Power Lunch - The Fed’s Next Moves 8/23/24

Episode Date: August 23, 2024

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What a day. Welcome to Power Lunch. I'm Dominic Chu, and it's a big day for the markets as Fed Chair Jay Powell seemed to do what the markets expected and wanted. He laid the groundwork for a Fed rate cut at the next meeting in mid-September. And right now, stocks are bid. You can see almost 1% gains for the Dow and the S&P 500, a 1% gain for the tech-heavy or NASDAQ composite index. That's how things currently stand. And check out these numbers. The Dow and the S&P are now once again within just 1%. a stone's throw of record highs. You can see right there, the Dow and the S&P were not that far away. And though the NASDAQ is not quite as close to a record high, it is up 10% just since the lows hit that we saw on August 6th reversing the entire so-called correction in just about

two weeks time. Big move for the NASDAQ up nearly 10%. Now, joining me on set for the entire hour to break down all of the market moves and everything else is Sarat-Sat-T, the managing partner at DCLA. He's also a CNBC contributor. Sarat, let's start off with the big driver of some of today's gains. And it's seemingly the comments by Fed Chair J. Powell. I've got the prepared remarks right here.

I've gone through them. It has been interesting. Take a listen to what he said. The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. It surely seems definitive.

I mean, he says that the rate cuts are coming. It is, and it's extremely dovish. I mean, he's basically said, we're going to be there in case we see a hiccup in the economy. And that's what the markets wanted, right? Because previously to it, it was like, well, we don't know what we're going to do, and we've got to keep it restrictive. But now you've got a Fed that says, hey, if the economic data comes in in line, as what we expect, and if it gets worse, they can do faster.

So I think the markets like that took that little uncertainty, that we had before. And we're kind of back to, if you had fallen asleep three weeks ago, where we are now. Now, I saw earlier this morning in, you know, financial markets are second to second, but, you know, the CME Group's Fed Watch tool kind of looks at those Fed Fund futures and the signs probabilities. It's a certainty that there's going to be. The markets expect 100% chance of a rate cut coming in September.

But it's now kind of split, 65% for a quarter point cut and 35% chance that there's a full 50 basis point or half percent cut. What do you think right now? Do we need a half point cut or as a quarter okay enough? I think a quarter is fine, and I think it's going to be the inflation number. If the inflation number goes below where they expect, I think you could see 50 just as insurance. But if the inflation number is still higher than people expect, then that's going to be tougher to go 50 because what if your economy is slowing rates are up, then they puts them in a quandary, especially going into November. So I think they have to be very careful.

This is kind of threading that needle. So far, so good. We'll see how it goes. but I think the data, like you said, data dependent, but we're definitely there. We've got some big numbers coming up, though, between now and that September 18th meeting. Absolutely. All right, we're going to get more reaction to Powell's comments live from Jackson Hole just a little bit later on in the show. But now, let's drill down on the market reaction and where stocks can and will go from here.

Joining us now to discuss this is Adam Phillips, the managing director at EP Wealth Advisors. Adam, thank you very much for being here with us. You just heard Sarat and my conversation with regard to the. economic concerns facing the Fed. Why do you think markets largely have adopted this and are shaking off any growth scare that we may have out there? Yeah, hi, Dom. Well, look, as Surat said, this was clearly a doveist message. I don't know. I guess the only way you can make this more doveish is if Powell said that he was, they were going to come out in September and cut by 50 basis points. They're not going to do that, but it's clearly, they clearly have the evidence to proceed with a cut

at their September meeting, and the market is taking that and running with. And I think the question is, are investors, as they tend to do, maybe taking this a step too far, and look at this as a series of rate cuts that are on the way? I noticed, if you look at the Fed Fund's futures, pricing it up to nine cuts between now and the end of next year. All right, Adam, if that's the case, during my travels, I would talk to wealth advisors like yourself, and, you know, oftentimes we just have a, you know, conversation about why the Fed needs to cut interest rates or when they can do it or why we need this as a market. And I always respond a little tongue in cheek by, well, what are your clients say that are earning 4 to 5 percent on their savings yields and treasury investments?

What's the balance for a wealth advisor right now between those two parts of the market? Well, I think that's right. I think this is clearly an environment of the haves and have not. Those that have ample savings are certainly enjoying having a decent, getting a decent yield on that savings. Those that have a home are happy they've locked in. Those that are looking to purchase a home or first-time home buyers are maybe it's a little bit of different story. Those on the lower income tiers, we're seeing the fact that payments are slowing down. We're seeing a little bit of delinquency rates rising. So there are signs that there are some cracks in the consumer.

On the whole, we welcome some cuts. We obviously don't want to overstay our welcome in the high-rate environment. It appears that, as I said, the evidence suggests that the rate hikes have been doing their job. And so it's time to start easing away from that. And I think that if done correctly and if the Fed can navigate this environment and really solidify the soft landing, it bodes well for not just the broader economy, but also for future. earnings growth. So are you as constructive as Adam is with regard to the picture for the stock market right now? And if so, what exactly would you be buying? Is it just mega-cap technology? It seems like

it's just been the muscle memory for the past 10 years. I mean, I think that's where the money's gone, but the consumer is definitely slowing. And if you get rates coming down, it's going to help them the most, right? In terms of payments, in terms of potentially, you know, what cost of interest is going to happen to them. So I'm a little less sanguine. I think we've got a pretty fairly market, but you've got to look at opportunities where the market has not been, doesn't mean you have to get rid of all your tech stocks. You still can own them. You just have to make sure that the sizing is right at this point. And I think they are, you can find, you know, whether it's in financials or basic materials or energy, utilities, there are valuation companies there that

you can focus on that are below market multiples and also have better earnings growth. All right. So Adam, let's turn back to you. What exactly goes on the shopping list? Where are you finding values out there, what types of stocks? Yeah, well, absolutely. And it is outside of tech. We have, we've really tried to avoid being bullied into owning the index weight of these high-flying names, specifically within technology. And so I think you can find the opportunity outside.

And I think that this earnings season that we're now wrapping up here is evidence that things are starting to broaden out. We expect that to continue. You know, one area that we've added more recently is to, within discretionary. But obviously, this earning season, I think, told us that those gaining share within discretionary are those that focus on discounts. And so specifically, I think about TJX, which has come off a really solid order. They had a beat and a raise.

We see this is a company that has a very strong balance sheet. It appeals to consumers in really every environment. because they are an off-price retailer and really the biggest at that. But this is also a company with a strong balance sheet, $5 billion in free cash flow generation. And we've seen that this can go towards being acquisitive and doing so opportunistically. We saw that they just recently announced a 35% stake in brands for less. And it's a Dubai-based company. And prior to that, they announced a joint venture in South America.

And so I think these are the areas that we want to focus on. on. Some of them have been left behind, but some of them are really just looking at other ways to play this market. And as we know, that some of these other names have maybe been a little, become a little stretch. All right. And just to put a point on it, if you want to be in technology and you want to be outside of mega cap technology in the Mag 7 names, where do you go? Absolutely. And mega cap tech is not necessarily something we want to avoid altogether. These are still quality names, but I think it's important to acknowledge that what was leadership in the past, isn't necessarily going to be leadership going forward. The other company that we like within technology

that isn't necessarily part of that, that mega cap tech conversation is Palo Alto Networks. This is a company that, again, reported earnings just recently here and really reported quite well. We rewind the clock a little bit back in February, this company fell about 30% and spoke to some, perhaps some softening in the business spending landscape. And so they were put in the penalty box, so to speak,

for a little bit. They've now rallied back. The catalyst here, I would say over the next couple of years, is what they call platformization. And it's really just trying to get more wallet share from their companies and trying to be the go-to for a number of these cybersecurity's offerings and which will hopefully allow for a quicker remediation or resolutions on some of these cyber threats. And so I think that the recent news out of CrowdStrike only helps that case. And so that's where we're seeing the. opportunity. All right. HCA Palo Alto Networks and what else we're talking about here. TJS companies, the top picks from Adam Phillips over at EP. Thank you very much. Have a nice weekend, Adam. Thank you. You too. All right. Target may have solves one of the retail's biggest problems. It's theft. Shrinkflation. Shrink. We're going to discuss the latest on the state of the retail shrink story coming up next. Welcome back. Shrink was the buzzword for retailers last year. but in the reporting for this recent quarter, we barely heard about shrink at all. And if we did, it was along the lines of targets Brian Cornell touting the major improvements

the company has made to shrink, shrink. So what have retailers and law enforcement done to combat shrink and has it really worked? Or was the size of the problem never as bad as it was really made out to be? Joining us now is Brand Elverson of Elverston Consulting. Prior to that, he was the director of Walmart's asset protection. division fighting shrink. And here on set with us as CNBC retail reporter, Gabrielle Fon Rouge, thank you both for being here with us. And maybe I'm going to start with you, Gabby, about this overall picture about just how big of a deal shrink was or wasn't. So last year, shrink was a

big issue if you're looking at the transcripts of the earnings calls. But like how much of an actual issue was it having on profits is debatable. I did a story last year that calculated just how much retailers were losing from shrink. Lowe's was a big one. They lost about a billion dollars, but that was only about 1% of their overall sales, and that's actually a healthy place for shrinks to be. So part of what brought all of this on was as the demand situation kind of soft, there was way more focus on profits than ever before. So retailers were more inclined to provide a variety of reasons for why profits were soft. Shrink was one of them. That doesn't mean that shrink wasn't a total issue, but just how material it was compared to how much they were losing from

discounting from the inventory troubles that they had. It's a little bit unclear. All right, Brand, let's pull back the curtain from somebody who's seen it all before from the biggest retailer out there in Walmart. Shrink. Was it a big issue or not as big of an issue? It was a huge issue. So, you know, a lot of those contributors came during the pandemic, but in my 30 plus years in the industry, the levels of shrink. And Gabby, you referenced a 1%. While that sounds minuscule, that means, you know, that you're only losing 1% of your inventory if you're at the volume of Walmart or some of the major tier ones. That's a staggering amount of money, and it does negatively impact earnings per share, et cetera. So it wasn't overstated.

The component, Gabby, that was overstated or is overstated, is what part of that is attributed to theft versus supply chain hiccups, administrative, other things that are non-malicious and, So the distortion really is around ORC that in some media outlets was fanned with the smash-and-grab videos and all the things that we saw. And the mischaracterization is, as it was stated about a year ago, half of that $112 billion that was lost in U.S. retailers in 2021 was attributed to ORC. So it's an overgeneralization, but it absolutely is a problem and is a direct impact on a P&L. Brand, you can't help. You can't blame viewers and even us for talking about these types of things in that context. Sure. Because what we have seen, Brand, we've seen a notable number of store closures, whether they be underperforming or whatnot. But many of those are in locations that have become associated with things like retail theft. So how do you reconcile that particular kind of closure aspect of these things to what the narrative is that you're trying to tell us right now about what.

what is and what isn't the responsibility of the retailer itself? A lot of the ambiguity and shrink. So when you look at the other metrics in retail, sales, profitability, earnings per share, those are quantitative numbers that you understand and you can see and you can back into the hard math. Shrink is not like that. So the number that you get at the end of a cyclical inventory is simply oversimplification, but a reconciliation of what the ledger says you should have financially and you count your inventory, and that's what you have.

And if there's a delta, it shrink. And it gets really muddy after that. In other words, how much is theft? How much is administrative? Did we ever receive the merchandise in the first place? Were there billing errors? So the store closures, you know, and I'll use Doug McMillan, when Doug a few quarters ago was asked about the theft problem,

said, sure, it's a little bit worse than we wanted it to be, but it's in perspective of 4,700 stores. And if Doug is making the decision or Walmart to close X number of stores because they're not profitable, sure, shrink is a component of that, but there are many other things behind the curtain operationally that make that box unprofitable. And that while it was caught up in the frenzy of shrink and theft is the reason why. As we all know, retailers, you know, adjust, close open stores, certainly in my experience before because they're simply not profitable boxes. for various reasons, but the headline that was monopolizing was shrink. So when you look at some of the urban stores and now you look at all the lockups for all the inventory that they have, how much is that affected, you know, what you would say sales,

that's probably dampened it. The experience has not been what people expect. So in your view, how is that all affected sales? 100%. And you hit the nail on the head that the customer experience has been compromised significantly. again, and sometimes the mischaracterization of that dollar of shrink I have, do I believe what percent is attributed to theft? And all those measures that you guys see when you walk in a store, the lockups, the tethering, the EAS alarms, electronic articles, surveillance, all of that is exclusively designed to impact the malicious intent component of shrink, which, again, we don't really know what that is. So, you know, in a generalization, the pace of which technology has been pursued in the operational and supply chain part of a retail has left the risk mitigation component behind.

So a lot of those measures that we see were there in 1970. So there are more innovative solutions, artificial intelligence, RFID, that are slowly making their way into the risk mitigation side of retail. but it's been a slow go. And it really depends on leadership's thought of sources of shrink. If it's all theft, you don't need to spend big money on AI. You can just lock it up. And the difference is when Gabby goes into the store, today, if Gabby sees what she wants is all locked up, she can have it ordered on Amazon before she leaves that store.

And guess what? She probably isn't going to come back to that store. It's too much of a hassle. So it does absolutely affect sales. Brand, you hit my nail on the head because the next question I had for Gabby was, why shouldn't I just go to Amazon and have these things delivered to my doorstep and just put a ring cam out there and worry about the porch pirates instead? I mean, you're exactly right, Dom.

And that's what I hear from people that I talk to all the time, the degradation of the retail experience. It is something that is united Americans in their mutual disdain for how poor the retail environment has gotten because of that. Your candy bars, your deodorant, they're imprisoned behind lock shells. It is a terrible experience, and the people that I talk to are going straight into the arms of Amazon and Walmart.com. But that's what makes fixes to operations so important. And that's what retailers have been working on over the last year.

With profits more in focus, the demand environment continuing to soften, they are bringing the essentials back like more staff, having better inventory controls, making sure that the people that you're hiring aren't stealing from you in the back room. And I think that's also why we've seen some improvements. All right. Brand Elverson, thank you very much for joining us here. Also, Gabrielle von Ruge, thank you as well. A pleasant weekend to both of you guys.

Thanks for having me. All right, well, Jay Powell's comments on on rates or helping housing stocks out today coming up in the market navigator, how you can make money on the home builders before rates really do start maybe coming down. That's coming up next. All right, welcome back to Power Lunch.

A quick check on the markets right now. The Dow is gaining a little bit of momentum here in the kind of mid-afternoon trade. We're up about 350 points. Not near the session highs yet, but kind of getting towards that direction. The S&P is up about three quarters of a percent, 5619, the last trade there, and the NASDAQ composite, the outperformer on the big cap side of things today, up about 1.5%.

17,000, 834. Now, in today's market navigator segment, one of the biggest sectors impacted by the Fed's pending policy adjustments would be, of course, housing, interest rates. Any rate adjustment is still a key and still likely a ways off, but one options trader is using that time to her advantage. So joining us now as Jessica Inskeep, Director of Investor Research at stockbrokers.com. And Jessica, you're looking at using options to play HomeBuilder, D.R. Horton. So take us through what exactly the trade would be and why.

Yeah, absolutely. So as options traders, we can utilize options to buy and sell securities from the sell side of options because it creates an obligation to buy or sell. We collect an upfront premium. So today the way I want to do that is I'm actually utilizing D.H.I. D.R. Horton, you know, just like you stated, there is a housing supply issue. Rate cuts are certainly on the horizon. But because there is this still pressure from an inflationary perspective for houses, it's a supply side issue, not a demand issue, almost like inVIDIA without the technology aspect, I suppose. But D.R. Horton, they had good earnings. They reported at the high end of guidance. They still are showing resilient margins that are expanding. They're up 24%, so representing a quarter over quarter increase of about 80 basis points. But what really I took away from their earnings is the statement of choppy traffic patterns. Now, from a technical perspective, I would take that back and say, okay, what are you seeing from

those choppy traffic patterns? And I really think that alludes to the tenure and the choppiness that we're seeing. And those consumers are being hesitant really to go into those houses. And they're going to elude that, of course, with elevating those incentives and buying down those mortgages like we've seen from a technical perspective. I look at the 13, 26, and 40 moving averages. That represents one, two, and three quarters worth of prices. I want to see that increase. That is absolutely happening. This is a beautiful chart with DR. Horton. But I look for momentum. I'm looking at the Bollinger bands. And when it hugs, that means it's on the higher end of the standard deviation. So when we're making higher highs, I want that to be aggressive and show that

momentum, which is what I see. But I also want to consider the overall macro picture, which is we're getting to higher highs with the overall market, which could lead to consolidation, which means I need to mirror really my macro view with a micro view with an option strategy. And that's where the cash secured plate comes into play. All right, Jessica, just to kind of put a point on this, right? So the optimal outcome is that you basically collect this premium and the stock just keeps going higher and nothing happens except you collect the premium. Or at the very worst, you actually get put the stock by the time it's done. Absolutely. And it's a wonderful way to utilize options to get a neutral to bullish view, especially if you have any type of trepidations on the

market or just for consistent income purposes. The way that I'm structuring this one, though, I'm selling the October 4th, 2024, 187 and a half puts. I'm collecting about 570. That was earlier today when DR was around 190. But what that does, that upfront premium is reducing my overall risk allocation. So I'm creating a cushion. If it were to move down, I've moved my break-even to about 180-180. So it's really the way that I personally do as an options trader and very commonly utilized where we sell puts to buy the stock utilizing that obligation. And you can do the same thing, of course, on the sell sign if I was put, which I would absolutely intend to do to still participate in capital appreciation while creating consistent income.

That is the entire intent of this strategy. All right. Jessica Inskip, stockbrokers.com. Thank you very much. We'll see you again soon. Thanks, Tom. All right. So, Surat, the home builder trade, just to kind of get your view on this, do you feel as though the bullishness is justified given the rate outlook? I think a lot has been discounted already. I mean, the rates have come down.

The stocks have already gone back up. You haven't really seen the economic kind of gains that these stocks have. But if rates keep, if you get a 50 basis points, you can see those stocks jump. It's kind of ironic, right, because that means things really slowing down. But momentum traders will get into the stock. So you'll see that push back up. It's one of the hottest parts of the market today, those homebuilder stocks. All right.

Still to come on the show, we'll head out live to Jackson Hole, Wyoming for insights into the economy. But first, a quick power check on the positive side of things, the S&P construction material firm Builders First Source, getting a boost from new home sales data as well as hopes for those lower interest rates. Now, the biggest laggard is into it. Beating results, but issuing weaker guidance. That is your power check, positive and negative. We'll be right back. Welcome back to Power Lunch. I'm Kate Rogers with the CNBC News Update.

Nebraska voters will choose between two abortion-related amendments at the ballot box this fall. One amendment would protect the right to abortion until fetal viability, while the other would ban most abortions in the second or third trimester. Nebraska currently bars abortion after 12 weeks of pregnancy. It comes as part of a wide. push across the country with 10 states certifying ballot measures this fall in the wake of the reversal of Roe v. Wade. The U.S. will offer free at-home COVID test again starting in late September. Americans will once again be able to request four free tests at COVIDtest.gov,

according to the Biden administration. It comes as a summer wave of cases hits the country and a day after the FDA greenlit updated COVID-19 vaccines. And META is reportedly canceling plans for a premium mixed reality headset that was intended to be. to compete with Apple's $3,500 Vision Pro. The information reported the company told employees to stop work on the device this week after a product review meeting. Dom, back over to you. All right, Kate Rogers, thank you very much for the news update. Now it's time for the Fed's indirect and vague language surrounding rate cuts appearing to have come and gone.

Chairman Powell now stating loud and clear it's for a policy adjustment and now is the time for it. The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. Overall, the economy continues to grow at a solid pace, but the inflation and labor market data show an evolving situation. The upside risks to inflation have diminished, and the downside risks to employment have increased. So joining us now from Jackson Hole and the Great Outdoors is our own Steve Leesman, alongside Neil K. professor at the University of Chicago's Booth School of Business. Steve, I'll send things over to you. Yeah, and thanks, Tom, and thanks to Neil for joining us. So we were just talking that we've known

each other for a couple decades talking about monetary policy. But this is a fairly pregnant moment right now when it comes to the pivot. I want to know your thoughts about whether or not the time has indeed come. Yeah, I think he handled it well because you didn't hear him say 50, right? He said it's coming. So he gave himself enough wiggle room to where I don't think he's going to get boxed into having to go faster than whatever the data look like in two weeks. But I'd be very surprised if we aren't at the beginning of, you know, a sequence of rate cuts. And that seems pretty well warranted. Why is it warranted? How do you look at the situation and say it's time to cut rates? Well, I think the economy has slowed. I think the labor market is somewhat weaker, but still

strong enough. And I think the trajectory on inflation looks relatively good. If I were them, I wouldn't have committed to say I have to get to 2.00. I would have tried to say we need to be headed towards it with sufficient confidence because, you know, I don't think they'll be happy if after they've cut aways, it levels off at 2.2. For me, that'd be good enough to declare victory. But, you know, they thought that they needed to anchor those expectations right at two. And they've put themselves in that box. Right. So, Anil, you've studied this stuff for a long time, and I know that, you know, economists don't get around and knowing what's actually happened until three or four years later.

But Powell was pretty confident we're coming toward a soft landing. But that is not something the Fed has executed all that well in the past. Is there something different this time that makes you think there should be some confidence as they're going to pull this off? Well, I think it's partly the way they got into this is we didn't understand all the forces that were acting in COVID. and it's clear that some of the retreat has been just a reversal of the stuff we didn't really understand. So I think that's been good. I mean, remember, markets were not expecting, you know, in December of 21 that we were going to have to go anywhere near as high as we did, nor were they expecting that we were going to stay as high as long as they have.

I think they took a risk to say if it comes with a recession, we've got to get the inflation back in the bottle. it probably helped them. And I, you know, I think there's probably been some good luck. I mean, if it had been a crummy weather winter right after Russia invaded, that could have derailed it. Because the price of oil or energy would have spiked. And what you said was really interesting. So if the source of the inflation was supply and the supply goes away, you don't have to crush the economy to get inflation down. That's the kind of translation of that.

We're just talking about transparency there. An interesting thing comes up where one of the presenters talks about, this was on the panel that you were on, the idea that there's this big difference, and I know Dom follows, is a lot of us do very closely, between how the market reacts to the statement and how it reacts to the press conference. Is that a problem for the Fed's communication in your mind? I think they wish they didn't have to have it. There are benign interpretations. Like, suppose it's the case that they negotiated the statement before the meeting, essentially,

because they do pass it around. and they've agreed on a lot of it. Then they get together, and the conversation is actually quite, you know, more hawkish or dovish than the statement reads. But rather than trying to relitigate that in real time, they just say, why don't you go clean this up in the press conference? Okay.

That's a possibility. If that's right, though, you could check whether or not the minutes match the press conference better than the statement. Or is Fed Chair Powell freelancing a little bit on his own? Anyway, let's, Dom has a question for you now. Yeah, Professor, thank you very much for joining us here. We broached this subject on yesterday's show, but there is this discussion right now about the relative situation that Americans feel right now in that if you still have wage gains and a job, but those wage gains are not keeping up with inflation as much. Is it better or worse than the possibility of losing one's job and not having an income at all? there is an interesting line. I wonder from, you know, maybe just an academic standpoint about how

economists would kind of reconcile or deal with that kind of a debate. Well, I think, first of all, part of the feeling is that the level of prices is just so disconcerting to people. You're used to, you know, a box of Cheerios costing whatever it is, and now it's 40 or 50 percent higher, and that's really, I think, unsettled people. So even if they don't think that the wages that they've gotten over this period have kind of kept up with the prices, They just feel unsettled about that. I think in the end, you know, for the people that end up unemployed, that's vastly worse than just having your real wage drift down a little bit. Because the next time that the market picks up and the labor market gets tight again, you can move.

And it's important to realize that there's a lot of on-the-job training and human capital that you build by working. So continuing to work and not having interrupted work spells is really, really important. Don, I actually have an answer for that question for what it's worth. Unemployment when it gets high affects four or five percent of the workforce. Higher prices affects everybody in the workforce, right? So, I mean, that's just a percentage thing. And Neil, one more question. A year from now or so, how much can you see the Fed bringing rates down? Where do you feel like neutralism? How do you find it? I think they don't know. And I think it does still depend on a lot of external events. I mean, the wars that we've got, certainly the thing in Russia could still be a mess. The instability that you're seeing in European governments, I mean, France's not having a government

is an issue. Japan's still got to manage its exit. So there's a whole bunch of things that have to happen. And depending on how well they go, that's going to give them more room or not, you know, I don't know what the market is pricing after this speech for what they've got, you know, a year from now. 200. 200. That seems a little rich to me, but I don't know. I think it depends a lot on whether or not they really get down to 2.0.

Right. Okay, Neil, thanks for joining us today. Thank you. And he also runs Don, by the way, one of the better conferences, the U.S. monetary policy for them we have every year in New York. That doesn't surprise me at all. Professor, thank you very much. And of course, our own Steve Leesman.

We'll see you guys again soon. Enjoy Jackson Hole. Still head on the show. EV tax credits might be on the chopping block. Trump is elected this November. We'll dive into what automakers could be most at risk when Power Lunch returns after this commercial break. Welcome back to Power Lunch. Shares of Tesla up more than 4% today. Following Powell's remarks, the Fed is ready to start cutting interest rates, and Tesla and most other EVs are purchased with financing, and lower rates would help make those vehicles more

affordable. But our next guest says the company should brace for a potential massive headwind, which is another Trump presidency, possibly. As the former president has employed, he could end the EV tax credits under the Inflation Reduction Act. Tesla has been the biggest beneficiary so far in terms of EV tax credits now. So joining us for more is Colin Langan, the automotive and mobility analyst over at Wells Fargo. Colin, take us through why this is such an issue because, frankly, Tesla shares have had a nice decent bounce off some of the lows that we saw earlier this summer. Yeah, I think there's a bit of a misperception since Elon has been supportive of Trump that

this, you know, somehow a Trump presidency would be good for Tesla. If you really step back, you know, we estimated in our report today that there's about, you know, $12 billion of IRA funding that's been given to the market. And about, you know, close to, you know, seven of that has been Tesla related between their buyers who get up to 7,500 credits when they buy a vehicle, as well as production tax credits, which could be well over $3,000 per vehicles. We're talking about $10,000 per car in the U.S. gets removed, it's quite a material headwind for Tesla, and that's really the key point in our note today. Okay, so if that is the case, there is a reason why you have a sell rating on that stock and a $120 price target. It's largely been tough to be a bear on Tesla, even with some of the

big drawdowns that we've seen. How exactly does this then play out? It's not a straight line, but why exactly is the fair value that you've assessed down where you have it right now? Yeah, I mean, Tesla never really ever moves in a straight line. I think when we look at it, you know, there's probably going to be some bumps over the next month. I think particularly the Robotaxy Day, typically you get hype into that. But also what we find is that historically there's a lot of hype into those events and then the stock fades off after. The fundamental reality here is the auto business has been under pressure. If you look at the first half of the year, we have negative pricing and negative volumes.

So you have a company that has negative elasticity at this point. So there is a big concern that I have about where volumes, where prices, going and what that means for margins. And I think, you know, ultimately those fundamentals should rule and the stock should be under pressure. And that's really the driver of our underweight rating. So add to this the competition. Can you just talk to where you think that's going to be in a year or two with so many companies coming in with lower prices? And yes, the Chinese will have tariffs on BYD, but compared to the rest, where do you see that landscape?

Well, we're already seeing Tesla has been losing EV market share to improve competition. from the traditional companies. You know, it said, the traditional companies are struggling with profits as well. And our report today does talk about, you know, a pocket here that, you know, Trump actually could be negative for the traditional players as well in the midterm.

There's an expectation that if he comes in, we're gonna reduce the fuel economy targets. But that probably is a 2028 type event. It took about three years last time for him to reverse fuel economy standards. And so if he wins this time, I think there's a bullishness that he might do that. But there's also this concern that we highlight

in the report today is that the IRA credits, which are, you know, for many vehicles, $10,000 a car between the production tax credit and the consumer credit, you know, those could go away faster. So there could be between 26, 27, you know, a period where automakers have no support and yet they have, you know, tough standards. So we're going to see better models, more competition. But, you know, I think for the whole industry and we're underweight all the Detroit three, you know, there's a lot of challenges, electric vehicles being one of the biggest. All right. Tesla shares down about 12 percent year to date with a 78 forward multiple.

Colin Langan, thank you very much. We'll see you soon. Thank you. All right, still ahead on the show. Intuit's Q4 results just beat on both the top and bottom lines, but shares are actually down nearly 8%. We're going to dive into what's pushing

this name to the bottom of the S&P coming up next. All right, welcome back to Power Lunch. We've got some breaking news on the presidential election, and it comes from the Robert Kennedy Jr. campaign. Amon Javors has the details. Amon. Dom, that's right. RFK Jr. speaking now in Phoenix, Arizona. We can take a live look in here at Kennedy as he's

at the lectern there in Phoenix. Kennedy just filed some court papers in Pennsylvania saying that he is going to be endorsing former President Donald Trump. His campaign, Kennedy's campaign, that is, had struggled to gain momentum. He was polling at about 5% in the polls. But an endorsement from Kennedy, who's most well known to most voters as a vaccine skeptic, might be on the margins, a benefit to Trump's campaign. Trump has said earlier this week, excuse me, that he would welcome a Robert F. Kennedy endorsement and said that he might see a role for Kennedy in his administration if he wins again in November. It's a very marginal election year this year, so anything helps on the margins. Kennedy polling near 5%. That could be something that could be a breath of fresh air

for this Trump campaign, given that they've seen consolidation and energy on the Democratic side at the Democratic National Convention throughout the week this week. So we'll watch this announcement here and bring you any additional details that we get from the candidate, Don. Back on the narrowing of the field. Damon Javras, thank you very much on that. By the way, three stock lunch is still up and it's coming up after this short break. Keep it right here on Power Lunch. It's time for today's three stock lunch and here with our trades is Anthony Forsyone, vice president and portfolio manager at Rockland Trust. Let's start with Uber and General Motors, cruise, right? They've agreed to a multi-year partnership under which the company will offer

its robo-taxies on Uber's platform starting next year. Anthony, what's your take on this deal? Yeah, I think this continues to be an important topic for Uber, Uber in terms of autonomous vehicles and how this market plays out, whether it's, you know, this deal or deal with Boyd or certainly upcoming commentary around robo-taxies with Tesla. I mean, the market needs to figure out how Uber is involved in terms of autonomous vehicles going forward.

And it could be pretty interesting for them in the sense, that they could be this sort of central aggregator or platform or open AI platform for this kind of market. But it's so early, even though we've had, there's been early success with Waymo, it's still so early to sort of think about this. But it continues to be a topic of debate for investors with Uber. All right. What do you think, Sarat, about Uber? I mean, we own it. We've been trimming it. Just the valuation is getting to an extreme level. And also the delivery business is the one that's, if the consumer slowing down, delivery is one of the, the, I would say, most expensive pieces of Uber. So you just have to be cautious going into a

slowing consumer slash economy. Way to put the wet towel on this whole thing, Sarad. All right, let's talk about TurboTax owner Intuit, which is down 6 to 8% today, despite results beating estimates. The company did issue disappointing guidance. So Anthony, what's the trade on turbotax? Yeah, the trade is we own it for our clients. We would continue to own it. And frankly, buy more if there's significant weakness from here. I mean, they also reported earnings last nights, so it's a little bit of a casualty of that as they sort of moderated long-term growth targets in a couple of their segments. But big picture, this company is so well positioned, and really at the epicenter of self-employed businesses, small and increasingly medium-sized

businesses with all their solutions. So they're extremely well positioned to continue to take share in a growing market. So we like it here. All right. And finally, Finally, it's Kava. Those shares rallied to a record high on its earnings beat and its lifted outlook. It's up 20-some percent today. Do you chase it, Anthony? Absolutely not. Well, I like the food and like the concept that don't like the stock here. I think much of the opportunity for runway growth over the next two, three, four, five years in terms of units, profitability is well reflected in the stock here. So I would sell it. All right. So he's a sell. Sirot, what do you think? This is a consumer play as well.

Okay. You're just going to think I'm like Debbie Downer here. But I totally agree. I think everything's built into the stock. Look at the chart. It's done everything it can. And the issue that you get with stocks like this is as they grow, they have to keep up the earnings for the same growth rate, and it's an extremely rich stock at these levels. All right, let's talk a little bit personally about whether you like Kava or Sweet Greens.

As a stock and as a consumer. Well, I like to go both. But I think Sweet Greens probably is a little more potential as a stock. All right. Anthony, what do you think? Really, last word to you. Sweet Greens as a consumer or is it Kava? It's a tough call.

but I'll probably go to sweet grades as well. All right. There's the call from Anthony Forsyone at Rockland. Thank you very much. Have a nice weekend, sir. Thanks, guys. All right, a quick check on the markets right now because we are seeing a creep back

towards kind of the best levels of the day. The Dow is up about 357 points as things stand right now, as you can see there. It's been a slow and steady move higher, so we'll see if that momentum can give up into the closing bell today. So thank you guys very much for watching today on Power Lunch and thank you, Sarat-Ci, for coming into studio

for helping us today.