Power Lunch - The Fed Minutes, the CBO releases its economic projections and a Tesla bull-bear debate. 5/25/22

Episode Date: May 25, 2022

The minutes of the last Fed meeting point to more rate hikes that go further than the market anticipates. Steve Liesman breaks the news. Bob Pisani & Rick Santelli have immediate market reaction and two experts offer instant analysis of what the details could mean for your money. Plus, the CBO Director shares the outlook for inflation and what rising rates mean for the national debt. And, Wall Street is divided over Tesla. Where is the stock headed next? The bull and bear cases on Power Lunch. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and we have breaking news to begin power lunch. The minutes of the last Federal Reserve meeting are out. Let's get right to Steve Leasman in Washington. Steve. Tyler, thanks very much. The minutes show the participants at the Fed meeting in May agreed the Fed should move, quote, expeditiously towards neutral. Most judged a 50 basis point increase likely, quote, appropriate at the next couple of meetings. That meant the meeting they've raised 50 at plus a couple more. And this is the line that stood out for me.

They said a restrictive stance on monetary policy may well become appropriate. That means raising the rate above neutral to try to reduce economic growth. The Fed acknowledged the challenges of fighting inflation and keeping labor markets strong, a polite way of saying that they could not assure, for example, a soft landing. The Fed said, they did say, however, they should assess the risk to the economy later this year from rate hikes. That is sort of embracing this idea that Rafael Bostic has put out lately about getting to be. neutral and then looking around. A number supported selling the mortgage-backed securities after the runoff is well underway, and several saw potential for, quote,

unanticipated effects in financial markets from the runoff of the balance sheet. And there was concern also about treasury market liquidity and the risk in commodity markets, or the risk from commodity markets from higher prices. On inflation, some word that inflation expectations could become unanchored. Many expected a tight labor market and wage to continue for some time. New inflation pressures were seen from China as well as the Ukraine war. Higher wages and input prices were being passed on to the consumer, and inflation risk were skewed to the upside.

Overall, however, there was a positive outlook for GDP growth, both in this quarter and for this year that was seen moderating this year relative to last year. So I think the headline that stood out to me, Tyler, from these minutes here, was this idea that there seems to be widespread support on the committee from what I could read for the idea that it may well be appropriate to raise rates above neutral and create a restrictive policy. Tyler. Steve, stick around. Thank you.

Our Steve Leasman will have more as we get more reaction and analysis from our panel of experts. Lindsay Piazza is here with us. She's the chief economist with Steeple. David Katz is the chief investment officer at Matrix Asset Advisors. Bob Bassani and Rick Santelli are here with us as well. And let's quickly, Rick, start with the market reaction here. It's interesting because the debate that Steve is highlighting about where we're going with Fed policy seems less important to the market right now than how quickly we're trying to get there.

Yes, and how quickly we're trying to get there is a very difficult question because the Fed doesn't know. The Fed talks about neutral. Neutral changes. Almost every Fed meeting, they don't really have a notion of where neutral is. And look how much has changed since the minutes. We're down 7.5% in productivity. We had a nice 428,000 in jobs. Continuing claims continue to drop.

We had a consumer credit jump month over month of over $52 billion, the highest ever since 1905. The dollar was at what? $33,128 before the last meeting where they tightened. Ten year rates were $297. A two-year on the third closed at $278. So I guess what I'm saying is that ultimately they're already taking some away in the futures markets. And I think the reason the Fed is going slow is because they can talk tough and the market ramps up expectations. But now the markets like equities are going down, expectations are going down.

That all gets encompassed in a slow-moving Fed because ultimately they're going to meet what the market truly expects without overreacting. And I think that's their interpretation. Well, let's turn to you, Lindsay Pigs, to get what you think of what Steve reported from the minutes today. surprising revelations there or pretty much what you expected to hear. I think one of the most interesting things in the minutes is the tone surrounding the committee's assessment of the economy and inflation. Now, up into this point, the chairman has been very clear that he expects rates to continue to rise until inflation shows a meaningful retreat because he says the economy is strong

and strong enough to withstand a further backup in rates. But what we're already seeing in the data are cracks in the economy, with slower consumer activity, weaker production numbers. So I would have expected more of a conversation around an acknowledgement of the weakness in the economy and maybe even some rising concerns surrounding the underlying weakness in domestic activity. Let me pause for a second. We're looking in retrospect at the minutes of a meeting that took place on, I believe it was May 4th, are some of the numbers that you refer to. And I'm aware of, you know, Amazon closing or shuttering or pulling back from some warehouses, some suggestions of personnel cuts at other places. Did many of those signals happen post

meeting? I think we've seen a second round of weakness in the data, but even at the time of this meeting, we were already seeing consumer spending slow. We're still in positive territory, or we were still in positive territory during the meeting. But again, it's that momentum that has been waning quite precipitously for quite some time. And the Fed, again, seemingly looking past that to the underlying numbers of the GDP report saying, well, consumers are at least still spending. Businesses investment is still positive and not looking at the potential loss of momentum continuing to exacerbate that weakness that we do expect to be more evident as we move into the second half of the year.

So, David, the Fed seems to say, okay, 50 basis points now, plus 50, plus 50 more as a kind of forecast. But lately, the 10-year bond has been backing. down in yield, that's number one. And number two, the stock market seems to be having a real spasm some days up like right now, but more days than not and many more weeks than not down. Where they're trying to talk a hawkish tone, and hopefully they won't have to do as much as their tone is. The first thing they have to do is sort of break the inflation psychology. If they can do that, then they're going to have a lot more flexibility into the fall and winter.

But we think at the moment, the first priority is to break the inflation, psychology, and hope not to derail the economy along the way. And we think right now they're able to navigate it, but it's complicated. It certainly is complicated. Bob Bassani's stock reaction, looks like we're still seeing some positives. Yeah, we're up about five or six points on the S&P. And I think with good reason, I think people are smart enough to know that this report is stale in an unusual way, because the world is very different than it was when that. meeting was held. Since then, we've had SNAP, we've had Walmart, we've had Target, we've had weak regional PMIs, we've had very disappointing new home sales, shockingly disappointing.

We've had the PMI numbers I mentioned, the regional numbers weak. This is a very different world. So I think the irrelevant phrase here, they'll assess the risk to the economy later this year. They might assess it a little sooner. The market seems to be betting on the idea that there may be a pause that we may not get two more 50 basis points and the third 50 basis point rate hikes, that it may only be that third one may be 25. Just even that, the market, even that idea, the market has calmed down a little bit. We've seen the VIX calm down a little bit. So I think this is a backward-looking report in a way that's very unusual. I think the world is very, very different. I think the market's pinning hopes on the idea that the Fed is accomplishing its goal,

That it is tightening policy just by moving in the right direction at this point. I think the market's reaction is reflecting that. Steve, your reaction to what Bob just said and anything else you want to hit on, particularly the idea that when the Fed next meets on June 15th, about two weeks from today, I guess, maybe it's three, they may be looking at a different kind of economic forecast than they were the last time they met. Yeah, I unfortunately have to disagree with my colleague from Philadelphia with the great

rock and roll posters from the 60s. I just think this is not stale, this idea here that there is this embracing of the committee of an idea of a restrictive stance on monetary policy may well become appropriate. That's new information, I believe, for the market. We know that Powell had said that we may have to go above neutral. It was unclear to me at that point. and it's been unclear since then how much the committee thinks they may have to go, how many members of the committee, how widespread that thought was.

I also think that what we're seeing now is not a different world from the one in May. I think it's the world the Fed is expected. And really we have to have a conversation here. And this is, you know, Bob has a different opinion than I do, which is perfectly reasonable, I think the idea that, well, is this worse than we expected? Or is this what we and the Federal Reserve should have expected? This kind of step down or expected softening out there. I think what's happening now in the economy is what the Fed needs to happen in the economy in order for inflation to come down.

So I don't think that this dramatically changes the outlook for the Fed. Now, what has happened is a couple things. The idea of the 50 basis point rate hike in September has come off. You've also come off the Fed Fund's outlook in terms of next year and how high the Fed goes. Those things have softened. the near term race to neutral, whatever that is, two and a half, two and a quarter, I don't think that's changed at all. And I don't see the Fed backing off of that. David Kance, do you want to offer a parting word here?

You know, markets are fluctuating a little bit trying to kind of figure out what to do here. The S&P was briefly negative, then positive again. You've been obviously looking more to the value side of things. What advice would you give here? So from an investment perspective, it's impossible to guess the near term move. to 12 months from now. We think stocks are going to be a lot higher. There are a lot of great businesses at 10 to 12 times earnings. Best thing for investors to do, take that longer time horizon, buy really good companies on these dips. And there are lots and lots of names out there to meet that criteria.

Lindsay, you have the benefit of being the last speaker here. Sum it up. Where do you think we're headed economically and in terms of interest rates? Well, to Steve's point, I do think this is somewhat as expected from the Fed's perspective of the overall economy. You raise the cost of capital. going to tap down consumption and tap down investment. But I do think that inflation is remaining above expectations stubbornly high, bringing the Fed to the realization that they will have to make a choice, either continue to raise rates to help rain in out-of-control costs, or slow that pace in order to keep the economy on track. And right now it seems that there is a growing divide among policy officials as to what the appropriate direction of policy pathway will be.

All right. We have to end it there. Thank you, Lindsay Piegs. David Katz, Bob. Rob, Rick, and Steve. And sticking with the Fed, we will have Mary Daly, the San Francisco Fed President, tomorrow on the exchange, speaking with her around 1 p.m. Eastern time for more color on all of these concepts. And we've got more breaking news now out of Washington, the Congressional Budget Office releasing its budget projections minutes ago. It forecast the deficit will shrink to $1 trillion this year from $2.8 trillion last year,

but will increase over the next decade. On inflation, the report shows the economy. moving past peak inflation, saying elevated levels will persist this year and then ease as economic growth slows. We'll have more later this hour when we speak to the CBO director, Filiot Swagel, in a power lunch exclusive. And also ahead, Dick Sporting Goods cuts its outlook for the year. Nordstrom lifts its forecast, but both stocks are moving higher. We will trade them and one more in today's three-stock lunch. Plus Tesla, down about 25% so far this month. The stock trading below its S&P 500 inclusion price. The Bull case and the

bear case. A powerful debate coming up. We are trading three big movers in today's three-stock lunch. Dick's sporting goods up about 10%. After falling pre-market, the company issuing a wobbly forecast but says it isn't seeing really a dramatic shift in its business. Wendy's shares rising after its largest shareholder explores a potential deal. And Nordstrom, up 11% after the retailer lifted its annual sales and profit guidance. Let's trade these names with Marianne Montaigne, portfolio manager with gradient investments. First up, Marianne, is Dick's sporting goods. A little bit of a head fake here.

Guidance was sort of soggy, but then the company said, well, just wait a minute, we're just kind of predicting the worst case scenario here, and the stock goes up. What do you think? Well, first of all, they cut their guidance for same store sales from a midpoint of about 2% to, that is a gain to now falling, I'm sorry, a 2% decline to now falling closer to 5% or so. I do think they are having problems getting the merchandise. I've had an order in since November. I've yet to see that.

But I just think that in terms of valuation, it isn't expensive at seven and a half times, the midpoint for next year, but we just don't see a catalyst here. All right. So Wendy's might have more of a catalyst, you know, depending on a possible sale, Marian, do you like that stock here? Well, Tryon is the big owner, and they just restated their intent to put the company up for sale. When, you know, they've been controlling the board for quite some time now. They could only produce a 1% increase in same store sales in the first quarter and an earnings decline.

I just don't see that the stock should be selling it 22 times. forward numbers when the rest of the market is closer to 16 times. I just have to ask the question, where's the beef? Yeah, yeah. So that's a pass. Let's move on to Nordstrom, a company that has taken its punches in recent quarters, but put up some much better numbers this time. Where do you see it going? Well, this is one that's had 17% sales growth, and it's driven by that revenge travel, along with revenge special occasions. Everybody's throwing a party now for any reason whatsoever. And also return to the office because people don't want to look like they did in 2019.

So we think management is being conservative about the coming quarter. They said sales would only grow at half that rate. It's something we'll have to see if the rest of their assumptions are correct. At less than seven times earnings per share, we would say don't set. So it's not a screaming buy recommendation. It does seem more attractive for an LBO. Remember, management was talking about doing that back in the fall of 2020, but we don't own it because we can't time those things.

Yeah. Let's talk a little bit more here. Nordstrom, up against Target and Walmart, which are different kinds of stores, I get it. Nordstrom's numbers don't really square with the other guys. Why? No, I think it's because there are dependence upon apparel, you know, clothing and shoes and accessories as opposed to Target, which did such a great job with the at-home things, adding

inexpensive furnishings to your place, just, you know, making your place more livable when we were all living at home more. And Nordstrom is really your away from home kind of play. And as I said, people are dressing for more special occasions. These are much higher ticket items than anything the Target could sell right now. I have to say, I was very disappointed with both Target and Coles and a couple of other department stores at Easter time because they really didn't have Easter apparel. They just didn't buy it.

And I think they just didn't read the consumer very well. We wanted to be out. We wanted to be showing off how cute the kids are. And they just didn't have the right mix, whereas Nordstrom does. Marianne, I was looking for a pair of ears, but I just couldn't find any myself. Marianne, thank you. We appreciate it. Thanks, Tyler.

Now I feel guilty. I wasn't even shopping for these her outfits for the kids. Ahead on the show, Budget Crunch, the CBO releasing its 10-year budget, highlighting the inflationary impact. We have the CBO director coming up. Plus is volatility in crypto hurting the chip makers that power mining. We have more on that story. And during May, we're celebrating Asian American and Pacific Islander Heritage

and featuring some of our CNBC teammates and contributors. Here is CNBC producer Samie Peshetti. Courage is contagious. When I show a little bit of courage in my day, I know that in the act of doing so, I have perhaps inspired someone else. Now, that might not be a direct act, but I have changed the energy of the world around me.

We all are racked with self-doubt, but all I'll say to young people out there is stay courageous. Anything that you think is out of the realm of your possibility, and if you endeavor to go achieve it, that's courageous. Welcome back to Power Lunge. I'm Dominic Chiu. We want to get a check on what's happening right now with Zoom video communications, among the best performers in that large-cap NASDAQ 100,

again today. Now, that stock is still now tracking for its best week since March after reporting earnings that got that topped guidance back on Monday afternoon. Now, despite this week's gains, big ones that they are, the stock is still down about 45% so far this year and more than 80% off its record high that we saw back during the pandemic in October of 2020. So Kelly, yes, big day, big week for Zoom, still has a long way to go to recover from its recent declines. I'll send things back over to you. Back to triple-digit territory, $100 a share. banks. Let's get to Contessa Brewer now for the CNBC News Update. Contessa. Kelly, good afternoon to you. And speaking within the last hour, Texas Governor Greg Abbott told reporters the shooting

deaths of 21 children and teachers in an elementary school was the result of what he called a mental health problem in the community. Anyone who shoots his grandmother in the face has to have evil in his heart. But it is far more evil for someone to gun down little kids. It is intolerable and it is unacceptable for us to have in the state anybody who would kill little kids in our schools. The news conference was interrupted by a Democratic gubernatorial candidate Beto O'Rourke, who stood up and shouted that the school shooting was predictable and accused Abbott of doing nothing to prevent it. He was escorted out of the auditorium. Also in the last half hour,

First Lady Jill Biden told reporters, quote, of course we're going to Texas. She was at a Washington area airport for the landing of a plane that is part of Operation Fly formula. Tonight, Terror in Texas, a special two-hour edition of the news with Shepard Smith, who is at the scene that begins at six o'clock Eastern Time. Kelly, Tyler, I'll send it back to you. All right, Contessa. Thank you very much. And ahead on power lunch, Tesla had a strong run last year, but market volatility and the musk of it weighing on the stock, nearly 50% off the highs. Was its 2021 run, the last dance for Tesla? Hmm, we've got a bull bear debate coming up on that one. All right, we got 90 minutes left in the trading day, and let's get you caught up on the market, stocks, bonds, commodities,

the whole kit and caboodle, as they used to say. The government's projections for where the economy is headed, that's part of today. today's run down as well. Let's begin with Bob Pisani. As stocks are higher right now. Hi, Bob. Yeah, they're not only higher now. They're higher since the Fed minutes came out, about 15 points higher. Just want to show you we've got to, I think growth is back to a certain extent. Maybe people are a little less concerned about a third 50 basis point rate hike from the Fed, but growth stuff predominates again today. In Video, we're going to get the earnings out from them later on, but Micron, Microsoft, even Apple, which has really struggled a bit recently,

are in the green right now. Speculotech, same way. These guys, often, there are days where Apple's up and the other big names are up, but these kinds of stocks, your Zoom, video, your Roku, Tully, are down. Not today. They're all moving, although remember, most of them were sitting near 52-week lows. Another growth area that's up today is travel and leisure. These stocks were down more than 30%. Caesar's just had a terrible time in the last few weeks. So is Expedia. Live Nation.

I complained about the ticket prices. Thank you. They've been doing very well. But they've been selling their stock. Not today. All three of them are moving to the upside. Those are growth names, by the way. What's a little weaker is the more defensive stuff, the consumer names that are out there.

Merck was at a 52-week high a little while ago. Kimberly Clark, Proctor and Gamble, all a little weaker. This is all in keeping with we like growth a little more overvalue and defensive. story here, which is good news for, at least for the mental state of the average investor that's out there. I don't like the fact that industrials can't seem to rally much. Many of them are still 52-week lows. These are big names, Textron Dover. They may do boring stuff, but they make the stuff behind the walls. Illinois Toolworks, another one, a big electrical components manufacturer. So you want to keep an eye on that. That's the one component that's not making efforts to rally.

S&P 500, the key is 39, oh, what was it, you know, 39.30 a little while ago back Thursday. It seemed like a million years ago, heavens. But we're well off of that and looks like we're sustaining the rally for today. Guys, back to you. All right, Bob, thank you very much. Let's check now on how the bond market is reacting to the Fed Minutes, released about a half hour or so ago. Rick Santelli in Chicago for us. Rick?

All right. I think we have, for once, Rick Santelli, has lost his voice. But for now, we're going to go over here to the energy market where PIPA is ready to take us into a delve into Nat Gas and oil and all the rest. Pippa? Hey, hey, Tyler. Here in Ready and Nasro Gas is the story today, surging above $9 at one point to the highest level since August of 2008. Now, there are a couple of key drivers here to watch. Slow production growth, high LNG exports, a drought in the West, which is curtailing hydropower, as well as the inability to switch to coal, given that no coal is available.

All this means that natural gas storage is now roughly 17% below the five-year average, just as air conditioning season is about to kick off. The contract is now well off the highs of the day, up about 1.1% here at $8.89 per MNBTU. Earlier today, it did surge 7% and touched $9.40, but it is still on pace for the third straight month of a more than 20% gain. Now, energy stocks are also on the move today. Conoco's Chevron and Marathon Petroleum all hitting record highs. Exxon, Hess, and Phillips 66 among those at multi-year highs. Tyler, back to him. All right, Pippa, thank you very much. We're sorry we had a technical glitch there for Rick. I'm kidding. I love to hear from Rick. He's always got something

smart to say. And if we can fit him in later in the hour, we will do our best. Meantime, the federal budget deficit expected to shrink this year as pandemic-related spend. lending wanes. New projections from the Congressional Budget Office showing the shortfall, the budget shortfall in 2022 will be a trillion dollars. But it will increase over the next decade because of higher interest rates and health care costs for an aging population. Joining us exclusively now on Power Lunch is the CVO director Phil Swagel. Mr. Swagel, welcome. Good to have you with us. All right. Let's make sure we have Phil Swagel's microphone open there for us. My question is, is that we seem to be maybe getting past the worst in inflation and that it will be decidedly

moderated at about 2.3% for 2023. What makes you confident in that and what signs are you seeing that that may be happening? No, that's right. And that is what our forecast has, that it has the strong demand that has been powering inflation along with the supply constraints that both of those are moderating. And we see that already in current law. that the fiscal support that was enacted over the last couple years of the pandemic is falling away sharply. So that will work on the demand side, along with the Fed's monetary policy. And then we see the initial signs of the supply burdens waning. And some of this is already the data.

You can see the cues at ports are diminishing. We also see the labor, it says the labor force coming back. There's about a million people still out of the labor. labor force, who we think will come back over the next year or two. And so it's that combination that we see as moderating inflation. I understand that this survey was largely conducted or wrapped up in sort of the March window. So the question, obviously, is a lot has changed since March. We know more about the war in Ukraine and its effects.

We know maybe a little bit more about China. Are you still comfortable with the numbers that you're presenting? or if you had one or two to change, what would they be, if any? So we did wrap up the projection early in March. And as you said, the developments since then have been the Ukraine war. We saw the beginning of it in February, but the impacts on food prices, on energy prices, and some on supply chains have been larger than we anticipated as the war has gone on. And then the same with China, that the lockdowns there look to be having effects.

You know, those effects are important. They're probably not as big as we might have feared. So I'm still pretty comfortable with our forecast. Inflation early in the year is going to be higher than we had, but I think our story is basically okay. I wonder about the opposite effect, Phil. It's Kelly here, where inflation is actually helping us deal with the debt, bring it down, and, you know, to put it bluntly, inflate it away.

How much of that effect are we seeing play out? No, it's an important effect. And we see that, we see that both in revenues. So revenues are very strong. And that's partly because the nominal wage base and nominal profits are both strong, and that feeds into strong revenues. And then nominal GDP is strong as well. And there's still a pretty good recovery from the pandemic on the real side.

But nominal GDP is elevated because inflation. And that makes the debt ratio less worrisome. I guess my point is this situation would look a lot worse if inflation goes back. to normal? It would look worse on the debt side. The danger, I'll say here, this is the risk is on interest rates. And of course the Fed spoke earlier this morning with their minutes, and they look on track to remove monetary accommodation.

The risk on the fiscal side is higher interest rates, because that would feed into interest payments over time, and that's the risk that we face from inflation spilling over into higher interest rates. Well, that's what I wanted to ask a little bit about, as you look out over the next six, eight years, the portion of the federal budget that is going to go to mandatory expenses, namely payments on the federal debt, which are going to be more expensive, not less, if interest rates go up, payments for Medicare, Medicaid, health care spending are going to go up. Their obligation, so is Social Security. So what kind of position does that put the country in

when we have to presumably spend more on defense, when we presumably have other programs that we need to spend discretionary dollars on, are there going to be enough discretionary dollars? Right. And you're pointing to important challenges that face the nation as we look at the fiscal outlook. What we release today goes out 10 years. By the end of the 10-year fiscal horizon, the debt ratio is around 110%. and interest payments have doubled as a share of GDP.

So these are real fiscal challenges. And as you said, there are other important priorities, and national security spending is one that you mentioned. And those will require choices by policymakers. We're setting out the trajectory, and of course, is up to policymakers to act. All right. Phil Swagel, we thank you very much for your time today.

Appreciate it. Phil Swagel, head of the Congressional Budget Office. Up next, a one, two, three punch for NVIDIA. the broader tech sell-off, weakness in gaming, and cryptos collapse, which is causing the most damage. We will lay it out next. Welcome back, everybody. InVidio has been one of the hottest stocks in the market the past few years, until recently.

It's still up 350% in three years, despite losing nearly half its value over the past six months. Christina Partsenevelas is watching the stock ahead of earnings and one surprising contributor to its recent weakness. Which I will get to, but we know InVity stock has been the victim of, of the growth sell-off. The drop looks even bigger when you compare it to the S&P 500 and the drops in the SOX semi-ETF, which is exemplified by the white line on this screen here. But to Kelly's point, the boom and bust nature of crypto

has further put pressure on InVideo. Why? InVito is known for its gaming graphic processing units, GPUs that account for roughly about 45% of its revenue, and prices are dropping. A large portion of those units are sold to crypto miners who use it to perform complex calculations. So much so that the SEC charge

NVIDIA $5.5 million for hiding how many GPUs were sold to crypto miners. But the mining process for Ethereum, for example, is changing and will render some of these computer parts almost useless for those mining Ethereum specifically. And Consumer Electronics Company ASIS recently pointed out that the demand for graphic cards, GPUs, used by cryptocurrency miners, is actually cooled. So you have a high growth, high multiple consumer exposed name.

That's certainly a tough sell in today's environment, which is why you've seen it sell off over the past few months. But there are some bright spots for NVIDIA, strength in data center products and the rollout of new products, specifically for GPUs that could spark interest in demand from customers. It's a great point about Ethereum because it's not just, oh, you know, the less that's going on in Bitcoin. I mean, that's a big change to its need for computing power.

It's huge. It's huge. And so it's going to affect the parts that are used. and GPUs and number one. Yeah, it's like everything's piling onto the stock right now. That's set up 4.5% maybe looking for a turning point here. Christina, thank you very much. All righty. Amazon CEO, Andy Jassy, making comments about lowering costs at the company's

shareholder meeting just now. Deirdreboza has the details. Hi, Dee. Hey, Tyler. So shareholders, they voted against all of those 15 investor-led resolutions. They did vote, however, for proposals approving executive compensation, board members, and that stock split. Now, as you mentioned, this was Andy Jassy's first shareholder meeting as CEO.

So he ran the Q&A where the focus was on costs and profitability and inflation. He kicked off by saying that they are focused on reducing their cost structure by improving productivity. They've lowered their cost structure before, and he has high confidence that he can get back on track. On inflation, he said this. When the war in Ukraine hit an inflationary cost continued, he said they couldn't keep absorbing all of those costs and run a business that's profitable and sustainable. So he says they pass those on to consumers. via Amazon sellers. He also took questions on worker safety and climate goals. All in all, though, guys, it really did feel like Jassy was more on the back foot, which shouldn't be a surprise because scrutiny

of the company has been rising from profitability to labor, but perhaps a change in the tone from the days when Bezos ran this meeting. Back over to you. All right, Deirdre, thank you very much, Deirdre Beaux-a. Still to come, the musk do's and don'ts of Tesla, the stock significantly off its highs. Should you buy the dip? We've got a bull bear to be. Bade going old school when we come back. Welcome back. One of the big debates on Wall Street is where Tesla stock goes from here. The shares are down about 25% this month, and they're trading below the S&P inclusion price at 695.

We're down at 661. This follows an incredible two years when the stock gained 700% in 2020 and across the trillion-dollar market cap metric for the first time last year. Joining us now is Tesla Bull, Vijay Rekap. with Mizzuho Securities. He has a buy rating and a $1,300 price target on the stock. And Roth Capital's Craig Irwin, who's much more cautious. He has a neutral rating and a $250 price target. Welcome to both of you.

Vijal, just start with you. How much of the selling pressure is because of Musk's Twitter bid? Yeah, thanks for letting me on, Kelly. I think if you look at Tesla, a lot of the downside has been driven by, you know, macro sell-off, you know, concerns about the consumer. Shanghai, China having gone into Shanghai shutdown, which is Shanghai is a big portion of Tesla's output, probably 40, 50% of the output there. So I think a lot of those factored into the drawdown on the stock.

And as you, if you look at the whole tech sector, including Tesla, they have been on a downtrend since the beginning of the year, given some of these macro concerns of the consumer slowing down, multiple COVID shutdowns up and down the supply chain. So has the Twitter headlines impacted? Yes. I mean, you have seen concerns about how he's going to fund that. Does he have to sell some of his shares here, etc, etc? But on the core basis, Tesla by itself as an automotive EV company is executing well.

Where does your $1,300, sorry, Vijay, where does your $1,300 price target come from? Just quickly, what is that based off of? Yeah, I think that's kind of based off, you know, them hitting kind of that 20% market share. If you look at, you know, roll this forward by about five, you know, five years, you're looking at almost six, you know, five million vehicles plus based on an average selling price there. That's how we are kind of looking at how do you build the price target there. But again, this stock was, you know, close to $1,100 bucks early in the year. And obviously, given the concerns to the consumer, etc., you have seen it, seen all the names pretty much take a big hit. So,

All right. So, Craig, let me go to your, what you say. You say, we see the stock is egregiously overvalued with serious competition coming fast. Tesla may be the category king today, but future share losses are just a question of timing. Your price target reflects that, $250. You say you're neutral. That sounds like a sell to me. I don't know how you can explain that.

But explain why you think Tesla is so vulnerable when all I see driving around my neighborhood are new Tesla's. Yeah, so that's a couple of very good questions in there. The easiest one is the valuation one. So I think Tesla is a phenomenal company. I think it's going to execute impeccably. I expect China to be back online, producing a lot of vehicles. For too long, it's hard to put a specific time on that. But you've got both Austin and Berlin ramping.

A lot of good things you can say about Tesla. And yes, you see them everywhere. But when you get into the context of What are they selling and where are they going to sell it? Toyota is the world's largest automotive company sold more than 9 million vehicles last year. Their market value is about $300 billion, or it's come off a little bit with the market. Tesla, at maximum speculation, was well over a trillion dollars in market value, which was more than the rest of the automotive industry combined,

or at least the auto producers combined, I should say. And that is maximum speculation for a company to produce less than 900,000 cars last year. There is nothing Tesla has that Toyota cannot introduce or reproduce or sell in their vehicles. And to me, that's a market distortion. You look at what, something like 45 new EVs this year, a total of 500 on the road by 2025. You know, to me, it looks like you're probably better off looking in other areas. And, you know, hard to say sell in a company that's just going to do so well versus expectations. But the reality is, I think valuation is distorted and, you know, they're better places to invest in the supply chain.

All right. Let's go back to Vijay. How do you react to Craig's point that there's a lot of competition coming and that I guess implicit in what Craig is saying is that Tesla's era of market dominance may be passing. Let's take that one by one, Tyler. Thanks for that. Number one, in terms of production, if you look at Shanghai, Shanghai is almost back to full production here. We'll be at full production by end of May. They'll be hitting much higher levels of production to the back half. Berlin is already starting to ship model-wise. So, you know, they have kept the full-year numbers. And by the way, Shanghai is almost fully reopened now.

So that production is out as if you look at that point number one in terms of rebuttal. Number two, when you look at competition, there is a lot of EVs out there, but look at the profitability on Tesla. They're already at 30% gross margins. That's higher than let's take Toyota. Toyota has been in combustion engines for what, 30 years, 40 years? Their profitability and Tesla on the electric vehicles is better than Toyota in terms of gross margins. So I think, and that given the fact that Tesla has still not ramped many of their new batteries, the 4680 batteries, 50% the cost of the prior batteries,

that's 21,700 that they're using. They're not putting a lot of the integration on the chassis side yet. So there's a lot more cost efficiency coming down the pipe. So in terms of profitability, they are top of the fact. When you look at competition, anybody can make an EV. EVs are a dime a dozen. But the question is, can you make it at scale and profitably? I don't think anybody's there yet.

Oh, they're more than a dime a dozen. But at any rate, they're out there and more are coming. Sorry, Craig, we have to go because of time. This is a to be continued debate for sure. And we'll have you both back. VJ and Craig Irwin. Thanks a lot. Thank you.

Thank you both. Up next, an ETF that's literally a cash cow, and it is outperforming the market this year. Details when Power Lunch returns. I think Dom is back. Oh, with the tell us straight. I had so much fun with the yesterday. As the market volatility builds,

investors are seeking safety in companies with free cash flow. Tom Chu is here with a look at the ETF that tracks those names. Hi, Don. So there's a focus on quality, right? When markets tend to go lower, people are focused a little bit more on things like balance sheet, strength, ability to generate profits, that sort of thing. And this is

one chart that kind of shows in particular, just that move towards quality. This is the Spider-MSEI USA Strategic Factors ETF, the tickers QUS. It is outperforming the overall broad market, the S&P 500, but you can see there, just about 3% overall. This is focusing on things.

like, again, balance sheet strength, higher quality companies. Now, if you take a look at this new kind of breed of factor ETFs, ones that focus specifically on free cash flow yield, you take a look at one in particular that's getting some attention right now. That is the PACER U.S. Cash Cow's ETF, ticker COWZ. It's actually positive on the year versus the S&P 500, and you can kind of see that gap in performance has gotten kind of wider as the years progressed. Now, the interesting part about this particular ETF is that it focuses, again, with the name cash cows, on those companies that generate a lot of free cash flow. So the ability to make money after paying off all of your expenses, all your debts and all your interest payments and everything else,

what do you have left for things like dividend payments and stock buybacks and everything? So free cash flow, after all that's taken to account, has done really well. Now, the curious part about this particular kind of outperformance, right, these quality low-volatility ETFs, the types of companies that are in this particular ETF, cows, three of the top five holdings, and five of the top ten are in one sector in particular. Let me guess. I'm going to give you one. You're going to get two guesses, but you'll only need one.

Oh, it's right behind you on the screen. Take a look at this, right? You look at this. It is Valero, Occidental and Phillips 66, each of these stocks in the oil and gas business is each within the top five. Exxon is also in there. EOG is in the top 10. So five of the top 10 top holdings in oil and gas. Are all of the companies in that COWS ETF in the S&P 500 or not necessarily? Russell 1,000. And they screen them for the highest free cash flow yielding and so the highest free cash flow yielding company would have the biggest percentage in the fund?

Each is capped at 2%. He has all the answers. And the best ETF name ever. All right, go to listen to us on the Power Lunch podcast, tell you a favorite podcast app.