Power Lunch - The Fed’s Next Move 2/22/23

Episode Date: February 22, 2023

We’re awaiting the release of the latest Fed minutes, with clues and insights into the FOMC’s tightening plan to stem inflation, and where they could go from here. We’ll bring you all the details once they’re released, and explain what it mean for markets, the economy and your money. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch, along with Kelly Evans. I'm Tyler Matheson. It is a busy afternoon ahead as we await the minutes from the January meeting of the Federal Reserve Open Market Committee, a meeting at which the Fed raised interest rates by a relatively modest quarter of a point. There's another meeting coming up in a couple of weeks. We will see what happens then. Right now, the Dow is higher by 68 points. Let's go now to Steve Leasman in Washington for the Fed minutes. Almost all participants at the last January meeting for the Federal Reserve agreed on the 25 basis point rate hike. Ongoing rate increases were seen as appropriate by all members of the, of the,

of the, uh, to the federal market committee. 25 basis point hikes were seen as allowing the Fed to assess the economy and the impact of rate hikes as they went along. However, a few wanted to raise by 50 basis points. In common, Fed speak, a few is more than two. So there may be another person or appears to be another person out there other than the two whom we know. Bullard and Mester who wanted to go 50. They wanted to go 50 because they wanted to bring the Federal Reserve closer, more quickly to the target where they were trying to get to. Several saw risks

to the outlook as becoming more balanced. Participants supported maintaining a restrictive policy stance until inflation was clearly on a path towards their 2 percent target. Uninflation was seen as unacceptably high. There was substantially more evidence was needed for confidence that inflation was on a downward path. It was important for financial conditions to reflect policy restraints from the Fed. And they did see more financial conditions tightening than they hadn't seen in 2022.

Upside risk was seen to inflation, but a few saw the risk as more balanced. Economic risks, however, were to the downside. And GDP was expected to slow further in 2023. Worth mentioning at this point a little asterisk here, all of this came before the big jobs report and the big retail sales report and the stickier inflation numbers that we had.

is all before those numbers. There was a period of below-trend growth was seen needed in order to bring supply and demand back into balance. Finally, there was an elevated chance of recession seen in 2023, although some said that the China reopening and Euro area growth, which had been better than expected, could help U.S. demand. Kelly? Right.

So many key points there, Steve. Thank you. Who else stick around, actually. It's good some more reaction here. Bringing in Diane Swank. She's chief economist at KPMG. saying it's great to see. And probably the most important thing to highlight is that in the language Steve gave us, he used the phrase a few to describe those who maybe wanted bigger rate hikes

the more hawkish rate would have been if we used the word sum and we didn't get there. That said, the market has still turned negative. So that tells us there's not as much in the tone here that maybe the doves were hoping for. Exactly. And I think, you know, we did see after this, We know, as Steve already pointed out, Master and Bullard had said they wanted 50 basis point hikes. There was more than just them. I would expect Waller to be on that list as well. But I think what's really important is what's happened since then and how do we interpret where they were thinking about things then versus where they are today? And clearly, the biggest issue that Steve highlighted is the trajectory on inflation is proven stickier and growth has come in

much stronger than they were expected. They were looking for this sort of nice. cushy's soft landing with the economy slowing down below trend. And we've gotten the exact opposite in the data so far. And that's really going to give an upper hand to those people who are hoping to go that 50 basis points at the meeting in March. And do you suspect that this increases the likelihood that it's going to be a half point rise in March? And what does that say about either the consistency of Fed policy or about the Fed itself? In other words, does it reinforce confidence? Does it cause concern about confidence in the Fed that investors should have?

It's a great question. And I think, one, I think it's because of the data that we've gotten and the Fed says it's data driven. The data's changed. And so they're responding to the change in the data. And that is, it's now confirmed that instead of being able to go slowly, they have to go a little more aggressively. And frankly, to keep financial conditions tight and to keep. keep from getting this sort of lost in translation. Powell stayed to the script.

But you can see sort of, you know, his tenor of his comments were a little less. We saw that rally during his press conference where financial conditions actually eased. The Fed can't afford that now. The stakes are much higher than they were when they had this meeting. You know why they felt confident then? The data's changed. They're responding to it. That's credible.

You know, we're fortunate, Steve, that we will get another job support. So there's been a lot of questions about the January data and whether it's a head fake and warmer weather and not or not. And like you said, you had the nominal spending stuff yesterday. We know it's maybe it's not. My point is February being a shorter month. The meeting is later in March than you would think. It's March 21 and 22. So we're going to get the jobs report.

Obviously, we'll get ISM. We might even get into some of the inflation numbers. We might even get retail sales before then. So they will have a chance, hopefully, if they were going to overreact, not to do so in response to just one month's data. Yeah. Yeah, and I'm going to disagree with Diane with the proviso saying that what she's saying is perfectly plausible. And it really becomes a debate about what the default of the Federal Reserve is here. I'm going to throw out that I think the default is 25 basis points, and I still think it's 25 basis points.

And I have a little bit of backup when I look at the market percentage probability of a 25, which is still after we now know the word is a few, it's still 85%. So I'm backed up by that. And I think I need to throw out here the question, Kelly, or start thinking myself is, what would it take to jar the majority of the opinion to go from a few to many to most to all to a 50 basis point hike? And I think it would be another outsized inflation report, maybe or maybe not another outside jobs report,

but if that outsized job report came with strong wage gains again, then perhaps would be back on the road to 50. I am going to say right now I still think it's a 25 because I think, think that's the default of the Federal Reserve. When I read these minutes, I say, what do we want to do? We want to move by 25s and assess the outcome of our prior hikes here. I still think that's where the Fed is right now. Would you address kind of what I want to go back to Diane and get her reaction to what you just said? I saw Diane, you're actually nodding there at a lot of what Steve was saying. But let me come back to what I asked Diane. And let me come back to Steve.

if the Fed changes course and goes a half point at the next meeting, what does it say about the Fed's control over the data or control over the economy? Does it say they don't have the grip they thought they had to turn around that quickly? I actually think what it would say is that the Fed is going to do what it would call opportunistic disinflation. And I think what they would do is they're going to use the strength in the economy, to try to ring more inflation out of the economy more quickly than they otherwise would because they feel they have a little bit more leeway if the unemployment rate remains down if economic activity remains strong they're looking at these numbers Tyler with a completely different attitude the ones we look at it we look at to say oh the economy is too strong that means that the Fed has to do more they say okay the economy is strong that means we can do more and use this opportunity for more disinflation in the economy just want to mention the market here which is

Diane, now is up 94, a little bit more consistent with what we mentioned earlier about this language, that we didn't get to some wanted to go 50. But to Steve's point, Diane, we probably would have been at some after the data. And that's why I think it's going to be so important to see what happens as those February numbers start to come in. Exactly. And what you pointed out was what exactly we're looking at is I actually think there's a couple of things that would push them towards 50. And I think I agree with Steve in terms of what their default is and what it was going into that meeting. I think it's shifting and I am expecting to get some stronger data. And when we go into that March meeting, they're also going to be doing their trajectory for rate hikes.

And it's very likely, I think, we get a much higher trajectory on rate hikes than we got in December, which means we already know the terminal rate's going to be higher than 5.5.5%. If it goes to 5 and 3 quarters percent, going a quarter point at every meeting doesn't make as much sense. And I think what we need to see is how many people are on that. high end of those rate hikes and the, you know, the summary of economic projections that the Fed produces. My guess we had eight in December up from six previously. We've been chasing those higher rates. We also lost a big moderating force. And Steve, you know this as well as I, Vice Chair Lael Brainerd, was a very moderating force in terms of rate hikes. And I think this

meeting in March with two, with what I think will be still strong data, I do think some of the the strength is overstated in January, and we know what's a head fake, but the seasonals and what we're seeing coming in on February, I think it's still going to be pretty strong. And that's going to give them this cushion exactly as you laid it out, responding to a stronger economy. And that's going to be appropriate for them to go a half, because if they really ratchet up, their trajectory, going a quarter point is going to cut out. Yeah, guys, I just want to make one very quick point, which is this is like more pressure coming into a balloon. Right now that pressure is being relieved by the market upping the odds of a

June rate hike another 25 entirely possible with Diane is saying that that pressure gets relieved by a 50 in March. You get 10 year yield by the way back over 3.9, about 391. Final comment dealer's choice. Diane will give it to you real quick. I mean the bottom line is the Fed is data dependent. The Fed's going to respond as they see the data come in. We've got less dub voices, less of a strong of influence at the moment on the Fed. And I think that's going to make a difference and push them to a half percent in March with what I think will be still strong data in February. We might get weaker data in March, but that doesn't show up until May. Yeah, all right. Thank you both. We really appreciate it. Diane Swank, joining us today along with our very own Steve Leesman.

All right, thanks, folks. News alert now on the Supreme Court hearing on Section 230, which has potentially revolutionary implications for the Internet Internet. as we know it. Amon Javers with the details. Hi, Amen. Hi, Tyler, that's right. At issue today before the Supreme Court was the question of whether or not Twitter can be held liable for aiding and abetting ISIS under the Anti-Terrorism Act because some members

of ISIS were able to use Twitter to recruit and fundraise for their enterprise and because some people were killed in ISIS terrorist attacks. That was the question that the court was grappling with today. And the court justices seemed to really try to get their arms. around what the implications would be of a decision here for all kinds of other businesses, whether it's banks, whether it's gun dealers, whether it's telephone companies, all the rest who might be implicated in a similar type of situation in which ISIS or another terrorist group is able to use general services that are offered broadly to everybody in order to commit

a terrorist attack. Now, the lawyer for Twitter made the case this way. He said, ultimately, The court here should conclude that the failure to not do more to remove terrorist content does not amount to the knowing provision of substantial assistance to ISIS, and therefore this case should go away. And I think you'd have to say, Tyler, that ultimately Twitter today had a worse day in court than YouTube and Google did yesterday under that Section 230 situation that you mentioned. A separate but related case yesterday. I think Google and YouTube fared better.

The justice is a little bit more skeptical here today of YouTube, but at the end of the day, the victims in both of these cases are going to have a long way to go to prove the provision of these kinds of general services to everybody ultimately amounts aiding and abetting terrorist organization, guys. Back over to you. It really, if I boil it down to the kernel, I guess I see it this way.

The question is whether an international, company, a platform, is responsible legally for the content that is generated by a third party that they, quote, publish on their platform. Right. Yep. And that's the question under Section 230 of the Communications Decency Act. That's the 1996 law. I've written many eons ago in Internet time.

But that provision of the law in 1996 said that ultimately these Internet companies can't be held liable for things that third party people post on their platforms. That's the third party person's responsibility, not Twitter or Google or Facebook or any of the others. The issue today was interesting because it was about the Anti-Terrorism Act. So slightly different legal ground. Similar set of victims, though, people who've been killed or harmed in terrorist attacks arguing that because these companies provided services to the ISIS group in this case,

that that provided a benefit to ISIS, helped them. recruit, help them fundraise, and therefore there's some liability there. The justices seemed a little skeptical of that argument, but ultimately they're going to have their day in court and we'll see where the Supreme Court comes down. Decision, not expected until later in this term of the Supreme Court. Fascinating that you said, and I hadn't thought of it, but it's quite clearly the case. The implications here could extend to businesses in completely unrelated fields, like a gun manufacturer, a gun dealer, a pharmacy that sells a harmful drug that was not manufactured by that pharmacy, but by a third party.

Anyhow, it's a fascinating case in front of the Supreme Court. Amon Javers, thank you. Coming up, shares of ZipRecruiter, a really tough day here. Losing a quarter of their value, the hiring slowdown will weigh on its business. So says the company, and we will talk to that company's CEO about it. We'll get his take on the pushback at Amazon. for return to office. CEO Andy Jassy wants workers back in the office, but that plan is facing a lot of resistance. Power Lunch will be right back. Welcome back to Power Lunch, everybody.

Shares of the online hiring platform ZipRecruiter, down nearly 25% today after reporting a weak outlook. The company citing, quote, a softening hiring environment in its latest quarterly report that came out yesterday after the bell. Here for a Power Lunch exclusive is Ian Siegel, CEO and co-founder of ZipRecruiter. Mr. Siegel, welcome, and we thank you for coming on on this, which is not the easiest of days. It's easy to come on when the days are fun and there are kittens and cupcakes everywhere. That's not the case today. I want to look at your forecast for this quarter and going forward, which you lowered markedly,

which may indeed explain in large measure why the stock is down as much as it is today. As you lower your forecast for this quarter and the future, what are you truly saying about the state of the job market and the state of the economy? Well, it's very clear to us, and we definitely get an early indication probably before the rest of the economy does as to what's going on in the labor market. And what we see is a broad-based, macroeconomic-driven slowdown in hiring. And this is corroborated by other companies at our scale and our space that are sending the same message.

How do you... Go ahead. Finish your thought. I'm sorry. Go ahead. Please. Yeah, I was just going to say it's particularly acute amongst SMBs, but enterprises are also slowing down their hiring as well.

Small and medium businesses at SMB. So how do you square that with the jobs report from January? Was January an aberration, an outlier, a black swan? What? Well, I think both things can be true as January is looking at people who were starting their jobs and the number of jobs that were live in that month. And I think the reality is right now that there is a very large delta, and it is growing between open jobs that are posted and open jobs that employers are willing to pay to recruit for. We're very much seeing a posture

amongst the employers in America of all sizes and across all job categories of what I would describe as wait and see. I think that with the tip of the cap to the Fed, that the work they have done raising, raising interest rates is having exactly the desired effect that they were looking for. And so I just think there's a much lower level of certainty amongst employers who are still experiencing robust sales within their businesses, but they're just not sure that in this climate, this is the right time to add more staff. You know, the Bulls would argue, Ian, that this is fine, maybe even healthy, and that maybe we can sustain a much more modest level of job growth. I don't know if you guys have been through, you know, different cycles

in terms of the business. But when you see hiring slow, like it is slowing right now, what usually happens next? Well, what you would expect to see if it truly is macroeconomic driven is that as there are less jobs posted and also a lower appetite amongst employers to close when they do find a candidate they like, that you would see the ranks of job seekers swell. And that is exactly what we're seeing. So there has been a sizable spike in job seeker activity and the engagement levels we're seeing from job seekers in January. That exactly fits the pattern of a macroeconomic driven downturn. And I think the golden age for job seekers is coming to an end. So for the last three years, it has been an unprecedented time for job seekers to make a number of demands on

employers. But we're definitely seeing a rebalancing of the labor market where the leverage is becoming equalized. I won't say it's tipped all the way in favor of employers yet, but it is moving in their direction. I think the sound bite of the day is the one you just said there, the golden age for job seekers is coming to an end. Let me make, let me make two quick questions. First, very quick. Let me make sure I understood you. You're saying you're seeing lots of jobs posted, but you are seeing less willingness among employers to pay to recruit. Did I understand correctly? Yeah, that's correct. So there seems to be a gap. And again, this is something that's corroborated by not just ZipRecruiter, but by other sites in our space that are noting the

same gap between the number of open jobs that are currently posted that seem to be available versus those that recruiters are, I mean, that employers are actively recruiting for and putting their dollars behind to try and attract candidates. So we're seeing that shortfall. I will say this, though, you know, ZipRecruiter is a 90% gross margin business, even though we were forced to take our top line revenue guidance down. We actually raised our EBITDA guidance from 20 to 20. 24 percent. And I think we're going to weather this period just fine. So this is one of those times where it's very cyclical, the labor market, and it's moving, unfortunately, downwards. But we'll see what happens over the rest of the year and see if we don't get some sort of an uptick later on.

I wish we could talk longer, but we've run out of time here. Hope to have you back soon. Ian Siegel, thank you very much. We appreciate it. All righty. Yeah, fast. Can't overlook the significance. I wanted to ask whether his particular, universe is interesting because it's more high tech where they've been, had a lot of layoffs. Well, and we know he's small business. I mean, that's been the source of strength for this whole expansion, the source of a lot of job growth and the fact that that's where we're seeing a play.

I was going to ask him what kinds of small business? Is it tech? Is it interesting? And again, we appreciate he's coming on on a tough day. Very much so. Yeah. All righty. Up next, we'll talk about bonds on the move with some T-bills paying massive yields.

There's the numbers. We'll go to the pits in Chicago. Check in with Rick Santelli. And as we go to break, take a look at shares of Fiverr. Here's kind of a different angle on the labor market. This is the gig economy stock beating earnings, surging 18% right now. It's a 50% for the year, although still down that much from the highs. Again, Fiverr, we're back after this.

Welcome back to Power Lunch, everybody. Markets reacting to what we heard in those Fed Minutes released at the top of the hour. Let's go to Rick Santelli in Chicago to see what the bond traders are saying. Hey, Rick. Hi, Tyler. indeed. You know, if you look at a two-year note right now, even though yields moved up just a bit since the minutes were released, we're still at a double top meeting. We settled at 472 and a half yesterday. We settled at 472 and a half in October, November, and that double top is resistance.

And if you look at 10 years, we're at 342 when the Fed raised 25 basis points at the meeting we just read the minutes to really climbed since then. And the VIX, VIX's drop since the minutes. That's significant. Why? Because it was at a seven-week high prior. That's where it closed yesterday. Dave, Dave, you have a quick second here. All right. Dave, so we had the minutes today. I didn't see any big changes. What did you see in the marketplace? Not very much. So the zero-day vow, that's a big deal right now. So everything expiring today. So zero-day that's a big deal right now. Every day you have options go off. Correct. And the ones that are explaining today at three o'clock, everything came coming on. Yes. And you were telling me before we went on air that there was substantial open interest in that one-day option.

Correct. Even more than just in the next couple days, a lot had to do with this number. A lot. People want the protection when the Fed speaks. Now, we see it any ramp up in volatility in front of tomorrow's second look at fourth quarter GDP? Not much. It's kind of bottomed out here. I wouldn't say ramped up. It doesn't seem to be that big of a draw right now. Now, when I look at what's going on with the equities, it reminds me of the minutes. Yes, the S&Ps are up. But they're vacillating a bit. I don't see any. big numbers. Does that make sense to you considering what you've read on the minutes thus far? It does. It does. And we're just oscillating back and forth. And they're just waiting for the

next new news. Waiting for the next new news. The next time I come back, we're going to use some fancy terms like charm and Vanna to describe options. You're not going to believe some of the new jargon that's out there. Kelly, Tyler, Tyler, back to you. New jargon? Oh my gosh. Rick, thank you. Energy is the worst performing sector again today. Oil down 2%. of Stevens. No new jargon here, but oil is lower on fears that the Fed tightening will hit demand. Not gas, though, is up by more than 5%. Now, some of that is thanks to the contract expiration on Friday. We also had Freeport LNG say yesterday that they have now gotten complete regulatory approval to restart commercial operations at their Texas facility, which, of course,

has been a big overhang on the market. But we went under two last night. We did, we did. Yeah, yeah, yeah, yeah. This morning we got below that $2.00, and then we saw that bounce. Yeah, I mean, it's probably because of this contract expiration, but I've seen a lot of different opinions about, you know, is the low in? And people don't really seem to want to make bets. But one thing I did want to focus on today is the refiners, because we don't talk a whole lot about them. And last year, we had so much focus on Exxon and Chevron with their record years. But the refiners also had record years, and they're basically printing money. And, you know, last year they wanted to take advantage of the strong product pricing.

So they ran flat out. Utilization was about 95%. And so things like maintenance was delayed. And so we heard from the refiners that Q1 utilization will be closer to the mid-80 level. So what does that mean? Well, that means that product prices will stay higher. So things like gasoline, jet fuel, diesel, probably higher. Is that for how long?

I mean, at some point do they have to succumb? Well, the crack spread is looking pretty healthy for the refiners. You know, last year it was above $70 out of record. It's come down a lot since then. But right now it's sitting around $40. You know, not that long ago getting $8 or $10 on. on your spreads was considered very healthy. Wow.

So it's still elevated, which is perhaps signaling that... Cue the investigations. Where's Congress? Don't you think? That gas prices could be higher. People are going to go, why are we not... Don't you think they're going to be like, come on? Well, it's a tight spot to be in because the refiners say the utilization has come down.

I mean, no one's opening a new refinery in the U.S. We do have the Beaumont, 250,000 products coming on later today. Some refiners abroad, but in the U.S., nobody wants to spend billions of dollars in an industry that they say is going away. Yeah. Pippa thanks, Pippa Stevens. Let's get to Bertha Coombs now for the CNBC News Update. Bertha? Hi, Kelly. Good afternoon.

Here's what's happening. Sioux Falls, South Dakota is just one of the upper Midwest cities getting hit by heavy snow today. As a major winter storm moves across the country, more than 1,300 U.S. flights have been canceled so far today. And here's a look at just how dangerous it can be in some areas. The Wyoming Highway Patrol released this video. of what it calls a recent incident. A trooper narrowly avoided a semi-truck

that lost control on an icy road. The officials are asking everyone to slow down when the weather is bad. And a cat with gang tattoos that was found wandering inside a Mexican prison is looking for a new home. A local pet rescue and adoption shelter says the cat is now healthy and ready to be adopted.

It looks like there is no way. shortage of people who want to provide that new home. Anyone interested can fill out a form online and a special council of city officials in Juarez will decide who gets to adopt. That's one tough kitty. Tyler, back over to you. Tatted cat. Bertha, thank you. All righty, ahead on power launch, families getting reunited. The airline changing a longstanding policy regarding seat selection costs. The details when power lunch returned. Our markets have been reacting to fears of higher interest rates, but our next guest thinks lower earnings are the bigger concern. Let's bring in Jim Tierney, CIO of U.S. concentrated growth at Alliance Bernstein.

Jim, welcome. Good to have you with us. What are you seeing in the earnings numbers that give you pause? We're hearing a lot from consumer companies over the last couple days, and Home Depot was talking about flat comps next year and saw traffic down 6%. That's a deceleration. We're hearing from Walmart, talking about consumers only buying non-discretionary items and wealthier consumers coming into the store. And then you had TJX today talking about a big increase in shrink, which is code word for theft. So if we're in this hot economy, why are people stealing more stuff? To me, the consumer is under real pressure. That's going to allow the Fed to take their foot off the gas. But then it all gets down to, as you said, what are the earnings company by company?

And the companies you just mentioned there, notably, are consumer-oriented, consumer-facing companies. Do you see the same kind of earnings pressure affecting other companies, let's say the high-tech companies that sell to enterprises or B-to-B companies? Quite frankly, the company side or the corporate side of it started about six months ago in terms of layoffs, travel restrictions, hiring restrictions. So I think it's coming from both sides, the data we're seeing, and we saw housing data yesterday. where U.S. home prices are down 13% from the peak. But the CPI data is still showing increases in shelter. So I think things are going to roll over, give the Fed the chance to pause. And again, that really then gets back to stock picking.

And that's what we think we can do well and a battle we can win. Let's not go back and forth too much about this pause, Jim, because, you know, people are still trying to figure out what the minutes are all about, you know, why the Dow's down now? And I don't know. Your stock picks include Zoettis. We just showed the tattooed cat, Charles Schwab, Nike. We haven't heard a lot about Nike lately.

Why these in particular? I'm looking for companies that have real secular growth, that have some level of pricing power and have inelastic demand. And I think all three of those companies fit into that bucket. With Zoetis, you're not going to skip giving your dog or cat medicine each spring for heartworm and ticks and so forth. With Schwab, you're not going to pull your money out of the market just because markets are a little bit weak. And with Nike, your kids need new sneakers when they get holes in them.

And we also see Nike is a real China reopening play. They've recovered in that market and really nice strength. So we're really excited about all three names. Yeah. You know, on Zewittes, I'm told that they might actually have a bigger livestock business than, you know, than kind of domestic dogs and cats per se. But, you know, maybe that's neither here nor there. What would you do, Jim, if you thought, okay, they really are going to take rates to five or what Bullard wants, you know, five and a half percent?

I don't think five is a problem. We're almost there on the five. Five and a half would be a little bit more worrisome. But in as much as you own Schwab or you have the opportunity to think about Schwab, higher rates are better for them, given the returns on cash. So there are various ways to play this, but I think we're kind of there in the interest rate journey. and it's all going to start revolving around how strong our earnings for the rest of the year. All right. Jim, thanks for your time today. Good to see you. Jim Tierney. Thank you. After the break, changing EV currents. Jeep maker Stalanta is reporting strong profits and outlining a shift to the EV space. Wall Street always loves those traditional automakers making that change, but established EV names like Lucid. They're struggling. Well, concerned about

cash burn. We'll dig into that more next. But first during February, CNBC is celebrating Black heritage through the stories of some of our teammates, contributors, and leaders in business. Here is RLJ Companies and VET founder, Robert L. Johnson. One thing that is, in my opinion, negatively impacting the black community is that there's a tendency to wait on other people to give you a path to success. I think the black community needs to say we stand on our own. Don't ever let any anybody tell you that you can't be successful as a black person. Your future is going to be based on who you are, what you believe in,

and how much are you willing to commit yourself to being successful? Welcome back. It's time for today's three-stock lunch, and we're trading three big movers. As the averages come off their worst day of the year, Palo Alto was up double digits on its third consecutive quarter of profitability after years of losses. Wingstop, we talked to the CEO last hour, also a big on strong earnings, and those falling chicken prices. And Chenier, the LNG stock, still near all-time highs, even though NatGas prices have plunged to their lowest levels in more than two years. Let's bring in Scott Nations to trade these.

He's Nations Index as president and CIO. Scott Palo Alto, cybersecurity, you a buyer? I am absolutely a buyer. I just love this space. I think this is the one part of tech that's going to avoid belt tightening. and let's face it, cybersecurity is an existential threat for every big company out there. And you have to be really brave if you're the CIO who wants to skimp on cybersecurity spending. And for Palo Alto networks, their ability to marry cybersecurity and AI is both really sexy.

It's going to be lucrative. Last time I looked up 11.7% on the day. That's because EPS came in at $1.5 versus 78 cents. forward PE of 44 means it's not cheap, but expectations for growth for the next few years coming at 20% a year. So you're likely to get the growth you're paying for. So let's talk about a company that's about as far away from cybersecurity and AI as I can imagine. That would be Wingstop, the chicken wing seller. What do you think?

I'm a seller. It's up nearly 10% this year. Congratulations on 19 straight years of increasing same store sales. but much of the profitability is because chicken prices are falling, and that's not going to continue. With the forward PE in the triple digits, they're going to have to execute perfectly. There's no room for error whatsoever, and there's going to be a ton of competition in the chicken space. I think in order to grow that much, they're going to have to clutter their menu. We've seen what that does to some other fast food names. it really impacts the customer experience.

Listen, I love wings and a cold beer as much as anybody, but I'm cold on wingstop. Yeah, a lot of people allergic to that valuation. Let's turn now even a tougher pivot to Schneer Energy. And it's surprising to me that these stocks, broadly speaking, have held up so well. But what do you see? I agree.

And so I would be a buyer on dips here of Schneer. Natural gas futures traded below $2. today, first time and a long time. Even though some people think they're coming for our cooktops, I do think that I want to be a buyer on dips because Nat Gas is one of the fuels of the future. And they're not just producers. They also have an infrastructure business that will cushion some of the volatility. Forward P.E. of just seven means it's a bargain. I mentioned volatility. We can use that to our advantage. And so I would put limit orders to buy a really good company in a really good space, put limit orders below where the market's trading now and take advantage of some of that

volatility because Nat gas and the company's involved just sickening volatility sometimes. Well, let's use that to our advantage and buy cheap on a big dip. Yeah, interesting, interesting take. Scott. Thanks so much for your time. It's good to see you today. Thanks, Kelly. Scott Nations. All right. Up next, a host of transportation topics to talk about, and we've got Phil LeBoe to join us in the studio, in studio to do it. That's coming up after the break. We'll see Phil and you in just a moment. Welcome back to Power Lunch, everybody. Several key transportation stories to talk about,

and Philo is right here in studio to talk about them. And we'll start with Stalantas. We were just talking a little bit about this, the Jeep slash Dodge slash Chrysler parent company. They just posted record annual profits, but it's this EV transition that's catching everybody's attention. Phil, welcome, first of all. Well, it's good to be here.

And when you're talking about Stalantis, look, they had phenomenal earnings, full year profits up, I think, 26 percent, record full year profits. Not a surprise, given the transaction prices on Jeep's, Rams. They do great with Pujo over in Europe. I mean, this is a company that is growing very quickly, but EVs are the future. And Carlos DeVs knows that. And he even said today during the conference call, look, the cost of EVs, the cost to produce

an EV still has to come down dramatically. And if that doesn't happen, then they're going to have to find ways of cutting cost in other areas. So he is going to be watching the cost line as they've. try to ramp up. Have they not invested in EVs the way other competitors have? They have, but they waited so long. Remember, they were in the midst of this merger between Fiat Chrysler and PSA Pse Pugé Puget. That took a long time, and they really couldn't invest in that. Since then, the spigot has been turned on under Carlos Tavares, but it takes a long time to put these platforms together. Let's talk about an EV maker, Lucid, earnings out later today. We've got a lot of price pressure,

it seems, sort of begun by Tesla pushing prices down here. Right. And the challenge for Lucid is they're losing money. They're likely going to have another quarter where they report a loss. And what's the cash burn? Now, they've got enough cash for the foreseeable future. You know, they're going to get through 23 into 24. And they've got the Saudi investment fund backing them. But at some point, the question is going to become, how do you get to profitability? And at what point do the Saudi say, well, look, if it's going to take that long to get the profitability, maybe we can bid for you. That's been rumored out there. I'm not sure they'll talk about that today, but that's going to be the thing that people will be

focused on today, the cash burn rate. Maybe we turn to the skies now because United Airlines has made this announcement that they're no longer going to charge families for sitting together on flights. We were all talking about this before the show, but it's quite difficult sometimes because the way everyone slices and dices tickets to get those seats altogether. These are two kids under the age of 12 and an adult. They're going to charge. to make it easier. Well, and then they heard the president. They knew what was coming.

And when the president says during the state of the union, you know, quit treating your family like, you know, a bag or luggage. It's a baggage, yeah. You know, I mean, it was fairly forceful language. I mean, they knew what was coming. And so when we talked to Scott Kirby earlier this week, he said, oh, we've been working on this. The industry knows where the fees are in the target sites for the administration.

Yeah. I mean, when you do book, it's gotten much more complicated because you have to for seats if you want to sit in a certain part of the aircraft. And there are all kinds of strings attached as to how many bags you can carry and so on and so forth. Let's now switch back to automobiles once again, Tesla. Some news there about their plans in California. And it's happening right now. The governor, Governor Newsom, is at the Palo Alto Engineering Headquarters,

that's what we want to call it, along with Elon Musk for Tesla. And they're talking about Tesla expanding its presence there in terms of engineering. research and development, using artificial intelligence, working in that area. Are we talking about Fremont? No, well, Palo Alto is the engineering. Fremont is where they manufacture. But is this because they moved to Texas, the head. Well, the headquarters did.

And he had strong comments about California when he moved to headquarters to Texas. It sounds to me like California is trying to say, well, we're the engineering headquarters. Look, if you're the governor, anytime you can say we have got Tesla expanding their presence in the state, it's great news if you're the governor. And if you're Tesla, this is a bit of a no-brainer. Look at all the talent you're looking for when it comes to AI, R&D, for self-driving cars, etc. It's right there. So they already have a huge presence, and it's going to get bigger.

What about their price cutting? What are they trying to do here? Gain share? Gain share, but also they've got commitments. But they've already got share. Well, who doesn't want more share? And they've also got production plants. You don't want to let those plants that you are continuing to grow, whether it's in China or Europe or the two here in the United States.

If you can continue to stoke demand there and you've got the margins that they have so you can afford to take a cut in price, absolutely do it. And it's worked. I mean, it's stoked demand for the Model 3 and the Model Y. And remember, the Model Y, gangbusters right now. It's the most popular electric car in this country. The Model 3 and the Model Y are one and two in California, the largest EV market in the country. So, yes, it is to gain share, but also to keep the production going as they want it to go. Can I circle back to the airlines?

Because what you said was very interesting to me. And a reminder, we're seeing more commentary about getting rid of hotel fees, resort fees, and all the rest of it. I hadn't thought of this as a campaign going back to the State of Union to do so. What does it mean for the business models of these carriers? Are the ticket prices themselves going up, or how are they going to make up for the fact? Ticket prices now, and I know people are going to hate when I say this, because I get this email all the time. They're ridiculously expensive. Inflation adjusted, they are cheaper now than they were 30 years ago.

That's just a reality. I know that they have gone up, though, by 20% compared to, what, six months or a year ago. The administration will try to target fees, not just for airlines, but hotels, et cetera. Does that mean that they'll force airlines to get rid of baggage fees? I don't think so. because the airlines can counter it by saying, look, we get paid at the end of the day to fly weight. You and I are weight, bags are weight. That's what we get paid to do.

And if the baggage fees are in place, the customer has a choice whether to pay them or not. Some airlines, like Southwest have said, bags fly free. So I would be surprised, and Scott Kirby talked about this, he would be surprised if they go after baggage fees. Now, they may try to put a cap there. They may say, you can't charge people more than, I don't know, 100 bucks. I'm just throwing out a number here. Won't that just make actual ticket prices themselves go up there? They're not just going to say, okay, finally, just turn away that revenue.

Well, what, if they got rid of baggage fees? Yeah, I mean, pushing back on the total amount that you're going to spend, let's say it's $800. If you tell me $300 of that can't be fees, then $500 was the ticket price, then $800 is just going to be the ticket price, won't it? No, I don't think so. And it depends on what fees that you're targeting. I mean, some of these are fees that the administration believes are just, they're ridiculous in terms of things like family having to pay to sit together. I mean, that was a no-brainer that anybody could look at and say, what are you doing here? Things like baggage fees, I think

that's a different animal completely. That doesn't bother. The baggage fees don't bother me. I mean, if I want to pay and bring on a big bag. Let me, okay, let me throw another example out here. Spirit Airlines, they will charge you certain amounts, let's say if you're printing out a ticket. Exactly. I mean, does the administration say some of these are tickety-tack and you can't that anymore. So some airlines, lower-cost airlines, maybe hit more than an established airline like American or United. All right. I'm watching to see if they raise prices as a result. Phil, it's great to have you here. Good to be. It's wonderful. Our Phil LeBow. All right, still ahead. We will go yield hunting. Dom Chu will put some dividend payers under his Michael.

All righty, Intel cutting its quarterly dividend from 36 cents a share to 12. That got us thinking about other high yielding stocks and whether those payouts are safe or if the 5% on a six-month T-bill is a better deal. Putting that one under the microscope is our Dom Choo. So there's probably a reason why when we talk about this, right, Tyler, because that risk aversion trade, you can get guaranteed money at about 5.1% for those six-month T-bills. But if you look at the yield for the S&P 500, 1.6% is the current one. Over the last 10 years, it's about 1.8%.

Contrast that to that six-month T-bill, just about 5.1% at this point right now. So would you believe it if I told you, there are 16 stocks in the S&P 500 that have yields north of 5.1%. But only six of them are actually positive on the year, meaning it's being driven by the fact that the stock isn't falling, that those dividend payments are there. Five of those six guys are in one particular industry group, and that's oil and gas. Check out One Oak, Williams, Kinder Morgan, Devin Energy, and Cotera, all with yields from 5.5 to 10.5%. If you look at the picture overall, one of the reasons why we look at this is because they have positive price performance and have a big dividend. Maybe those are sustainable. And by the way, if you're looking for the other 15 or so stocks, check out my Twitter feed at the Domino.

I've posted all of them on there. We couldn't fit 16 on that board over there. Those are high yields. Sometimes they picture well, sometimes. Not so much. Tom, thanks very much. And thank you for watching Power Line.