Power Lunch - The Drive To 5, The Bear Out There 10/19/23

Episode Date: October 19, 2023

The 10-year yield is rapidly approaching 5%, as Fed Chair Powell’s comments today sent bonds on a wild ride. We’ll tell you all you need to know.Plus, Tesla is tumbling following results and comments from Elon Musk, and several analysts are cutting their price targets. We’ll talk to one of the biggest bears on the street. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good day, everyone, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Coming up, the unyielding rise in yields and interest rates. 5% now on the 10-year could happen any minute. Got this close earlier today. Fed Chair Powell's comments at first seen as doveish, then hawkish, sending bond yields on a wild ride. Plus, Tesla tumbles following results yesterday. Comments from Elon Musk, several analysts now cutting their price targets. We'll talk to one of the biggest bears on the Street, Kelly. Indeed, we will. Tyler, let's get a check on the markets. Dow's been fluctuating all over the place, currently down 38. We're down across the board on the major averages now, but only by a bit. A quarter point for the S&P 4305, the NASDAX down a quarter percent. Rick Santelli

earlier saying maybe it's because the two-year yield has backed off since we've heard from Chair Powell. That's maybe given some room for stocks to initially turn higher, although they've given up those gains now. And the long end might be the culprit for that. The yield on the tenure, like Tyler said, you can see that spike right around 1 p.m. Eastern, it almost touched 5%. Literally 4,000th of a point shy. 4-966 is the latest. Elsewhere, Netflix shares, they're like, hey, yields, what yields? We're up 15% on results, higher prices, password crackdown. That seems to have put the company back on a growth trajectory. The shares are up 16 and a half percent. We'll get more coming up in three-stock lunch. Already comments from Fed Chair, pal, confusing the markets just a bit.

Steve Leasman joins us now to untangle it. What's your takeaway, sir? I think he offered a largely neutral speech on the outlook for rates that suggests that, pardon me, the Fed could be on hold for a while. But he warned that if ultimately the economy doesn't slow, the Fed could yet push rates higher. We see policy working through its usual channels. It may just be that rates haven't been high enough for long enough. And again, it's all happening in a context of.

of very strong demand. Powell twice said the Fed was still seeking the sufficiently restrictive funds rate, a sign that he is at least not sure if the Fed has done enough yet, but the Fed also acknowledged there were risks on both sides of the Fed doing both too much or too little, and there was a dove-as side to his statement and to the interview. He said that the following forces could yet keep the Fed at bay. There are considerable monetary policy lags. He said that there are high bond yields out there and geopolitical tensions as well.

His main point on the direction of policy, not that exciting. Simply the Fed would proceed, quote, carefully watching the data and the outlook and the balance of risk. So ultimately, the market took the Fed as more dollars with probabilities for another rate hike actually falling. You can see here that were below 5% on the November hike, below 30% on December, and not much even higher for January, where that number had been as high as 50%. Whether power was dovish will depend on, hey, how the data break. If the economy doesn't cool and inflation doesn't come down, the Fed could be back in the hiking game. But Powell made clear he was going to give you at least a couple months here to let the economy and the outlook sort itself out. Kelly? Wow. Steve, stay with us as we talk more about the surging bond yields that we've seen today and in recent weeks.

The 10-year treasury reaching 4.9% for the first time since 07, almost 5. Putting pressure on stocks, let's bring in Brian Jacobson, Chief Economist with Annex Wealth Management. Brian, welcome to you. Is this move and yields fundamentally justified? Well, you know, I think it is, especially if you consider that one of the big fundamental forces in the bond market, the Fed, is continuing to do quantitative tightening. And so, you know, they're not in there being that price insensitive buyer. Foreign demand has also diminished, so households have sort of had to step in. So looking at it through that lens more as far as the fundamental forces based on just issuance and the flows, then I think that the move is somewhat justified. but I also think that it makes it that much more attractive if you can hold these bonds to maturity.

And I think that's one of the big challenges. Oftentimes investors, we have to get access to bonds through mutual funds and ETFs, and you have to deal with the mark to market. So to the extent that you can maybe hold some of these in individual fixed income portfolios, it can make the ride a little bit more tolerable. Right, exactly. I guess the reason I ask is because we're all trying to figure out if this is a good rise in yields on stronger economic fundamentals

or a bad rise and yields by kind of this unabated Treasury supply that seems to be overwhelming markets. I do think that it is that supply coming from the Treasury as far as that surge in supply, which now that that's maybe more visible. And we also have perhaps a Congress that isn't going to continue to blow out the deficit, at least for the next year or so. So if you've got some gridlock, maybe some of those deficit or those spending cuts as part of the debt ceiling lifting agreement can come into play. Maybe that could do something as far as a surprise to the downside in terms of some of the supply out there. So our investment committee here at Annex, thankfully a lot of them were tempering my enthusiasm about adding to bonds when we got to 4.5%.

I kind of wanted to go all in and thankfully, you know, their clearer minds and better thinking prevailed and kept us at bay. But now that we're getting closer to 5%, it does look a lot more attractive for the longer term. Well, next time we'll invite those other guys on. I get that. They don't have as nice of a tie as I do. No, no, or the view that you do, clearly. Let me ask you this, though.

For most of the past couple of years or during this rate hiking cycle, investors have been paid to stay very short duration. Are we getting to the point now? Maybe we're two months away. Maybe we're six months away from the point at which it will make sense. to go out duration and lock in those longer-term yields if you can hang on to maturity, or even if you can't, because if rates start to fall, you would then be able to sell at a capital gain.

Yeah, that's really the key question here. And it's really what distinguishes this increase in rates from the previous ones that we've seen, say, post-GFC is just how high that short end has moved already, that there's not a huge incentive to lock in those longer-term rates yet. All you're getting is duration risk, but you do want to lock those in at some point. Now, my take is that the Fed is probably going to be slow to react to a slowing economy. And as a result, let's say that by September of next year, or maybe June, they will consider starting to cut. And then really, it's around that time that maybe it makes more sense to start locking in those longer-term rates. Now, of course, the market

is going to try to move before that. But Chair Powell, I don't think he has, you know, we talk about hawks and doves. Sometimes it comes across more as like a dodo bird, I think, instead. I'm not sure there's like this clear, consistent messaging or this like worldview about how they should conduct monetary policy that'll keep investors guessing until probably the middle of next year. Steve, I thought it was kind of interesting. I believe it was Powell who was saying that effectively, if it were not for the amount of fiscal stimulus that is still working its way, through the economy, maybe interest rates wouldn't have had to go as high as they have. I think you heard correctly. I think that there's, they're starting to nudge you a little bit,

or nudge, I guess, is another term you might use about the fiscal deficit situation. They had previously really not said anything, and now they're starting to talk about the unsustainability of the deficit. They don't want to talk about current spending issues or current decisions being made, or I guess not being made in Congress at the moment, they don't want to get involved in that. That was a troubling era or period for the Federal Reserve going back to when Greenspan talked about the need for tax cuts back in 2000 and other comments that I've been made. But I think they are trying to put the fiscal authority on notice that this is a problem, this is an issue that they're going to have to deal with. And there's a thing that's called

fiscal dominance when you talk about monetary policy. And that's when what's happening on the fiscal side dominates the monetary policy authority. We are not there, but who knows what happens, Tyler, when the amount of we spend on interest becomes a bigger and bigger portion of the budget. Will there be pressure from the political side to the Fed to lower interest rates? That would be fiscal dominance. Yeah. Interesting. Steve Leasman, thanks very much. Brian, Jacobson, thank you as well. We appreciate your time. Steve, we'll be speaking with Atlanta Fed President Rafael Bostick tomorrow morning, 7.30 a.m. on Squackbox, we look forward to that, and we'll see what the market responses.

And now let's get the take on the traders, traders' take on today's action from Rick Santelli in Chicago. Rick. You know, fiscal dominance. I like that Steve brought that up. That is a phrase I hear 10 times a day lately. And what I hear it used most is the way. Mr. Powell should potentially address the notion that the Fed is off sides when they go into the fiscal realm. Fiscal dominance. The word dominance means, Chair Powell, you need to pay very close attention. Dominance is a significant word. Just like the move in twos and tens, and the twos tend to spread.

If you look at intraday of twos, then look at the two day of twos. You can clearly see what's going on in the short end. There's a lot different than what's going on on the long end. Look at tens. Tens versus yesterday, well, their yield is going to challenge 5% and probably get even closer to it as the session wears on. That Tuesday 10 spread hasn't been at minus 21 since September of last year. Let's call it 13 months. Let's go find a trader. Hey, Paul. Okay. So let me grab the microphone here. We've seen a lot of action today in the form of volatility.

I see what interest rates are doing. What do you see in volatility? and equities. Well, it's kind of been a microcosm today of what we've seen the last few months. We've had a bunch of big moves up and down and we end up in the same place. Volatility is definitely higher than you would expect at this future level if you were just looking

at the two charted against each other. That's what we're seeing. Would I be wrong? There's plenty of investors watching saying, okay, Paul just said we're going no place quick. Isn't that normally a period where volatility starts to level off, but it keeps climbing? Yeah, because we've been moving. There's definitely been moves. They just always, they've been reversing both directions.

I got you. Now, when it comes to interest rates, I look at what's going on and I see that many believe that the Fed's key issue is whether they can remain in control, because it certainly seems the long-dated issues are doing the job of trying to address how much it costs and will cost to service to debt. How will that affect the way you may approach the equity complex and the relationship between bond portfolios and equities? That's the interplay we're seeing right now and talking today. Chairman Powell was trying to thread the needle a little bit, mentioning what you just said, but then also acknowledging that they might have to do something in the future. And he's trying to probably buy himself some time and see what happens. If rising interest rates are going to be a killer for equities, do you think that the fear is going to be more about what the Fed does

or more about what the market long end is doing your final thoughts? Well, the rates are up a lot in the last 18 months, Rick, and they haven't tanked the equities yet, so I don't know if I would agree with that premise that the rates are going to kill the equities. And you know what? That's a great place to leave it, because, folks, I can't tell you how many traders I run into who think that the equities could,

survive even a semi-messy landy. Tyler Kelly, back to you. All right, Rick, thank you, and thank you to the trader guest. And coming up, Tesla shares, down 9% after reporting results. Coming up, we're going to talk to one of the biggest bears on the street. His price target is still $100. That would be a cut in half from here. Meantime, shares of AT&T up 7% following its results. Lily will be very happy, saying the results of the release of the new iPhone encourage more people to upgrade. Genuine parts, having its biggest drop since March of 2020, sales fell short of analyst estimates. That's your power check, folks.

We'll be right back with much more. Welcome back. Tesla shares sliding more than 7% after missing on the top and bottom line yesterday. Elon Musk shared his concerns about high rates hitting the consumer, and it was music to the ears of our next guest, who says it broadly supports his bare thesis. Joining us now is John Joyce. he, uh, Guggenheim securities expert. He's got a sell on Tesla and a price target of more than $100 below the street average. John, welcome. Good to have you with us. Um, it sounded not only was Elon Musk concerned about, um, interest rates and that, but he was very concerned about affordability

of his cars and losing market share as a result of their priciness. Yeah. No, it's, it's a very real problem, uh, globally. I think if you, think about interest rates and the price point of Tesla vehicles, the average payment on a Tesla vehicle right now is north of $800 a month on a Model Y. And the percentage of U.S. households that can afford a payment like that, there was a good study by Cox Automotive that suggests something in the 10 to 15 percent of U.S. households actually have enough income to afford that, and that's just based on the ability to afford a monthly payment, let alone the actual cash balances and things like that. Yeah, and I agree the idea. I think more people buy the payment than by the

price of the car, of course, to or inextricably linked. However, so what, he's in this box. How does he get out of it? Well, I think the business is actually doing quite well for a cyclical automotive business where it is. It's really the valuation of the company that's kind of disconnected from the product they sell. Coming into the print, there were kind of three tenants to the the bull thesis at Tesla. The first one was pricing and margin stabilization. I don't think we got that this quarter. I think it's pretty clear that the direction for pricing and margins remains negative. The product cycle, people were bullish ahead of the cyber truck and the Model 3 refresh. The cyber truck discussion on the conference call was pretty sobering. I think they largely indicated that

it would be a dilutive product, at least for the next 18 months. And the Model 3 refresh, we've highlighted to clients that it's not a perfect metric, but customer deposits fell quite a bit quarter over quarter. We would have expected that to increase if they were building backlog of product. And then full self-driving, we didn't get the tangible updates that Bulls were looking for related to FSD licensing and really kind of these longer-term bull narratives. So strike one, strike two, strike three here. Exactly. I think that's a fair characterization. Ron, your price target is $125.

Do we know what proportion of Tesla shares are retail versus institutional ownership here in the sense that this often has been a cult stock where it's more about the personality of Musk and it reminds me of crypto a little bit. You know, who's got diamond hands and who doesn't here? Yeah, we don't know the split. We do know that on any given day and the average day, Tesla is the number one traded retail stock by an order of magnitude of four to five times. But in terms of the actual ownership, Tesla's float turns over far more than the average stock. So it's really difficult to know. Right. I guess my question would be how much of the share price is fundamental and how much reflects, you know,

just enthusiasm about everything that Musk himself has achieved or what Tesla may achieve over the next five or ten years. You know, in other words, does that depend on different factors than just, you know, kind of going through the balance sheet? Yeah, it's a great question. I think we, our price target, 125, has a very good handle on the auto, the energy, and even full self-driving as it currently exists and charging as well. What we don't give credit for because we think it's far too difficult to have confidence in is things like robotaxies, humanoid robots, things like that. So whether that's retail or something else, we think there is about $100 of kind of not currently existing. businesses getting credit for Tesla. How big?

You can call the Elon premium. That's fair. I think he's earned the right to have it be called the Elon premium. I think that that's fair. How big a contributor eventually to revenue might the fact that so many other manufacturers are now adapting to the Tesla standard charger and then to their ability to build out the charging networks that are going to be needed, presuming people buy into. to electric cars. How much is that going to help?

Yeah, we have the charging business at Tesla, including all of the NACS partnerships worth about $10 per share. That basis for that is a 2035 scenario based on the global EV car park, but primarily U.S., where they've become the standard. We think it can add about 50 cents a share earnings in 2035. So not insignificant, but not. But that's a long way away, man. Well, yeah, you think the amount of new vehicle purchases, their electric vehicles are still in the high single digits in the U.S. They're about 7 to 8%. It takes a long time for the percentage of the total car population to become electric vehicles. Yeah.

So that's why we went out to 2035. Yeah, no. And all right, so 50 cents in 2035, that's what probably equal to about a nickel now. I don't know. It's actually about $2 billion. It's quite significant of earnings. It's just that Tesla's a $800 billion company. Ron, I guess just finally or quickly or what have you.

I mean, Musk did make some interesting comments on the call about basically high interest rates weeding out the strong from the week. And do you think that they will be a death knell for some of the EV startups and competitors and even to some extent a major headwin for the big three in their ambitions to compete? Yeah, I think in the U.S., Tesla's cost leadership is pretty well. established. So I think it's a fair commentary from Elon that a lot of the legacy manufacturers will struggle to compete on cost. I think there are compelling products coming out of Hyundai, Kia, and other legacy manufacturers. But the real competition for Tesla today is in China,

whether it's B-Y-D, G-A-C-A-on, a handful of other manufacturers. And the question then becomes if that technology or those brands can come to the U.S. ultimately. Oh, a thousand percent. Absolutely. All right, Ron, thanks for your time today. We appreciate it. Thanks for having me. Ron Yessico. Coming up, Sky High Valuations. Open AI reportedly in talks to sell shares at an $86 billion valuation. We'll get the details when Power Lunch returns. Welcome back. It's not a public offering, but Open AI is looking to sell shares at a pretty high valuation. Let's get to Deirdreboza out in San Francisco for the numbers. Deirdreau. Kelly, it actually delays a public offering. So this potential $86 billion valuation also makes

OpenAI, one of the most richly valued startups on Earth, behind only TikTok, parent, bite dance, and Elon Musk's SpaceX. Open AI, though, offers a new twist on the startup structure, which is worth noting. It is a capped profit limited partnership governed by a nonprofit board. That means that profits in excess of a hundred times return will be passed on to an overarching nonprofit company, which will disperse profits after that as it sees fit. Now, put another way, six individuals, the board, has continued. control of Open AI's ultimate profitability. Three of them are from the startup's founding team,

and three are tech entrepreneurs working elsewhere in AI, their researchers. Anthropic, that is the other generative AI darling that's reportedly raising money at a higher valuation. Also has some similar quirks in its structure. An independent five-person committee can hire and fire the company's board. Now, in the way that other tech founders like Snap and Facebook held on to their control past IPOs, the biggest AI companies, they're now ensuring that they can hold on to control much earlier on in the startup's life cycles. Their justification, though, it's different here, guys. It's moral. They say that their fiduciary duty is not to its shareholders. It is, and I quote from the Open AI charter, their duty is to humanity. So these unorthodox structures,

they have done nothing, however, to deter investor interest. Our tech tech team did a deep dive into these valuations, putting them in context and against evaluations of the largest public AI players, NVIDIA and Google. That's at cnbc.com slash tc weekly. Kelly, these structures highly unusual. Interesting, all in the name of humanity. So clearly generative AI is doing things in a different way. That tells me they haven't yet reached, you know, for me, listen, this is like Google and two, don't be evil, evil in like 2005, whatever that was. You know, give it some time. Exactly. Give it some time. Maybe exactly. It's going to still benefit from getting it at this evaluation. Deirdre, we appreciate it very much. Deirdre Bosa. Two cheers for humanity. All right,

let's get over to Contessa Brewer now for an CNBC news update. Hey, Contessa. Hi there, Tyler. The State Department is urging Americans to use caution when traveling abroad. It issued a worldwide caution advisory today, warning of increased tensions as the United States supports Israel in its war with Hamas. The State Department says there's a greater potential for terror attacks, demonstrations, or violence against Americans. An American journalists with dual Russian citizenship has been detained in Russia. Her employer, the U.S. funded Radio Free Europe slash Radio Liberty, says Al-S. Kormacéva was taken into custody because she did not register as a foreign agent while visiting for a family emergency. She's the second U.S.

journalist to be detained since the start of the Ukraine war. Wall Street Journal reporter Evan Gerskovich remains in Russian detention since his arrest for espionage in March. And federal meteorologists think it's unlikely we'll have a white Christmas this year because of warm and wet El Nino weather. The National Oceanic and the Atmospheric Administration, NOAA, predicts a large part of the country, including New England and the Pacific Northwest. We'll see above average temperatures for November to January. So, Tyler, I'm thinking if it's going to be warm anyway, we might as well book our Caribbean cruise. Yeah, let's do that. Right?

Not you and me together. I mean, I'm going to take the kiss. I got what you meant. Thanks a lot. All right. ahead on Power Lunch. Crude reality. Oil prices turning higher as the war in Gaza could have far-reaching implications for the global supply. We will discuss that and more after this quick break. All right, welcome back to Power Launch, everybody. Oil prices slightly higher today, but up 6% in a week.

You know who knows all about this, this pipa Steed? Back from Virginia Beach. Yes, I know. How this cool shot you had about there? Oh, thank you very much. I did not seem as tall as it was. I know, you know, really kind of raining on my parade. You should have said it. It wasn't like 600 feet, but, you know. Well, let me tell you, it was taller than I was, and that's how I measure height. But, yeah, so today, oil is back in focus.

It did reverse earlier losses while Chair Powell was speaking. But, of course, this week it's all about the easing of the sanctions on Venezuelan oil. So last night, the Treasury Department issued a six-month easement on those sanctions in exchange for Venezuela holding fair and free elections next. year. So prior to this round of sanctions that were implemented by Trump in 2019, Venezuela was producing almost 3 million barrels per day and exporting about half a million barrels per day to the U.S. Our Gulf Coast refiners are set up to process their heavy, sour crude. But then the sanctions had a big impact on their output last month was 800,000 barrels per day. So this is one of the

options the U.S. has to turn to, especially if we're going to crack down on Iranian output and Iranian exports, Venezuela starts looking relatively better. That said, analysts aren't all that optimistic for a few reasons. The first is that there's been so much underinvestment in the country. You can't just ramp up. Also, there's a six-month easement on sanctions. And so there's no clarity beyond that because it's dependent on Venezuela holding those fair and free elections. I also heard they have a lot of net gas.

And maybe that could be something else. They'd love to get in there on the European market. But again, we have to tread so carefully here. It's, you know, this is a tough one. Yeah. And also with ESG in focus, you know, if you're an oil and gas, producer, company, this is not exactly the market you, you know, you don't really want to be in this market. Chevron, of course, has been producing there, but they're the last major U.S.

company to actually have a presence in Venezuela. Wow, for now. Pippa, thanks. We appreciate it. Pippa Stevens. Let's drill down, shall we, on a big mover in the energy space. Now Liberty Energy shares are up 6.5% today to a new 52-week high. They just posted strong third quarter results after the bell yesterday.

The company also hiking its quarterly dividend by 40%. starting in the fourth quarter. Here with more on that, plus oil outlook as tensions rise in the Middle East is Chris Wright. He's the chairman and CEO of Liberty Energy, the second largest fracker in North America. Chris, welcome back. It's good to see you. Great to see it, Kelly. Did I get that right? You just hiked the dividend by 40 percent? Is that variable or that's fixed? No, that's our fixed dividend. We've grown the earnings power of our shares dramatically over the last two or three years, and so we reset the dividend 40 percent higher. Wow. So talk to us a little bit about about how sustain, you know, the entire energy space right now has investors who absolutely love it,

and then some tourists who get frustrated by its volatility. So just kind of walk us through the fundamentals that you see for the next couple of years. Yeah, like the last 10 years has been highly volatile for our industry, from macro conditions and too much overinvestment, too much erratic behavior. I think our industry is consolidated to fewer companies, a little more disciplined behavior, relatively tight supply and demand in the global scale for oil and natural gas. So business outlook, I think, is pretty solid. I think we're going to see still, of course, it's still a cyclical commodity, but I think we'll see more stable behavior in the next few years than we've seen in the last few. And yeah, outlook for Liberty's business is quite strong.

How do you see the war in Israel, between Israel and Hamas, affecting the supply issues, affecting the supply and demand balance. Well, Tyler, so far no impact on global flows of oil from the war. There has been a small downturn in global flows of natural gas. A tomorrow gas field offshore Israel has been shut. Just that smaller field being shut and some sabotage in the Baltic Sea at a natural gas pipeline have already popped natural gas prices in Europe about 20%. They were already in a fragile situation to begin with.

So so far it hasn't moved oil markets except a little bit of that fear premium. Maybe oil's five or eight dollars higher than it would be otherwise. The fear is does Iran get more directly involved in the conflict? That would be a game changer. Because that would mean stiff, stiff sanctions on Iranian production, even more than we have today. Absolutely. And of course, what we've had today is we've sort of looked the other way the last nine months. And Iranian exports have grown a lot.

And, but yeah, if Iran is directly involved and there's a curtailment of the flow of oil from Iran, yeah, oil is certainly well over $100 a barrel. How would you, I'm not familiar enough, maybe you can tell me where your production comes from, what parts of the country you operate in, how would you characterize domestic energy supplies? High, low, middle, what? Yeah, so, well, right now, U.S. oil and gas production, all-time highs. Both are at all-time highs. But there's disciplined investing. We're not growing oil production as fast as the country could grow oil production. And my company, we help other companies produce oil. So we frack nearly 20% of all the wells drilled in the U.S. and Canada.

So, you know, we work from Northeast British Columbia down to the Mexican border. So we're in all the basins, and we work with basically all the company names you know. And the public companies are disciplined and careful in their approach, flat to very modestly growing production. And they don't change their plans very quickly, at least not anymore. Private companies are different, Tyler. If oil prices spike up, they'll increase their activity. You'll see a response in American production, mostly from the privates to a sudden big rise in prices. Chris, thank you so much.

Hope we can count on you coming back again sometime soon. Thanks, Tyler. My pleasure. Chris Wright, Liberty. Thank you. Some of America's biggest banks have been quietly laying off workers all year long with some of the deepest cuts yet to come. We will get details of all of this when Power Lunch returns. Big banks kicking off earnings season, and though the results were mostly strong, there is some underlying weakness, perhaps, and our Houston reports today that big banks have been quietly cutting jobs and more layoffs could be coming. Hugh is here now in the studio. Who's doing it and why?

Hey, Tyler, great to be with you. So the headline here is that any bank not led by Jamie Diamond has been cutting jobs this year. If you look at the Big Six banks who've all reported, well, Wells Fargo is the biggest sort of perpetrator here. They've cut about 11,000 jobs or about 5% of their workforce just this year alone. And you look at another one, and that's, you know, apart from Wells Fargo, there's also Goldman Sachs. And both of these institutions have had these, you know, businesses that are hit into the wall of high interest rates, whether it's, you know, advisory or trading on the hand of Goldman Sachs or with Wells Fargo, they have, they had a huge mortgage business, which obviously is sputtered to a. standstill. And so these are the, you know, the little stories within the larger story. And the larger story is that if you look at these five banks, they've cut about 20,000 jobs

so far this year. Why has J.P. Morgan not chosen to go that route? What's different about, apart from J.B. D. I mean, it's, he's a lot of it. So they are in a category of one here. They're still growing. They picked up First Republic. That added 5,000 jobs. And I thought that would be much of it. But really, that was just the third of the 15,000 jobs they picked up. So they're growing. their net interest income, they've growing their deposits, they're growing their revenue, and they're still, you know, they're actually growing their branch network as well. So, you know, apart from that and the tech investments, they really are firing in all cylinders right now.

I may be catching you off guard here, but of course earlier this year, UBS took over credit Swiss. What's happened there, do you know? Yeah, massive, massive consolidations, right? So when you combine two huge global investment banks, they do a lot of the same thing. So unsurprisingly, you're going to see high, high double-digit job cuts, and they're enacting on those cuts to make the whole thing work. What about the mid-size or the regional banks? Are they doing the same thing? Yeah, I mean, so they're about to report.

So we're actually still seeing those figures come out, whereas the big six they're reported, and that's why we have those numbers. I would suspect that their employment levels are going to edge down. And the analyst I spoke to have this thesis, which is, you know, credit has been really good. You're going to see corporate and consumer loans start to fail next year. When they do, you're going to see folks have to rein in the expenses. And the one way they could do that is to cut jobs. It all takes me back to a couple of years ago, that famous miss that JPM had when it was on higher expenses.

And I think it was kind of like peak inflation, peak salary pressure and that kind of thing. And we're just in such a different environment today. And it shouldn't be missed. I mean, it does tell you there's been something very different taking place in the economy from whatever that was 18 months ago until today. I think that's all valid. And the fact that, you know, one of the things that surprised me about this story is, you know, everybody from Gorman to Diamond to other folks have said the reason why that they're having to cut jobs now is that people aren't moving. Attrition is unusually low. So you remember a couple of years ago, people were getting Pelican bikes.

Right. They were getting bonuses and huge raises, two, three raises in a single year just to stay put. And now that, you know, the environment's different. You know, these bankers, they're risk-averse. They're staying in their seats. And that tells you something. If these guys are staying in their seats, what are they concerned about coming down the pipe? Absolutely.

Great point. Yeah, they're staying in the seat. They're not selling their houses. No. They're stuck. Are they using the Peloton bikes, though? I don't know. They're coat racks now.

Yeah, exactly. Hugh, thanks. Peace on. Let's get to Netflix. Shares are soaring on that surprise subscriber growth in Q3. We will trade it and other movers of the day in three stock lunch next. Look at those shares up 16%. Welcome back, everybody.

shares of Netflix higher on the back of better than expected third quarter results. Very much better. Julia Borson has the key numbers fueling those results. Hi, Julia. Tyler, look at Netflix's stock chart. That stock surging 16% today. And that's thanks to much better than expected subscriber growth of 8.8 million new subscribers in the quarter. That's driven by Netflix's successful crackdown on password sharing, converting what they call borrower house. households into paying members. The company saying they expect this trend to continue to boost additions for the next several quarters. Morgan Stanley raising its estimates and price target on the stock and upgrading it to overweight, noting that some of the froth in the stock and expectations

have come out saying, quote, we believe Netflix will deliver the objectives set out a year ago, accelerate revenue growth back to double digits, and expand margins. Now, Kelly Tyler, Netflix showing its confidence in demand for the service by boosting some of its prices, also showing its interest in driving subscribers to its ad-supported tier, by keeping that price the lowest and the same. Back to you. Oh, exactly. We were talking about that yesterday, Julia, thanks. And speaking of Netflix, it's time for today's three-stock lunch. Here with our technical take on the stocks today, we welcome Katie Stockton, founder and managing partner at Fairlead Strategies, also with CNBC contributor. Katie, great to have.

you. What do you do with Netflix now? Well, I'm a buyer of Netflix. It has gapped up through its 50-day moving average in response to earnings, and that followed a pretty sharp corrective phase. People always tell us to buy into weakness, and yet it's very, very hard to do. It would have been the right thing to do with Netflix. It did flash some countertrend signals into the downdraft. And now we have these oversold upturns, which I find pretty compelling, both on the daily and also the weekly charts of Netflix. So within the context of the long-term uptrend, I think we probably have an intermediate term entry here. The initial resistance is roughly 440, but perhaps they can get back up to at least this year's highs. Very interesting. All right, let's move on to another one,

sort of in a similar sort of category. Shares a Best Buy slightly higher, Goldman Sachs upgrading it from neutral to buy, highlighting the potential for an upswing in demand, driving to the upside. So you go home, you get your new Best Buy TV, and you watch your Netflix. What do you think of Best Buy? You know, I think a long-term neutral bias is probably still appropriate for Best Buy. It is in a trading range. Within that context, I understand the upgrade. It did get quite oversold and now is reacting to that oversold condition. It doesn't share in any kind of breakout, but it has reacted positively, and it did happen near a support level. So there is at least some room for Best Buy for near-term upside.

through within the context of that long-term range. The 200-day moving average, I believe, is around 77, and it seems like a reasonable upside objective. All right, so maybe $8 or so. I haven't talked about Best Buy in a while. What about AT&T? It's actually hired today after posting a third-quarter earnings beat. They had some better subscriber growth. They lifted their free cash flow target, and we know all the telecos have just been in a really tough place earlier this year. Right. Well, we've gone from a long-term uptrend in Netflix to now a long-term down. trend in AT&T. The gap higher today, it is a promising short-term development. It's not really a major breakout on the chart, but it does, of course, show that there is some renewed momentum

behind it after the consolidation phase. It had already shown a loss of intermediate term downside momentum, and it's got some room to the first major resistance, which is above about 16 and a half. So if we can consider this a countertrend move in there and also a little bit higher risk, I think we can feel comfortable that we'll see momentum continue to improve, but really just in the near term as well here. All right. Sorry AT&T for now. Katie, thanks so much. We appreciate it. Of course. And we will be right back. Welcome back. Fast fashion retailer Sheehan is considering an IPO after a meteoric rise lately, but there are a lot of issues facing the company. CNBC.com retail reporter Gabrielle Fon Rouge has that story. And now we have to think of them and team who has big Amazon competitors here.

Absolutely. They really are big Amazon competitors. And it's important to note Sheehan, of course, denies that they're considering an IPO. But we do know this is part of their long-term strategy to cap off that meteororic growth with a market debut. But they have a lot of hurdles that they need to overcome first. Lawmakers are really concerned about their ties to China, as well as forced labor from the Uighur population and their supply chain. They're under investigation right now with Congress for that, exactly. Oh, wow. Now, are they talking about a New York IPO, or would this be a Hong Kong list? What the suspicions are, the rumors are, is a U.S. opening, which is why these hurdles are so crucial to overcome. Lawmakers right now are really skeptical of companies founded in China. Sheehan, I assume, denies that they use forced labor. Of course. But they actually have acknowledged that cotton from the Xinjiang region, where the weaker population is primarily exploited, has been found in their cotton. In about 2.1 percent of cotton samples, you find the Jingjiang cotton in Xi'in's clothes.

And that's compared to about 13% across the entire fashion industry. So this is actually a problem for all of fashion. Wait, is they have less exposure potentially to this problematic cotton than the rest of the industry? Yes. That's shocking. Okay, the other thing that I think people are trying to sort out is are they using some kind of loophole there with cheaper, if it's Schengen from these difficult regions, or is it that they have a better mouse trap? So one of the arguments that they and TEMU make, I believe, is that their inventory management systems are better. they hold less inventory, they can turn, I mean, so that it's, they're competing on those terms.

Yeah, so Sheehan is absolutely competing on those terms, and they're very quick to point out that we don't offer cheap clothes because of tariff law loopholes or anything like that. Our business model is strong enough for us to be able to do that. But that's where Congress's scrutiny is really beginning. Because of this tariff law loophole, Cheyenne ships its products directly to consumers from its Chinese suppliers. So if those packages are valued under $800, they're not going to be subject to the same U.S. custom screenings that other retailers are. So that's how they're concerned that, you know, potentially these clothes were made with Uigh or Force Labor, and they're not being found out because of that. What about IP concerns, intellectual property?

IP concerns is another big issue for them. In July, they were sued by three designers who alleged that their copyright infringement was so extreme, it could be considered racketeering, which, of course, is something used to take down mob bosses. You know, the company, of course, calls the lawsuit frivolous and that they're going to vigorously defend. But it is a concern, and the executives did note to me that, yes, mistakes do happen. When you're making 60,000 new skews a month, which is enormous. But of course, these are small batch, just like you said. So maybe 100 to 200 of each skew.

Mistakes do happen. They're using tech to identify it. Artists can submit take-down notices if they think that they've been infringed upon, things like that. And have they been criticized for environmental issues as well, in other words, that the clothing ends up in landfills? Yes. Because consumers... Because it's cheap. and it's almost disposable.

When you can buy a shirt for $5, how many times are you going to wear it? So they get a lot of criticism for that, but it is important to point out that they are very different from other retailers when it comes to environmental. Most retailers, they plan to only sell through about 60% of all of the inventory that they buy. Sheehan, because they have an inventory light model, they have far less waste. So they may have less waste on their end, but the concern is how the consumers are using their clothes. That's a great point. Gabrielle Banks continue to follow this for us. Gabrielle Fon-Ru. All right, we've got news now on the House Speaker drama, and Emily Wilkins has it on Capitol Hill. Emily.

Hey, Tyler. Well, House Republicans just spent last four hours discussing whether or not they should empower Speaker Pro Tem, Patrick McHenry, with the ability to pass legislation. And they eventually came out and said, hey, that proposal's dead. It's now in Jim Jordan's hands. He's going to be meeting with some of the holdouts. and then we may or may not get that third vote on Jim Jordan later tonight. But at this point, Congressman Don Bacon told us earlier today that he expects the next time Jordan goes to the floor, but lose 10 more Republicans. And it's just not clear at this point what path Republicans are going to take to actually elect a speaker. Guys? What does he think he can do by way of trying to persuade those 20 who voted against him?

That is a really great question. I mean, there are a number of things that lawmakers have put out there, a number of asks that they have. But at this point, there's not really one thing that Jordan can do. It's just a lot of distrust at this point, a lot of concerns about how this process has unfolded, and it's just not really clear what he can do to win their support in the next hour. All right, Emily, thank you very much. Emily Wilkins following this story in Washington for us. Thanks for watching, Power Lunch, everybody.

As the markets move to session lows, closing bell starts right now.