doesn't end there. There's a second half to that story. And so I just ask investors to be aware of that. Well, we know you like kind of being in areas that, I don't know if word is contrarian or, you know, so we talked about the home builder stocks most famously when they were trading it two and a half times, about, you know, a year ago, whatever that was. I look at your list and I see Disney.

Right. And I think this is not a stock that many people want to talk positively about right now. Right. But you own it and you're talking about, you know, the media names and just what? What's the play here? It's funny. It's kind of the flip side of the Goli Lox scenario, the anti-Golinglux scenario. So Disney, everything is going wrong for Disney.

It's streaming. The parks are slowing. Everything is going wrong. So that's exactly the time you want to buy a great company if you think it still has a great future. But how do you know if it still has a great future? Well, you know, if you're not going to bet on Disney in that world, who are you going to bet on? There are some also rands that are going to have trouble. But I think as the Disney stock in today is a great example, it goes down and down and down,

Boy, it starts to get quite interesting if you have a three to five-year look. Meaning, would you say it doesn't have to be about Disney, but maybe there are other media stocks? Do you think the whole space is interesting, or is there only a certain area to their? I think a good analyst would be doing, would be sharpening his or her pencil right now and figuring out where to pick through the rubble. Because I think it's going to get worse. I mean, this strike is going to last a while, I think. Because I think, just like Tyler was saying, the AI is changing the world, and money is going to go to places we don't expect. yet, especially in places like entertainment.

And so because they don't know how it's going to sort out, these executives are going to wait to, they can't offer a good enough price for the actors and the writers because they don't know what revenue is going to be like. So it's going to be a tough go for these. Yeah, and there are lots of very thorny issues surrounding AI and the writer and performer contracts. I mean, it is really gnarly and how those folks are going to get long-term compensation out of the projects they work on.

Mike Santoli, let me come back to you and get your reaction to the conversation we've just been having here, but specifically, Chris is worried about a corporate profit slowdown that may eventuate within six months. Is that a fair thing? What are you hearing about that? What do you think of that hypothesis? Well, first of all, at the middle of a year, the idea that the following year's earnings forecasts are probably starting a little bit too high and have downside is not necessarily unique. So that's typically. the pattern. I think we're in a funny spot right now because based on consensus, the current quarter, the one that we're getting results from right now, is supposed to be the trough based on year-over-year decline. And then it kind of inches up from here. So I think if that's the scenario, even if next year looks a little bit too high, if they're moving in the right direction, probably the market can make its peace with that. Also, it's going to be extremely kind of lumpy in terms of where the earnings growth is coming from. Market clearly is rewarding

earnings reliability. That to me is what the big NASDAQ trade is all about aside from just AI, plus the fact that they have the best balance sheet. So I think there's a way around it, but without a doubt with stocks at these levels, it's time to actually sort of stress test each one for achievability of earnings. All right, Mike Santoli, thanks very much. Chris Grosanti, thank you as well. Good to be always to see you. Thank you. It's thinking about you with Domino's the other day as well. Eat up. Looking pretty good. Senator Elizabeth Warren sending a letter to the SEC to investigate Tesla.

and its board of directors over possible conflicts of interest and misappropriation of corporate assets, another negative impact to Tesla shareholders, and related to CEO Elon Musk's Twitter takeover, specifically highlighting the Tesla board's apparent lack of independence from Musk. Let's bring in CNBC.com's Laura Kalladne here to discuss. Laura, how serious are these allegations? Thank you for having me. This is really serious. Senator Warren sits on the most powerful committee that oversees the SEC, and you don't usually hear a senator calling out an individual company by name and seeking an investigation by a federal agency.

So these are serious allegations and it's an unusual request. That said, would it be weird if I said if it's coming from Warren grain of salt? You know what I mean? Like, does it have this sense of a political or ideological battle to it that you think could help Tesla or Twitter defend them or Musk defend himself? It's funny. This isn't particularly straining me as political because it's very wonky. It's about the Tesla Board of Directors and whether they've given shareholders all the information they really need to understand how Tesla lent employees to Twitter, how that all worked out, what kind of costs it may have incurred to Tesla and so on and so forth. I understand the point, but I don't know. I don't know if this is just political, although they have taken jabs at it. each other through the years. So, Laura, let me ask you what Senator Warren specifically alleges Tesla or Musk may have done that is directly injurious to Tesla shareholders. What is she saying he's done? Or is she saying, this could happen. These conflicts of interest might take place

in the advertising area if Twitter starts to advertise and discount. ads for competitors to Tesla, thereby disadvantaging Tesla. What is she alleging he has actually done? Well, she referred to actually CNBC reporting in which we learned from Twitter and Tesla employees that Elon Musk borrowed effectively, you know, trusted inner circle Tesla employees to help him with the Twitter takeover. That's a distraction. How much does it hold the company back on things like FSD development?

That's their full self-driving technology. that is still at a level to kind of advanced cruise control state of existence versus being a full robotaxie while Waymo and Cruz and others, you know, roll out their robotaxies. But wait, hold on, hold on just a minute. Twitter is not in the autonomous driving business in any way. So why would he, for example, be raiding and thereby disadvantaging Tesla's autonomous driving? unit by using some of their employees to help him with Twitter. And number two, isn't he the CEO of Tesla, who therefore has a fairly broad brief to deploy

employees as he sees fit? Right. And that's something that Tesla needs to answer to. She's asking the SEC to ensure that shareholders have all the information they need and, you know, about basically related party transactions. She's saying the board has not been transparent about this. And she's also talking through, you know, not just the disclosures, but also a question of, why should, you know, Tesla resources be available to Twitter?

These are ostensibly very different industries, right? Social media and automotive. Laura, I was also struck by the report just the other day that they were looking into Musk's use of, I think company funds or something to, what was with the glass house? What was the case there? That was a really interesting story. That wasn't really. to Twitter per se. But basically, late last year, one of his higher-ups, you know, sort of

chief of staff type, moved from Tesla over to SpaceX after there was a probe into the way in which glass was ordered for the Tesla gigafactory in Texas, right? Their newest U.S. vehicle assembly plant, this huge operation. And then new details emerged in the Wall Street Journal about a week or two ago that said that Elon Musk had his people buying glass for what could ostensibly be like the just this crazy almost apple cube-esque structure that may have been for personal purposes. So there were internal audits reported. And that's, you know, she's got questions about that.

She's referenced all that. And she wants to understand, right? She wants the board to be transparent. And she wants to make sure that the board is making sure to keep Elon Musk in check. They tend to be very deferential and supportive of his vision. but also are they doing the job on behalf of the company and shareholders when they might need to, you know, clash with and rein him in. Laura, thanks for your reporting and bringing the story to us. We appreciate it. CNBC.com's Laura Kalladne.

Seal ahead, Wall Street executives are making bets against Donald Trump for the 2024 election. That's helped pat donor rolls for candidates like Ron DeSantis. But the recent fundraising numbers for the Florida governor show some troubling signs for his campaign. We've got the details next. Plus the Fahrenheit of all fears. the U.S. bracing for more record-setting heat. Can the grid handle the pressure? Power Lunge will ask after this.

Welcome back, a wave of executives in the finance sector made early donations to Donald Trump's primary opponents in the second quarter. But even with Ronda Santis's $20 million in fundraising, he could still be facing some issues. CNBC.com political finance reporter Brian Schwartz is here to discuss. Brian, welcome.

There's been a lot of talk lately about where Ronda's campaign is going. Yeah, you're right. I mean, he burned through a lot of cash, in this last quarter. And there's this question marks now from people who are raising money for him, for his campaign. And there's just growing questions as to where exactly is Ron DeSantis' campaign going right now. He's still behind Donald Trump. I mean, dozens of points in the polls. And, you know, there's some other, you know, questions as to exactly what is the message that Ron DeSantis is giving to GOP primary voters? That again, the point of why some of these donors are giving

to him, at least originally, was this idea that DeSantis was going to be this candidate who could defeat Trump in the primary and then go off and really take on and win in a general election, likely against President Joe Biden. And there's some real question marks as to if he's going to be that guy by very wealthy financiers that we have really done reporting on and looked at kind of what the issues they have here with this campaign. So it's a question of, are these donors going to keep raising money for him at the rate they did in the last quarter? And if they're not, where exactly are they going to go? Who are the other candidates that are really going to looking at in the quarters to follow.

To these eyes, to mine, the big issue for DeSantis and to a lesser degree for all other challengers to former President Trump is the enthusiasm gap. It's just not there. The enthusiasm is just not there. I read a very interesting article by a writer named David French. It's not just that Donald Trump taps into a roiling. discontent and anger in the electorate, but that he triggers a joy among certain followers of his, and that joy factor is just not there with DeSantis.

Or any of the others, really. Yeah, I mean, you might be right on that. And that article might be true in terms of the enthusiasm gap. I think that's what you're getting at here from what we're talking about, GOP primary base voters for the other candidates. that are not named Trump. And that's, you're probably right, that is likely an issue here that the other candidates are facing. If you look at all the events that are, that Donald Trump has gone to of the last, just say last few weeks, the crowds are just frankly much bigger than,

let's say, Ron DeSantis and the other opponents. There's just more enthusiasm out there for the GOP primary voter and Wall Street donors who are like scrambling right now, and it's not just on Wall Street, a lot of wealthy people who lean to the GOP side of the aisle, are kind of going, Now what do we do? We thought it was going to be DeSantis. And now the question is, who's it going to be? DeSantis is number two is like 40 points back in the polls. And the next person back from him is Vivik Ramoswami last time I checked with, I think, at 8%. So where exactly is this going to go if you're a wealthy donor while the GOP primary base is cheering on Donald Trump, which is what you need to win these things? And, you know, what are you going to do? You're going to expect, I guess, a fuller turnout in a primary in a caucus state? I don't know. But there is some real search. being done right now for an alternative. I was struck by how much Tim Scott has raised. I forget the maybe 21 million dollars being a substantial amount relative to where he is in the polls. Where is that coming from? And what does that tell you, if anything? Yeah, that's a great question.

I mean, it's interesting that you bring that up. There has been a lot of chatter really since the end of this last quarter about Tim Scott that I've heard of. And it's been this idea that maybe he could be that guy that can rise up in the polls and be that alternative, particularly for more wealthier people to support. And, and it's been this idea that. and rally around because if you look at where all the money's going out it's spread out all over the place you got money going to desantis big money going there big money going to nicky haley some big money going to tim scott chris christian you name vigram saw me

there is this effort in this thought process being made as to maybe there should be uh... more of a rally around tim scott and i think you could see that maybe in the next quarter or so but he still has a long way to go to get back up in those both it is still very early in this race yeah so you're going to have to see some sort of movement by him and and look a lot of lot of people like him. I think even Donald Trump in a way likes him, right? I mean, you don't see a lot

of attacks coming from Donald Trump against Tim Scott. So maybe down the road there's a VP play that he's that he could go down. We don't know yet, but he's still somebody that the wealthy donors are looking at and going, maybe this is somebody we can get behind instead of a Ron to Sanis in the next quarter. We'll see. Could be a big swing. I don't think he's gotten a nickname yet, so that's got to be a good sign. Brian, thanks. I think you're right. Brian Schwartz reporting. All right, we've got a market flash now on FedEx and Frank Holland has it. Hi, Frank. Hey there, Tyler. FedEx just announcing it as appointed a new CFO for the company. Its previous CFO announced he would resign at the end of July just last month. The new CFO was John Dietrich, formerly the chief executive officer of Atlas Air Worldwide. This is an air freight transportation company. He will become CFO effective August 1st. Now, this is very meaningful because FedEx is in the middle of a transformation, both operationally and financially. By next year, the company plans to combine its three current business units that's express, ground, and freight until one. single company completely transforming the operations of the company. The company is also in the middle

of a financial transformation aiming to save $4 billion by fiscal year 2025. The announcement of this new CFO, again, part of that ongoing transformation process, shares of FedEx not moving on the news just yet. But again, FedEx announcing a new CFO, John Dietrich, formerly the CEO of Atlas Air worldwide, replacing current CFO Mike Lenz, who announced he would resign last month, effective at the end of this month. He will stay on the company throughout the end of this year. as an advisor. Back over to you. All right, Frank. Frank Holland, thank you very much. Coming up, Hollywood's Impossible Mission,

a lot riding on this box office. Barbie, Oppenheimer, Mission Impossible, could make or break the industry for the year, but the ongoing strike could really just ruin everything. We'll discuss that next. Well, folks, despite all the hype around the box office trifecta of Mission Impossible of Barbie and Oppenheimer,

Tom Cruise's latest action staple failing to live up to the highest expectations, and now some fear the damage of a prolonged strike could already be emerging. Julia Borsden joins us now with the latest on Hollywood's several issues. Julia. Well, Tyler, I'm here outside of Paramount Studios in Hollywood, and so far there's no sign of progress towards compromise from either the studios or the Actors Guild on issues, including payments from streaming services, as well as the use of AI. And now sources are telling me that This strike will be measured not in terms of months, not in terms of weeks, but in terms of months. And with the economic impact of a combined actors and writer strike estimated at about $4 million by the Milken Institute,

and that is if the strikes last another 30 to 60 days, and of course it will cost more if it lasts longer. All of this comes as Paramount's Mission Impossible grossed $80 million in the U.S. and Canada in its first five days in theaters. that's about $10 million less than some optimistic industry projections. Not only was its $300 million budget inflated by COVID costs, but production of its sequel was shut down because of these strikes. And while all of the media giants will be impacted by the strike, Paramount may be under more pressure than its larger rivals because it does not have the diversification of theme parks.

Meanwhile, Warner Brothers' discovery could benefit from its focus on reality TV, and Netflix could benefit from its international exposure, as well as its backlog of shows, which it can release at its own cadence. Now, Credit Suisse saying, quote, the strikes play into Netflix's strengths, longer pipeline of originals already ready to go than linear, and a greater portion of its content manufactured overseas outside of the purview of the Hollywood unions. So now we're waiting to see what Netflix says about the strike's impact when it reports its quarterly earnings. those are coming up on Wednesday afternoon. Tyler?

It's not as though Julia Hollywood hasn't had a couple of rough years with the pandemic and now this. So what are the studios likely to do with respect to either movie releases or production of television series, of which there are fewer and fewer, by the way, but regular linear television series? How are they going to fill the holes? Well, look, here's the thing with movies. Movies are often shot years in advance and are in post-production for months before they're marketed and then put into theaters.

So it'll be quite some time before we see an impact on movie releases because so many of the films that are going to be released for the rest of this year have already completed production. I think we're going to see more of an impact in terms of television. That's where the impact will be felt first. And that's because the fall TV season is a big deal for the broadcast networks in particular. And we've already seen those productions impacted by the writer strike. So the question is for the fall TV season, whether we see shorter seasons. Maybe some of the shows will come out with six episodes if they finish production on six episodes in the spring before the writer strike started in early May. Or whether we see a big emphasis on reality TV and sports this fall season because those are not impacted by the strike.

And then we see the new seasons launch in the new year after a strike. is resolved and they've been able to get up and going on production again. What about quickly, what about the award shows like the Emmys? Well, here's the thing. If you are a member of the WGA or the screen actors guilty act, you are not allowed to participate in promotion. That means no red carpets and no participating in award shows. So we'll see if the Emmys is canceled, if there's some sort of version of it where they give out the awards without people on the red carpet because you're not going to see the big stars in the red carpet if the strike is still ongoing when the show is happening.

All right, Julia, thanks very much. Julia Borsten reporting outside of Paramount Pictures. Meantime, let's go to Courtney Reagan now for a CNBC news update. Cort. Hi, Tyler. Here is your CNBC News update this afternoon. Wheat corn and soybean prices are rising after Russia said it is ending the Black Sea grain deal. Russian President Vladimir Putin has made complaints that the deal limits the country's full dispatch of its own grain and fertilizer.

The deal is set to end on Tuesday, and it has reignited. fears about global food security. Democratic Congressman Richie Torres is planning to introduce a resolution to censure Republican George Santos. Santos is facing a 13-count federal indictment, including money laundering and making false statements. The censure vote is likely to fail in the GOP-controlled house. And a pot of 55 pilot whales died on a beach in Scotland during the worst mass stranding in the area, according to marine experts. Rescurers attempted to refloat two of the more active whales that were low in the water, but decided the remaining whale should be euthanized on welfare grounds.

The whole pod may have followed a female whale onto the beach while she was giving birth. Kelly, those images are hard to look at. Yikes, they are. Courtney, thank you. Still to come on Power Lunch, oil slipping on with those weak GDP numbers out of China. After weeks of gains, by the way. Now the energy sector facing another issue of record heat. We've got more on that next. All right, welcome back to Power Lunch, everybody. 128 degrees in death. Valley yesterday, one of the hottest readings ever recorded in the United States and millions of people across the country and really across the globe are bracing for even more record temperatures

this week with all those air conditioners cranking. Can the electric grid keep up? Pippa Stevens has the details. I don't care about the, I just care what works in my house. Well, hopefully it's still working in your house. Working there this morning. And so far, we haven't seen widespread power outages. But as the heat wave continues, more than 100 million Americans are currently under some sort of heat advisory. That stresses the electric grid because it can lead to huge spikes in demand. And the North American Electric Reliability Corporation

warns two-thirds of Americans are at risk of energy shortfalls this summer as temperatures soar. About 70% of the U.S.'s transmission lines are more than 25 years old, and with electricity demand slated to grow 30% by the end of this decade, a whole lot of investment needs to be made to keep the grid functioning.

Given the complexity of these projects, lots of different companies are involved, including transmission line constructor Qantas services. UBS recently reiterated its buy rating on the stock, saying electric grid investment is entering, quote, a new phase of growth. MassTech also constructs transmission lines while companies like ABB, Siemens, Schneider, Electric, and Eaton work on power distribution. There's also companies like Aspen Tech and Eitron, which makes software solutions specifically for utility companies. But honestly, the takeaway right now is stay inside. It is hot. And it's going to keep going. Yeah.

And it's really not just a U.S. phenomenon. I was hearing this morning that there have been temperatures in Western China that I believe topped 130 degrees. Yeah, and China and Europe as well. In Europe? And we're seeing in places where they didn't traditionally have things like air conditioners where now people are getting it. So now every second, 10 new ACs are bought. Think about the Pacific Northwest. They were up, you know, at 117.

What was it, two years ago? And so that shift in consumer behavior. which then adds to more stress of the electric grid. All right, Pippa, thank you very much. Pip, Stephen. Let's talk oil now. It's slipping today on weaker than expected China data. And it comes after three straight weeks of gains.

And despite today's declines, our next guest still sees upside. Don Strohven is head of oil research and a senior energy economist at Goldman Sachs. Don, it's good to have you here. Welcome. Thanks for having me. All right, so where to begin? I mean, it was bad, but then it was getting better the last couple of weeks. And what does the rally from the last three weeks tell you?

We're starting to put something together here. Yeah, so we're still up 10% in terms of Brent and WTI prices from the late June lows. And we think three factors have contributed to the rally. First and the most important factor is really evidence of strength in physical markets, this return to deficits that we have been waiting for for a while, inventory drawdowns. Second, the macro data are helping as well with a reduction in U.S. recession risk and the associate, decline in interest rates and the dollar. And finally, I do think that news about tentative reductions in Russia's supply

are also contributing to the pickuping prices. We expect the deficits to deepen in the third quarter, averaging a large 1.8 million barrels per day, which should push brand prices up to $86 per barrel by December of this year. So let's put it this way. Has anything changed from the beginning of the year? when, you know, and I remember, you know, talking to Jeff, obviously, in him saying, look, the supply de-stocking has been so much bigger than anybody anticipated. And is that headwind finally gone now and markets are back to, you know, to something more resembling balance?

Yeah, so, you know, the significant sell-off in the second half of last year and the first half of this year, we think largely reflected supply side beat, stronger than expected supply. especially in the sanctioned economies, but also SPR releases, on top of the largely, the large negative impacts from higher interest rates on oil demand, because you increase the opportunity cost of holding oil. We think that most of those bearish supply side factors are now turning. The SPR is getting refilled. We're now seeing tentative signs of decline in Russia production.

the Goldman Research view is that the Fed is going to deliver its last rate hike of the cycle next Wednesday. So a lot of these headwinds are fading. And so we think markets will be focused on the large deficits that we expect in the third quarter and in the fourth quarter, reflecting solid demand. All demand has been much more resilient than widely perceived. And also ongoing OPEC plus notably from Saudi Arabia. So sum it up for me. The main... The main catalyst that is going to take oil prices into the high 80s on West Texas and I think it was low 90s on Brent is what? What is the catalyst?

Evidence of deficits, which means that inventories are going to draw down, which makes oil scarcer and which should put upward pressure on time spreads. Why do we expect deficits? Because demand is still rising. Actually, we believe that in July this month, the world is still. seeing an all-time high for global oil demand levels. And that reflects that the global service economy is on a healthy footing. Earlier this month, we had the largest number of global commercial flights ever, ever on record. It's fair that the global good sector is in a mild recession or stagnation.

But even there, we're seeing tentative signs of stabilization. So if we're right that the global service sector continues to expand and services GDP drives about 70% of global oil demand, that in combination with, OPEC cuts should lead to inventory drawdowns and to rising oil prices. All right, Don, thank you very much. Don Strohven, Goldman Sachs. Thank you very much. And Melius Research initiating coverage of a dozen stocks,

all set to benefit from the AI boom, saying an AI halo effect will lift much of the broader tech sector. We'll speak to the analysts behind that major call when Power Lunch returns. Welcome back to Power Lunch, everybody. The Magnificent Seven surging this year on the back of an AI craze those seven tech stocks nearly doubling so far in 2020, compared to a 7% gain in the S&P equal weighted index. Our next guest thinks generative AI should keep pushing these tech names higher, but it has a hold

on one key mega cap in the space. Let's bring in Ben Ritz's, the Mellius Research Managing Director. Ben, welcome. Good to have you with us. I see you among the choices that you have put buys on in these various stocks. Are three that sort of surprise me. One is Intel, two is Cisco, three is IBM. Why do you call them buys, but Google, AMD, Oracle, and among others, holds?

Well, nice to be with you, Tyler. It's been a little while, and great to be back. I think that there is a halo effect that's going to take place where right now we're in a big training phase of AI, where Nvidia is taking an outsized gain of the market, and we are very positive on Nvidia and think they're going to benefit, frankly, from all stages of AI. But what is going to happen in our opinion

is that a lot of the spending is going to shift towards the enterprise, where enterprise companies want to tap their data into trained models and use those for applications for the enterprise where they can do inferencing as well. And we think that there's a halo effect that will take place on other names. For example, IBM, what we think is near term we're not looking for much upside.

But as we get into 2024, a lot of companies are going to want to know what models they want to pick for training, how they want to do it, how they want to prepare their data. And this is tough stuff. And IBM consulting and software for highly regulated industries is going to probably do a little better as these companies need help. Cisco, as enterprises spend on AI, look to get insights from applications, are going to need networking. And we think that the expectations for Cisco are super low. It's 12 or 13 times earnings. And for Intel, we think PCs and servers can benefit as well. And Intel can react

violently to the upside if there's a PC channel fill. And laptops are echoing the great demand of 2020 right now and into next year. So I wouldn't be surprised at PC data points start to look a lot better. And Intel's prime beneficiary. Why specifically are you hesitant on Google? or at least holding back on it? Well, we still have upside to our target and like Google. A couple things about Google is their cloud is doing great. But they actually have the lowest cloud margins of the big three. It's only two and a half percent.

When AWS was at that phase, it was well under the 20s at this revenue. So actually, cloud is not a positive mix shift for Google. The other thing about Google is we don't know what's going to happen with search. I know there's a lot of pundits out there that want to say search is going to be this or that. I don't think anybody knows. We know that AI is going to search for outcomes, though, for certain things. You're going to want to speak into a bot and get a result. You're going to say my budget for the trip's 800. I'm going with so-and-so in my family, produce an outcome. Search could change in that regard, and I just don't know how it's going to do it. I think it's

Google's to lose. They have great data. But if I can't figure out, I'm not sure anybody can. so let's see how it plays out. Ben, thank you very much. And forgive me if I mispronounced your last name. Would you pronounce it for me? It's Riteses. Rightsus. Ben Wrights is. We thank you. Thanks a lot. You back. Take care. He's always been racist. He's been right. Earning season is in full swing. Five Dow components and more than 50 names on the S&P are all on tap. Coming up, we'll ask our trader for three key names. She expects to move on results. A fresh three-stock lunch is after the break.

Welcome back. It's time for today's three-stock lunch and it's earnings season. We've got the trades on three names reporting this week from tech to energy to financials. But we've got to start with Netflix, which is trading right near a 52-week high, up 150% of the past year and reports Wednesday in the heart of a double strike from the writers and actors in Hollywood at a time when legacy media is struggling. Got all that. Here with our trades is Victoria Green, G-squared, private wealth, CIA, and a CNBC contributor. Victoria, welcome. What do you do with Netflix? Man, despite all of those things you listed out, for me, it's a net buy. I see them as winning the streaming wars. Yes, there's some uncertainty with the writer's strike and the actors strike, but they work really hard at controlling their costs, doing much more customized content. And it's all about the subscriber growth and the password crackdown. We see them easily beating expectations of 1.85 million new subscribers as quarter, a lot more adding into revenue with their average revenue per user going up because now you have the ad supported, you have ad revenue coming in, and you have the ability to add paid users to a certain profile.

So yes, it's a 52-week high, but that's because it bottomed out 52 weeks ago. For me, I see the stock as a lot more upside, and I do see it as a buy. All right, let's move on to SLB, the energy company formerly known as Schlumbergerge, reporting Friday at a time of depressed energy prices. But the stock's still up 75% over the past year.

You still like this name, Victoria? Absolutely. To me, it's a buy. The services that were really kind of missed out on the 2020 through 2022 energy. rally. 23 for me is the year of services and that has played out. Schlumberze is absolutely the international leader in services. Remember, 77 to 78% of the revenues come from international and they're not just about sinking holes in the ground. They cover everything, the full life cycle for

the energy production and they're moving more and more into technology, carbon capture, carbon sequestration. And so they continue to broaden their offerings and they really are a leader. So while the Permian is slowed down and U.S. oil and gas recount has fallen internationally, you're seeing more and more activity. So I think Slumberger is going to benefit and benefit from a weaker dollar as well. So you like Netflix, you like Schlumberger, not such a fan of Capital One, though.

They're up 20% this year at a time when it's hard for the financials to show a lot of green. People are concerned about credit cards, delinquency rates. Why are you not, you know, saying like the rest of the crowd? Okay, this is a clear outperformer, proven through the cycles. This one, you're a little bit more cautious. I am.

I'm very cautious because I feel like their quality has continued to deteriorate. They're having to slow down on auto and other loans and personal loans. It's all about the cards. And while their car growth should happen, I think they're going to have peak net interest income and net interest margin this quarter. Now, they're never really heavy on details for guidance. But if you looked at how financials have reported so far as less of what did you do for me last quarter and what are you going to do for me going forward? And I think they're going to see a rise in that charge off.

I think they're just going to see some adverse conditions happen in the second half. And so for me, I just don't like them. I think there's other better companies in the financial sector, higher quality, like an American Express, that should weather better if their consumers come under stress and pressure. So for me, Capital One is just not a buy right here. All right. Victoria, thanks for your time today. Victoria Green with an earnings preview. All righty, coming up, more stories you need to know about, including millions of Americans,

losing a key tax break for their retirements. We'll tell you about that one in a moment. All right, we have only got about two minutes left in the show. We've got a bunch more stories you need to know about. Let's get right to it, leading with Eli. Lilly. What a year it has been for Lily, filing now for full FDA approval of its Alzheimer's treatment after phase three trials showed significant slowing of disease progression. The CEO David Ricks telling CNBC earlier today that it appeared to be even more helpful for patients

in earlier stages. The main outcome, we slowed the disease by 35 percent over 18 months. And today we highlighted a couple other new analysis, which basically showed that the earlier patients in the study, those with less burden of disease, we slowed even further, between 40 and 60 percent slowing. So that's, I think, the real news from today. No word yet on any official timeline for approval, but Rick said he does expect the decision by the end of the year. Lily's shares are about flat today, but remain on pace for their seventh straight positive year. And of course, Lily, not only is this an important development with respect to Alzheimer's potentially extending quality of life for millions of people, but they have the big weight loss drug king of the hill

Munjarro. So it has been. And did another acquisition for another kind of weight loss drug that might enhance muscle. There's no stopping them. Ford, though, is cutting prices on its electric F-150 by as much as $10,000. The cheapest version of the pickup will now start around $50,000. It comes after initially citing strong demand and raising prices several times since 2021, but it's being cited as a watchpoint tie for EVs, oversupply for Ford's own earnings risk, and the stock is down more than 5% to them. Yeah, there's been a lot. Obviously, Tesla has cut prices on its vehicles as well. So here is yet another one. And millions of Americans are going to lose a key 401k tax break. It involves the catch-up trades that older workers, who would that be, are allowed to make? Starting next year,

those contributions won't be able to be made with pre-tax dollars, only after-tax for the catch. We're not really talking older, older workers. People are getting, no, no, no. Yeah. I mean, this, my parents had to do a lot of catch. This is a big deal. It's a big deal. I'm really surprised that they're not free tax dollars anymore.

Thanks for watching Power Lunch, everybody. Closing bell starts right now.