Power Lunch - The confusing consumer, FTX fallout and Advance Auto Parts stock sinks. 11/16/22

Episode Date: November 16, 2022

October retail sales were strong across the board but Target warned of a soft holiday season. Did Target misread the consumer or is it a leading indicator of what’s to come? Plus, Strike CEO Jack Mallers on crypto’s credibility crisis. And the CEO of Advance Auto Parts on his company’s earnings miss and downbeat outlook. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch. I'm Tyler Matheson, and here's what's ahead. We're going to look at the state of the consumer this hour. October retail sales were strong across the board. The CEO of Lowe's says he's not seeing a discretionary spending slowdown, not at all, but Target warns of a soft holiday quarter. This hour, a deep dive into the American shopper. Meantime, shifting gears, advanced auto parts misses earnings expectations, and says the outlook isn't much better either. The CEO will be here, to talk about the severity of the decline and whether an uncertain economy is to blame. Morgan.

Tyler, we're hearing more and more of that. Well, here's where the major indexes do stand at this hour. Everything is lower. The Dow is down about 2 tenths of 1 percent, 58 points right now. The S&P is 39.58. It is down about 1 eighth of 1%. And the NASDAQ is the big underperformer down 1.5%. Home builders are lower after sentiment in the single-family housing market fell to the lowest level in a decade.

Builders are up against higher labor and material costs and also lower demand from buyers. And a few stocks that are hitting 52-week highs this afternoon. Affleck and TJX, which topped profit estimates and raised its annual same store sales forecast. It's been a mixed picture so far, Tyler, for the retailers. All right, Morgan, thanks very much. And that's where we begin with the rather confusing state of the consumer. Shoppers face decades high inflation and a softening economy. October's retail sales showing resilience, rising slightly more than expected,

climbing 1.3% from the previous month. So that's good. Now, some of that spending went to lows, where the CEO says there are no signs of a consumer pullback. Estimates raising full year guiding earnings forecast, everything looking good at lows. Looking up at lows. But Target, not so good. 50% profit drop, and they warned about the fourth quarter at 2. target. We have full team coverage of the consumer, which powers about 70% of the economy. Steve Leaseman, Diana Olick, Melissa Repco. Let's start with Steve on those retail sales numbers. Take it away, sir.

Hey, Tyler, do you remember that consumer who was supposed to be suffering from higher interest rates, inflation, depleted savings from the pandemic, and should by now be cutting their spending? Forget all about that. We had today absolutely stunning. retail sales numbers showing spending not only higher than expected this month, but upward revisions higher in the prior month as well. Retail sales up 1-3 versus an estimate of 1-2. That's not the big beat. Look at the beat when you take out autos, 13 versus 0.6. And that core retail sales number, that's a huge beat because that 07 number feeds into GDP and causes people to revise higher their fourth quarter estimates. And you can see that the revision

to September upward as well. Looking at the detail. pretty much across the board, only a few negatives. Autos we expected. Gas station's up 4-1. That's really interesting because consumers did all this spending while they spent more at the gas station. Non-store retailers up 1, 2. That might have been helped by another Amazon Prime Day.

Furniture store is up, too. Diana Ollick's been saying that maybe the story here is people remodeling their homes not buying new ones. One negative there, or one of the negatives, electronic appliances down. The consumer, slow down, who knows? Maybe it's going to come. next month or the month after that, but forecasters still don't get why it hasn't happened yet,

and it raises the question if it's going to happen at all, Tyler. Thank you very much, Steve. All right. Well, let's now get to Diana and Lowe's, which said that a slowing housing market isn't hurting its bottom line, Diana. Yeah, Morgan, and the reason for that was a surprising willingness by consumers to spend even more on home improvement. It mirrored what Home Depot's CFO Richard McPhail said yesterday. He called it an improve in place. mentality and then this morning Lowe's CEO Marvin Ellison listed the three drivers behind it.

First, massive amounts of home equity among current homeowners that they can use to pay for all the remodeling. The unprecedented run-up in home prices during the first years of the pandemic, up over 40 percent in just two years, gave homeowners a collective $11 trillion in so-called tapable equity by the start of this year. According to Black Knight, that's how much you can pull out and still leave 20 percent in your house. Per average homeowner, $207,000. Then the age of the U.S. housing stock, about 40 years old, which is the oldest since World War II, and finally, high levels of personal disposable income.

It all drove housing remodeling. Back to you. All right. Thank you very much, Diana. And to Target now, the outlier, which saw its shoppers retreat, Melissa Repco, is this a matter of target misreading the customer, or is it a matter of target being a leading indicator potentially of what's to come. What do you say? Hi, Tyler. Yes, a lot of Target's troubles actually come down to its merchandise mix. A lot of what Target sells is a discretionary

merchandise and it's seeing a pullback, particularly it was talking about how in the final weeks of October and into early November, it's been seeing a slowdown. And so this may not be showing up yet in the numbers that Steve referred to, those retail sales numbers. It may just be the start of that pullback. And Target is known for selling a lot of all across the board in home and apparel, only 20% of what it sells as grocery versus Walmart, which reported yesterday and did well, it's a very big different percentage because with Walmart, about 56% of its overall annual revenue comes from grocery. So a lot of those target runs that people think of when they think of that retailer are browsing the store and getting a lot of impulse

buys. Those become a tougher sell in an environment where consumers are thinking more about sticking to the budget, buying what they need, not what they want. You know, I'm going to kick off the cross-examination here. Morgan and I are going to jump in in just a minute. But Steve, I'm going to start with you because I'm wondering where this burst of seeming confidence is coming from. Is this potentially a last hurrah for the American consumer, number one? Number two, is it that buyers are going out there and thinking, well, I'm going to buy

now before the prices go much higher? I'm going to get it now because it may be 10% more in two months. Where's the confidence coming from? What's the explanation? It could be that, that idea by now because things are going to be more expensive. Tyler, can I just semantically correct your question? Of course you can. Which is confidence itself, the confidence measures are bad.

They're negative. They're down. And that makes all this spending even more extraordinary. We think there's this connection between consumers lacking confidence or being not confident in the economy, and yet they're spending as well. They're spending like crazy, whether they're confident or not. I mean, that's why I'm so suspect of polls, but be that as it may. Go ahead. One of the things that I think is worth noting, and maybe we haven't made enough of this, I've tried to make a lot of this.

A lot of folks are employed. 3.7% unemployment, up two-tenths, but still historically low. we focused on these polls and these surveys that show consumers and are angry and upset and disappointed with the inflation numbers. At the same time, they have jobs. And I don't know, Tyler, but to me, nothing drives spending like having a job and a paycheck. I mean, it's a key point here, too, that part of what is fueling the spending is the fact that things are costing more and people are just having to pay more out of pocket, though, right?

And you're seeing that in some of the debt, the credit card debt numbers and those types of that's starting to come out as well. So Melissa, I want to go back to you and just ask if you, if you look under the hood across the different retailers that have reported so far this week, I mean, there are these signs that higher inflation is having an impact, albeit maybe differently at different stores. Exactly, Morgan. Walmart said yesterday that it's really getting its sales growth from the necessities, from grocery, not from discretionary. So in many ways, Walmart and Target were consistent in saying, hey, people are thinking, twice before they buy things. And the other dynamic they spoke about is that people are really

waiting for the sale. They're expecting the bargain. They're waiting for the bargain. And they're not going to buy that full priced item like they did a year ago. So that's a very different dynamic going into the holidays. And it is going to weigh on all retailers' profits. Diana, if you had said to me 10 days ago, given where home builder sentiment is, given where housing is, that two of the leading retailers coming into this season or right now would be Lowe's and Home Depot, I would have thought you were crazy. Yeah, so would I, actually, Tyler. But, you know, it just came out this way because what we're seeing is, again, it's the stay-at-home mentality,

but it's also part of the getting back to normal mentality as well. If you looked at Home Depot, they saw a surprising amount of spending on Halloween items. And I don't know about you, but my neighborhood was completely on steroids this year. It's people wanting to get out again and be normal again. But beyond that, you know, I asked the CFO of Home Depot yesterday, I said, well, what about home flipping is? down. And a lot of general remodeling happens when people buy homes. It's a driver of home

remodeling. You buy the new house. You want to make it your own. You change the fixtures. He said he wasn't seeing that at all in the numbers. He was seeing it more of just people staying in place because as we keep saying, Tyler, why would you trade a 2.7% mortgage rate for a 7% rate and move

to another house when you can stay in your house, use your home equity and remodel it? So I'm going to bring this back to the Fed, Steve, especially since Mary Daly for the San Francisco Fed president was on CNBC earlier, and this came up in that conversation. Yeah, I mean, the Fed definitely wants to see things slowing, wants to see the consumers slowing.

I would make one point, Morgan, very quickly, which is it could be inflation that's driving consumers to buy. But the numbers today, remember you had relatively a tamer or tame October inflation, so there were real or after inflation spending increases in these numbers. I think the Fed could look, at it two ways. One is that they need to do more to champ down demand in this economy, or two, is that what they've done has not really created the negative effects that they thought,

and they might be okay here and not and end up with a soft landing. I think, you know, we can dream, can we? We can dream, for sure. Okay. Thank you all to our all-star panel. Buzzard. So how important is the consumer to the state of the market rally? Can they keep the economy afloat as the Fed hikes rates? Let's bring in Mike Bailey, Director of Research with FBB Capital Partners. Mike, in terms of the soft landing, are you dreaming? No, I think there's certainly a chance of it.

I think right now investors are getting a taste of what a soft landing might feel like. You know, interest rates are kind of moving sky high despite that. We're seeing massive, you know, growth out there. Companies like lows, you know, companies like Home Depot, etc. They're feeling pretty good. I mean, the comment before about buying tons of Halloween goods. If we're in the middle of a recession, are people going to dump their wallets out and buy Halloween goods?

That seems like a little bit unusual. So I think we're getting a little bit of a taste of it. I do think going a bit longer term, there's going to be some more volatility. So probably more rate hikes ahead, probably a real recession. Company earnings may start to take a bigger hit. So you could see a bit more volatility, I think, before things balance out. But in the short term, this feels pretty good in terms of investors watching companies do okay at this point in the cycle. So if you expect more volatility, what do you do right now? Do you sit

on the sidelines and sit in your hands and wait through it? Do you position yourself defensively? Do you do something else? Sure. So we believe in time in the market. It really, I think if you want to try to be tactical and get in and get out quickly, you've got to make two good decisions. That's tough for most people. So we want to stick with the market. We are generally going a bit more defensive. So we've been adding to staples, utilities, companies like that, starting to just tiptoe a little bit into some growth here companies. Companies, you know, e-commerce, et cetera, starting to look interesting. I think we're not quite ready for the full-blown capitulation, go complete risk on. Not quite there yet.

We'd like to see a little bit more pain, frankly, on earnings. I think that could really drive a tipping point. Maybe next spring. But for the moment, you do want to stay fully invested. Again, plenty of great companies out there, whether it's a safe staple or even, you know, move up the risk ladder a little bit. go with something like a Lowe's or Home Depot. They're pretty compelling. We had a day last week, I think it was Thursday, where the markets just went crazy.

And it made the argument that if you get out and try and get in and out of the market, you're going to miss the best days and really handicap your return. So I'm with you on the idea of staying fully invested. You say earnings are likely in the early innings of a big move down. How can stock prices move up if earnings are moving down? So it's a bit counterintuitive. I think what we focus on is history. What has happened in past cycles when things are looking terrible, there's recession coming,

earnings are blowing up. If you go back and look at some of those, interestingly, once earnings are really only halfway through the pain, stocks actually start to come back. So that is something we're looking through. One scenario we're kind of envisioning. If you anticipate there's a recession coming, things are ugly, let's say earnings are going to be down 20% and a peak to trough. Once you get halfway through that, that could be a very interesting buying opportunity. You start looking over the next mountain, over the next hill, and that's

where, and that's where the turn takes place. I know you have a couple of names that I'd like to dance you through very quickly, Visa, Danaher and Diageo. Absolutely. So just very quickly, Visa, kind of an interesting inflation hedge. If inflation stays high, Visa prices things in, you know, nominal dollars. That's good for the company. If inflation goes less, they can also operate there. Dan and her, pretty compelling healthcare company. They're actually getting rid of the non-health care business. They're going to bring in some more cash. They're going to do some more deals. They've really run this playbook before. Stock's trading at a discount. Diageo, you're a pretty interesting kind of safe defensive company. There is this long-term

shifts towards premium spirits. So that's something you can own that that growth rate. And oh, by the way, it's trading at discounts. Some pretty interesting companies out there that should take a look at. Mike Bailey, thank you very much. We appreciate your time today. Thank you. Thank you. All right, coming up, Chris Crypto's Crisis of Confidence, the CEO of the crypto payment firm's strike, here to discuss the FTX fallout and what comes next as more firms pause their withdrawals. Plus, advance auto parts on pace for its worst day since 2017. The CEO is here to discuss the company's disappointing quarter, downbeat guidance,

and how it's managing rising costs. When somebody comes out on a day like this, I give them props. Tom Greco will be here of advanced auto parts. As we had to a break, let's look at shares of restaurant brands. Highest level since September 2021. The company tapping former Domino's CEO, Patrick Doyle, as executive chairman. We'll be right back. Welcome back to Power Lunch.

As the fallout continues from the FTX blowup, Bitcoin prices remain somewhat stable relative to how volatile this asset class can be. So how does the industry regain the trust of investors? Let's ask someone on the inside. Jack Muller's CEO of Strike. Jack, great to have you on the show. The first thing I want to do is I do want to get your response to this FTX fallout and also whether Strike in any form or fashion or yourself even personally have any kind of exposure to what we're seeing play out.

No. Strike, myself, and Bitcoin at large has nothing to do with SBF and FTX. I mean, it's nothing other than absolutely discussing and malicious crime in the same way that, someone can go hijack a car down the street from my house. That has none to do with Bitcoin either. Unfortunately, it's just an extreme level of criminal activity, crime, and fraud. However, I think a really important point to make is that the world is finally starting to realize that there's Bitcoin and there's everything else. The way I like to describe the crypto industry and blockchain is it's an arbitrage on the trend. I mean, Bitcoin is humanity really found its stride in inventing Bitcoin.

Money is the most valuable market good we have in any market. It's nucleus to a functioning society. And we made and engineered the best version of it. And the fact that there are other cryptos that have been able to come along and take advantage of the pure desire and need for an invention and technological breakthrough like Bitcoin and then be able to sell things like orange coin and Pink Coin and FTCN, which are just vehicles to arbitrage this trend and commit violent levels of crime. It's sad and it's disgusting. It's got to stop. So it has nothing to do with Bitcoin. If anything, it should be a very expensive.

and expensive and painful lesson of that there's Bitcoin and there's everything else. And the last thing I'll say is there doesn't shock me at all that FTX actually owns zero Bitcoin. Because if you want to commit fraud, if you want to commit crime, if you want to upsell and wash trade pictures of monkeys, you don't use Bitcoin. This is a well-engineered freedom-fighting tool for our species. And there's everything else is it's got to stop. So the arbitrage on this trend has been margin called. And it's over. And now people can see the difference between what is a well-engineered tool for humanity and what is FTX counterfeit coin.

You have strong opinions on this. And I get that. And certainly many other Bitcoin enthusiasts, such as yourself, have said very similar things on our programming over the past week plus since we've seen the implosion of FTX. I want to get into that because it sort of speaks to D5 versus centralized. But first, I mean, the fact that you are seeing some contagion, at least in the broader cryptocurrency space right now, it's clearly a culling that's underway. You could argue it started before FTCS. It's continuing now. Does it set back broader adoption of something like Bitcoin because it's considered, for better or worse, part of this broader industry? Sure. I mean, you could think of the two ways. They had to get washed out, right? You had a criminal running rampant. They had to get caught. So better catch them today than tomorrow. So in that way, we're making progress. Actual real value that's pushing humanity forward is being realized and those

that were faking it are getting in trouble. That's a good thing. But no, I've always said the biggest cost of the arbitrage on the trend outside of the very obvious, and I don't want to dilute this, is just innocent people losing money, which is absolutely terrible and awful. And they should not have been allowed to be subjected to that. But that aside, is the cost of just, just human capital. Is that like I'm saying. So you're saying unequivocally freed as a crook? I don't, I'm not sitting next to my lawyer. I don't know what claims I'm allowed to make, but you tell me, Tyler, what do you think? That's not for me to say. I'm the question of here. I think I think the guy created funny money out of thin air, potentially washed it,

borrowed against it with customer funds and lost it all. That's not legal. Okay, cool. Well, not cool, but you know what I'm saying. I just thank you for your answer. Sure. Freedom fighting tool for our species. That's highfalut and rhetoric. Why do you say? that? Bitcoin gives everyone in the world property rights secured by mathematics. I mean, Bitcoin is the first monetary asset that we've been able to engineer with no natural issuer. Bitcoin has no liability relationship with anyone else. It is a guaranteed, fixed, protected monetary policy and instrument. I mean, in order to function any sort of scalable trade, which is underpinned society, I grow bananas, you sell apples, Tyler.

We got to find a way to exchange. Money is the nucleus of functioning human society. And we've been able to a breakthrough in computer science and engineer the best version of that that is accessible to everyone and equitable for everyone. No one has an advantage. There's no issuer. Even Satoshi Nakamoto had to use energy

to get his or her first bitcoins. Huge deal. Huge advancement. What does regulation, what does this do to, what is regulation now due to Bitcoin, given the fact that there is now a bigger risk of a broader brushstroke used by regulators, given everything that we're seeing play out in other areas of cryptocurrency. Yeah, I mean, my take is either the SEC or an agency

like it has to stop existing and admit to the free market. It's your responsibility. But if they're going to say that we will help protect you, they need to do that. And almost all of, if not, every single one of these assets that isn't Bitcoin is a security. There's the Howie test. It's very obvious. I mean, all these assets, like Ethereum, were issued by a central party and sold. I mean, guys, like, it's not rocket science. That's not Bitcoin. There's the Howie test, and they have to start protecting investors

and protecting the people and regulating the exchanges that list these things. You cannot have flip-a-do back-flip coin sitting next to Tesla stock accessible to retail investors in the United States of America. That's a fail. So you should either not exist at all, or you need to properly regulate according to the law and the rules. But yeah, right now you can go on an app and you can see Doge Doggy Coin and you can see Tesla stock. That's not a good thing. So if Bitcoin should not be regulated like a security, but every other cryptocurrency should, what does the future of Bitcoin look like?

The future of Bitcoin has no relationship with regulation. I think the SEC has come out and said Bitcoin is very clearly not a security. It is absolutely decentralized. It has no actual issuer. You cannot stronghold and change. I mean, Ethereum went to proof of stake. They just kaboom shot an industry right in the knee. All Ethereum miners are dead. Gone. See ya. Don't care about you. No longer out of nowhere. That's not how Bitcoin works. And so I think with proper regulation and oversight, institutional capital should theoretically have a huge interest in this asset because of the properties it retains. And regulatory clarity is going to help Bitcoin immensely. But I don't think it relies on it. It doesn't really matter.

what regulation is to protect and give proper disclosures to investors on how these things actually work. Do you think anyone who would have actually bought FTT token if there was a disclosure on what bankman fraud was doing this whole time? No. So they're to protect and give disclosures for securities. Bitcoin's not a security. You don't have to disclose anything. Read the white paper. There, boom. You know everything you need to know. And so I don't, I think it's going to help enhance and help grow the speed of adoption. But I don't think it really matters too much. It's more so the arbitrage on the trend. Get these other tokens have nothing to do with Bitcoin. They don't share in any of the innovation. And the one that's, it's faster, it's better. It's good with kids. It got a lot. Like, what are we

talking about? You don't think the best engineers in the world thought to make it faster. Would you get an airplane I engineered yesterday that's faster than a Boeing? Probably not. I don't know. It's ridiculous. I'm frustrated clearly. It's just a waste of my time. I wish I was building tools for people all over the world to help their financial experience instead of having to explain that Sam Bankman freed in his FTT token has nothing to do with proper innovation and pushing our species forward. It's just, it's an unfortunate waste of human capital. Jack Mullers, thank you for joining us. You got it. I have a feeling that interview is going to live long on CNBC.com. Probably. For more on the crypto fallout from FTCX, though,

Tomorrow on Squawk Box, be sure to catch Binance's CEO. CZ, arguably the actor that started the domino collapse. That starts at 7 a.m. Eastern tomorrow. Don't miss it. All right. You want the moon, Morgan? Well, you just can't throw a lasso around it. So NASA threw a few billion at it instead. The agency successfully launching.

It's Artemis One Mission to See. That's art right there. That is art right there. That is a masterpiece. That is a good looking right there, I tell you. Multiple failed attempts, but this one will see. Meanwhile, around 230,000 miles lower, but still in the skies. Airlines expecting a massive travel surge this holiday season. Those details when Power Lunch continues right here. Look at that. What?

All right, welcome back to Power Lunch. I'm Brian Sullivan. Here's what's happening at this hour. 22 Los Angeles County Sheriff's recruits were struck by an SUV while out on a training run. Five or in critical condition. Officials say the vehicle veered across the road into oncoming traffic and hit the recruits. Police identified the driver as a 22-year-old man from a nearby suburb, but his name is being withheld. Novak Djokovic will not be facing COVID vaccination issues at next year's Australian Open. Tennis star has been granted a visa to attend the tournament. He missed this year's event because he was not vaccinated and was barred from entering the country until, get this, 2025.

The Australian government later reversed that decision. And a third year medical student having the experience of a lifetime. David Gibbs was on duty on his OBGYN rotation when in walked a patient, his pregnant wife. She went into labor five days early. He got the call to deliver his own daughter. That is Adeline greeting the world. Mother Kelly called the entire day perfect. Delivering your own daughter, happy and healthy.

I'd say that's pretty perfect. That is a special delivery. That's a good story right there. Thank you, Brian. All right, ahead on Power Lunch. In need of replacement parts? I know I could use a few. Advanced auto parts sinking, missing earnings. Big reversal from its strength amid the record used car market. The CEO will join us next. Plus, another name in the red. Carnival Cruise capitalizing on its recent performance by offering $1 billion in convertible debt. We're going to trade that name in a re-stock lunch. Well, we got less than 90 minutes left in the trading day, and we want

to get you caught up on the markets, the stocks, the bonds, the commodities, and everything else. Plus, we'll talk to the CEO of Advanced Auto Parts as that stock falls 16% today. Let's begin with a check on the market. Stocks lower, but the Dow down just fractionally. NASDAQ, the worst performer there. There you see it, the Dow off about one-tenth of one percent. The S&P 500 down about three quarters a little more than that, four-fifths of one percent, and NASDAQ down one and a half percent. The St. Louis Fed Governor Christopher Waller speaking right now. Let's get to Steve Leasman with some heads. lines on the Fed's Waller. Steve? Yeah, Federal Reserve Governor Christopher Waller saying he's comfortable

considering 50 basis point, 50 base point hike in December, which he says is still, quote, a very significant tightening action. But he sounds pretty hawkish when he says stuff like this. He says it's possible the Fed does, quote, several 50 basis point increases. And he expects, quote, increases in the federal funds rate into next year. Note the plural there. And he goes on to say, we still have a ways to go. Economic growth slowed. He says significantly in 2022. He says slowing growth is necessary

to bring inflation down, and he sees tentative signs of a cooling in the labor market, including moderation in wage growth. Finally, he said that the recent CPI report was a very welcome moderation, but as you can imagine, he's not ready to take that too far.

He says you can't read too much into one report. So the Fed governor tilting on the hawker side here, Tyler. Back to you. All right. Thank you very much. Steve, let's turn to Rick Santelli for an instant reaction to what you just heard from Steve and Fed Governor Waller. Well, it's interesting because data dependent would imply that you want to wait and see how the data points look, see how the next CPI looks.

But to be picking these numbers for December saying you're going to tighten a half a percent, maybe two, to me, seems awfully aggressive considering the data may turn sour, especially on a day like today. And I'll tell you why in a moment. Hey, 20-year bond auction, I gave it an A-minus. They couldn't get enough for them. Look at a two-year, okay? And pay particularly close attention at 830 Eastern. That's when basically we made the high. We had a good R today, the R.

Retail sales was good, but it marked the high yield instead of marking higher, which it normally do if it was strong, and it all has to do with Mr. Waller and the Federal Reserve. Well, look at a 10-year, very similar, except one difference. Yes, it spiked. but it kept moving lowers. As a matter of fact, if you put a two-day-a-tends, you'll see why it's sped up because it started trading under yesterday's 2-3-quarters percent low, which means we're on pace for a fresh six-week, low-yield closes,

is evident by the October 1st chart. But here's why it gets interesting. The R for retail sales is messing with the R investors are thinking about today. So you can talk about strong retail sales. You can talk about the strong labor market. But here's what investors are talking about today. is that twos to tens is now the most inverted in four decades, just since 1982 at minus 66 basis points.

And it doesn't end there. The real recession spread, three months to tens, is at minus 52. That's the most inverted in 15 and a half years. So no matter what the Fed is going to ultimately do, if their goal is to slow the economy, investors are trading as though they're already quite successful. Tyler, back to you.

All right, Rick Sant, Sant, Telly, thanks for that instant analysis and the description of a yield curve that is as negative as it's been in decades. All right, oil closing for the day, down nearly 2%. Pip Stevens is at the commodities desk with the details. Hi, Pippa. Hey, Tyler, it is red across the board today in energy markets with Chinese demand fears still hitting prices. But a bullish inventory report is limiting the downside. U.S. stockpiles decreased by 5.4 million barrels last week against estimates of a 1,000. 1.25 million barrel

draw. Now, distillate stockpiles, which includes diesel and heating oil, did rise last week, but inventory is still 15% below the five-year average. And the IEA warning this week about that tight diesel markets ahead of the February 5th deadline

when the EU ban on Russian products will go into effect. The Paris -based agency saying competition for non-Russian diesel barrels will be fierce. Let's check on prices. WTI down one in a of a percent at 85-76, with Brent crude down 1 percent right around $93. And energy stocks are the worst performers today with Nat Gas names, EQT and Kota, leading those

declines. Tyler. Pippa, thank you very much. Let's move on now to advance auto parts. The stock, the biggest laggard on the S&P on pace for its worst day since 2017 after it missed earnings estimates and lowered its full year outlook. The company blaming higher expenses and currency headwins here for a power. lunch exclusive, Tom Greco, president and CEO of Advanced Auto Parks. Mr. Greco, welcome.

Good to have you with us, and we thank you very much for coming on on what is a tough day. It's easy to come on and talk when you've got puppy dogs and rose pedals to throw around. Not that we want to throw around any puppy dogs, but the truth of the matter is it's tough to come on on a tough day. We appreciate it. You said it yourself that you are disappointed in your company's relative performance to your peers and that you're going to take measured steps to improve it, sales and performance. What are those steps and how fast will they gain traction? Well, first of all, thanks for having me on, Tyler. This was a difficult day for the company, but I appreciate you giving us the opportunity to talk about it. We outlined our

strategy about a year and a half ago to drive total shareholder return. In that discussion with our investors in April of 2021, we said there were three key elements to the plan. Growing, sales, expanding margins, and returning excess cash back to our shareholders. And we had a terrific year in 2021. We were able to accomplish all three of those goals. We finished in the top quartile. Up until this quarter, we had nine consecutive quarters of sales growth and margin expansion. So we're very pleased that we had a strong year last year. And our strategy hasn't changed. We entered this year with the same plan. We're going to finish the year with expanded margins. We'll be one of very few retailers to accomplish that this year.

We're going to return close to $900 million back to our shareholders. But we're very disappointed in our relative top line performance, as you indicated. And that's what we're taking action on right now to address as we head into 2023. So what are some of those measured deliberate actions that you refer to in your statement? What kinds of things are you going to do? What can a shareholder or a customer grab onto today? Sure. Well, the big analysis that we did over the last several months to assess the underperformance was really rooted in inventory availability, which is so important for our business. You've got to have the right part in the right place at the right time. And we've been executing a strategy over the past several years to migrate our portfolio to own brands, which carry a much higher margin rate than national brands. And they're a differentiator for us. Unfortunately, we had a couple of big categories. that we have executed against where we haven't been able to get our on-hand rates to where they

need to be. So we're making a big investment in the fourth quarter and inventory to shore that up. And we've worked very collaboratively with our suppliers. These are suppliers that have literally all over the world that have helped us get this off the ground. And they're very optimistic, as are we, that the actions we're taking a result in accelerated growth next year in 2023. UBS this morning downgraded your stock and says that it's losing share looking at the comp says, quote, given the impact of inflation unit losses are much steeper, suggesting that it is losing customers at a rapid pace. This will be hard to reverse.

Your reaction? We don't really see losing customers as the biggest issue right now, Morgan. It's really about our average sales per customer. usually when an auto parts provide or sells to a professional installer, they always choose from a number of different suppliers. So our opportunity is to make sure we drive more share of wallet, really, with our professional installers. It's less about losing customers.

Okay. Tom Greco, thanks for joining us. Thank you. Coming up, NASA successfully launching its massive moon rocket. After three previous failed attempts, billions of dollars, more than a decade's worth of work. We're going to discuss why they took this moonshot next. Back to Power Lunch, after three previous attempts at 147 Eastern time this morning,

NASA's mega moon rocket blasted off from Kennedy Space Center. Three, two, one, boosters in ignition, and lift off of Artemis 1. We rise together back to the moon and beyond. The historic launch ushering in a new era of American space exploration, kicking off NASA's Artemis program 50 years after the final Apollo moon landing. The uncrewed Artemis 1 marks the debut of the agency's space launch system, the SLS, which is now the most powerful rocket ever flown. It launched the Orion Deep Space capsule, which will now embark on a 25-day journey around

the moon before splashing down in the Pacific Ocean, undergoing rigorous, tests before astronauts climb on board, first in 2024, if all goes according to a plan, and then again in 2025 to actually land on the lunar surface. Artemis is a major program for NASA, but it is also major for the space sector. The agency's Inspector General estimates $40 billion has been spent so far, and that that will total $93 billion just to achieve that 2025 landing. Contractors include Boeing, Lockheed Martin, North of Grumman, Arrowjet, Rocket Dine Jacobs Airbus, the list goes on. Even SpaceX, which just yesterday was awarded another lunar lander contract as part of Artemis. Even Amazon and Cisco have tech on board Orion right now. That is being tested, Tyler, as we speak.

So one question is this. You said that this is the most powerful rocket ever flown. Yes. Why do you need to fly the most powerful rocket ever flown on a space flight that is really comparatively a very short one? So just to put it in perspective, Saturn 5, which was the rocket, the power of the Apollo missions, 7.6 million pounds of thrust. This one's 8.8 million pounds of thrust. It is about 16% more powerful. It's doing these moon missions over the coming years, but the ultimate goal here is to get to Mars. And so this is sort of a test run of this powerful rocket. Essentially, it's a test run of the powerful rocket. It's also the U.S. looking to go back to the moon. this time to stay on the moon, to colonize the moon, commercialize the moon, and basically make potentially the moon a waste station, if you will, for further deep space exploration.

All right, fascinating stuff. Love to watch those things. Oh, so cool. Nothing like it. I'm a little tired, though. I've been up since 1 a.m. Watching. Oh, yeah, covering it.

Oh, my gosh. Wow. All right, we got three stocks, three moves, three trades, three stock launches next. We'll be right back. All right, we're trading three of today's movers in today's three. stock lunch. Carnival shares lower after the company announced it would offer a billion in convertible debt. Micron says it's cutting chip production as demand falters. Amazon starting to do some cost cutting with layoffs in its devices and services unit. Let's trade these three names with our friend

Lee Munson. He's the president and CIO of portfolio wealth advisors. Let's start, shall we, Lee, with Carnival. What do you see there? I see this as sort of a religious stock because it's the proxy for hope, hope that it's all going to be okay in the future. This company had one the largest secondary offerings in equity this summer at over a billion dollars and everybody else wants to buy back stock. Now they're issuing another billion in debt, convertible or not. This is not good. Why do they have to do this now? Because things are not getting back. Remember, this stock is diluted. 86% since the beginning of this pandemic. So every share you have is a much smaller claim on future earnings that I'm not.

scene. So if you are smart enough to do the hope trade earlier in October, you've made a ton of money on this stock. Let me give you a tip. Trade it because it doesn't have a bright future. All right. Up next. Okay. Some strong words right there. Micron. Oh, God, this chart looks like Carnival as well. So here's a problem with Micron. They make a lot of this thing called dram memory, which is sort of, you know, it's kind of like dramamine. It puts you to sleep. They put it in computers, just as Intel how that market's been going in the last 20 years. And so they're really making commodities. Samsung's having the same problem. All the big players selling drummer have the same problem. And so the idea is that, oh, they're going to slow down cut production by 20%.

And then the thought is next year when things get all better, they're going to be able to raise prices. I don't think that's going to happen. They can't slow it down as much as you think. If you want to lay up on micron, you wait until you can buy it at 0.7.8 of book value. Right now, point three. So again, if you bought it a month ago, why don't you trade it? Wait for a lower price when it's a layup. All right. Let's move on to the last and I guess biggest name in this bunch. That would be Amazon. Oh my God, I think it's okay to buy. Yes, Lee Munson said it's okay to buy Amazon today. I've owned this stock for a long time and I've got clients who like to own a little bit of it. I love the layoffs. I'm not talking about the human damage, but we know

that's coming. But here's what the other things that people don't realize, they close down this like telehealth. They're the closing down these unprofitable stores, which I never understood. They're not going to build as many warehouses as they said. And they're shutting down weird things like robots to deliver things. So I love all the other stuff that's not getting the headlines on what they're cutting because we know that a year from now, all these cuts that they're doing, they're going to hit the bottom line in the form of more profits. So if you want to own a great company at an okay, reasonable price, here's your shot. What's okay? And reasonable price when a forward P.E. is 86, Lee. Oh, well, let's not get into that because

Amazon doesn't like to pay taxes. So you have to remember, they're always going to take all those earnings that they make and they're going to reinvest into the future. And I think that that's the one thing that's hard for value investors like me to get our minds around in Amazon. All right, Lee, thank you very much. We'll see you soon. Lee Munson. Thank you. Up next, Elon Musk defends the payout that made him one of the richest men in the world. or Power Lunch next. All right, welcome back to Power Lunch, everybody. Here are a few stories catching our attention this hour.

Elon Musk testifying in Delaware's business law court today over his 2018 Tesla compensation package. It was worth about $52 billion at the time, or at recent share prices, I should say, the plaintiff, a Tesla shareholder alleging that Musk had undue influence over the board, who allegedly failed to disclose information about the package to share. shareholders. Musk arguing that he didn't dictate the terms of the compensation and was instead focused on running the company. Always full of surprises. The world's wealthiest man also said he plans to name a new CEO of Twitter to take his place. He does have a full plate, Morgan. He has a full plate. I also just note that in terms of some of those compensation packages

we've seen to Musk over the years, I mean, they've been somewhat outrageous. And it really speaks to, I think, his ability to execute and operate at times when he puts his mind to it in different companies to do what a lot of people think can't be done. What's sort of poetic justice? The copy say it was $52 billion was the payout? What did he spend on Twitter? 44 billion? So a lot of that payout has been spent, I suppose you would say. That is a very good point. All right. Good to be with you. It was great to be with you. Good to see it. Right. Thanks for watching Power Lunch, everybody. What a busy day it's been. Thank you.