Power Lunch - The “Just Right” Rally, and Hollywood Striking 7/14/23

Episode Date: July 14, 2023

Stocks are higher once again, as big banks kick off earnings season with good results. Can earnings, inflation and the Fed all continue to give the markets what they need to keep moving higher? We’ll discuss. Plus, Hollywood actors are joining writers on the picket line. The strike already threatening the fall season. And it all comes at a very vulnerable time for traditional TV and film. We’ll discuss. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch here with Courtney Reagan. I am John Ford. Coming up, stocks higher once again as big banks kick off earnings season with good enough results. Can earnings, inflation, and the Fed all continue to give the markets what they need to keep moving higher? Plus, Hollywood striking. Actors joining the writers on the picket line. The strike already threatening the fall season. It comes to a very vulnerable time for the traditional TV and movie industry. So we'll look at the potential impact. But we begin with the key earnings out this morning, impacting.

the Dow especially. We're going to get to United Health in just a moment. But let's start with the banks. Results from J.P. Morgan, Wells Fargo, and Citigroup. Leslie Picker has the details. Hey, Leslie. Hey, John. Yeah, beats and raises for all three, at least as it pertains to net interest income. But mixed reaction in today's trading, higher for longer rates, a tailwind for all three as they continue to boost their outlooks for net interest income. That's a profitability metric from loanmaking. But on a slew of course, calls this morning questions from analysts and reporters alike on the lag effect of higher rates

on the economy, on loanmaking, on the ability of consumers and businesses to truly absorb the cost of financing. We just sat down with City's CFO, Mark Mason, who said the strength of the firm's business outside the U.S., also growth of credit card volume contributed to that higher NIA outlook, but he's not taking a recession off the table. Our base case calls for a mild recession at this point. We did have a good CPI print. I think the feds are likely going to want to see a couple of more months of that before taking significant actions in a different direction.

But when I think about our consumer, I think about the corporate clients, they have very strong balance sheets, and they've proven to be quite resilient through all of this. And so I think if there's any ever a chance for a soft landing on this, I think these indicators are certainly suggesting that. The other executives who spoke today also indicated they're not quite ready to rule out some kind of future stress quite yet. JP Morgan's CEO Jamie Diamond said that loss rates still have some time to normalize even during the post-pandemic era. And Wells Fargo CFO said he expects a few more quarters before the turmoil in office within commercial real estate works its way through the system, guys. Really interesting picture of what the banks are at least telling us here at the beginning of this earning season.

Leslie, thank you so much. So for more on the banks, let's bring in Gerard Cassidy of RBC Capital Markets. Jared, thank you so much for joining us here. Obviously, you're covering some of these big names that are reporting here today. City, I want to start with talking about sort of still waiting for the investment banking business to turn around. We know the deal environment has not been as robust as we've seen in the past. What will it take to change that to turn that around as City shares move lower here? Thank you, Courtney, for having me on.

And I would say what's going to turn it around is the Fed getting to its terminal rate on Fed funds. If the Fed reaches that terminal rate come, let's say, September, and the outlook for the Fed funds rate is, you know, flat for six to nine months and maybe a rate cut in the second half of next year, that would be very positive for the markets, particularly in the investment banking space. We also need to see that the companies that may need to go public or want to go public, they have to recognize valuations that they are far lower than what they. they were back in 2021 at the height of those valuations. So once those companies recognize that, you know, the valuations are down and we get a steadiness from the Fed, that could set the investment banking business up quite nicely for the latter part of this year and into 24. If we look at the rest of these businesses, and obviously the banks have so many different silos here, that's sort of the investment banking, more commercial side of the business. But what

did today's reports telling you about the consumer in relation to spending credit availability? It's interesting, you know, the consumer spending numbers, if you look at the JP Morgan data, we're good. The credit availability for consumer, whether it's credit card receivables or auto loans, still very strong. Consumers, of course, have access to this credit. The only area that we really saw today, and it was with Wells, and also with JP Morgan, but JP Morgan has a very small portfolio here. It's the office commercial real estate. That's the area that is starting to show real deal. deterioration. Wells pointed that out. J.P. Morgan, again, has a very small portfolio, but they also identified that. But on the consumer side, to your point, the consumer is very resilient, similar to what Mark Mason was saying earlier in the program. So, Gerard, let's talk about the ways still left to play this. JPM and Wells, I think, are above your price targets, but you still feel good about them, particularly JPM. Meanwhile, regional's, some of those you cover. They start reporting next week far below your price targets, but they're expected to have

news that's not quite as positive, right? So what's an investor to do? Yeah, it's a really good question, John, because when you take a look at it, the margins today for both J.P. Morgan, Wells and City, net interest margins came in better than expected. Now, granted, they were down slightly. In the case of city, they were actually up. And that's been, that has been the big headwind for the regional banks, because we all expect to see them use higher cost funding this quarter due to the problems we saw in the first quarter with the failures of signature and Silicon Valley Bank. And then, of course, the first Republic failure in May. And so I think what we're going to see is that the numbers aren't going to be as bad. And so we will see margin compression, but we could be surprised to the upside that it's not as bad as expected.

So for the regional names, to your point, the stocks are cheap. And I think this credit picture, if it follows through that most of these regionals do not have big office commercial real estate portfolios, their credit pictures should also be good. And that will give them some resiliency going into next week's numbers. Gerard, as I look at the performance of the financials here today, State Street down almost 11%. Bank of New York Mellon is off 6.5%. What's going on? I understand those names are in your coverage as well. Yes, Courtney, very observant.

they are down a lot. And I would point out that these are different types of banks, as you might know. These are our custody banks, our trust banks. And these custody banks have enormous pressure on their nettingrous margins because their customers are not grandma and grandpa and Buffalo, New York. They are large financial institutions. And as a result, they have to pass on to those customers, all of the Fed Fund rate increases. So their margins have been under incredible pressure. And then State Street gave guidance for the third quarter for net interest income to be down double digits, which is a complete, complete reversal from 12 months ago or even nine months ago. And so I think that's the reason that you're seeing such pressure here is the margin contraction has been severe for State Street and Bank of New York. And it's expected to continue into the third quarter as well.

And that's why I wonder, you know, we got the KRE down like 1.8% right now as JPM is doing well. how much bad news is really built into the valuations of these regionals now, how positive does the news have to be in their earnings for them to move higher? It is the $64,000 question. I wouldn't even say positive. I would just say less negative on the news. So if we have, you know, companies come in beating on the margin, meaning the net interest margin doesn't contract as much,

or beating on credit, meaning the loan loss provision isn't as high, You know, J.P. Morgan's loan loss provision today included $1.2 billion associated with the First Republic deal. You pull that number out. The provision for loan losses was meaningfully lower Q2 versus Q1. And that's a reflection of the strength of the consumer. And so next week, if we get better than expected credit numbers and net interest margins and then interest income pressure, not as severe as expected, John, that will help those stocks next week for the regional banks. Really eager to see what we get. Gerard, thanks for joining us. Okay. You're welcome. Thank you. All right, health care, also having a major impact on the Dowell today, namely United Health,

delivering a strong beat. Let's get over to Bertha Coombs for more. Bertha. That's right, John. United Health actually seeing its best one-day gain in over two years. They beat on both the top and the bottom line and actually raised their full-year outlook slightly on the bottom end, in spite of the fact that they continue to see high-met. They actually warned about that one month ago today at a Goldman Sachs conference saying that there seemed pent up demand for hip and knee procedures, particularly within their Medicare population. But if we drill down on the insurance side, it didn't really hurt results there. United Health revenues overall, United Health Care revenues are 13%. Though they did see high medical costs, it was within the range that they anticipated at about 83% of premiums. also talked about strong demand for mental health,

and a lot of utilization with that when it come to people under the age of 65, which created some headwinds on the services side, on the Optum side. Optum revenues were up 25%. That was better than expected. And their Optum health, that's where they have their primary care doctors, and they also

have their outpatient surgical centers. They also benefited as well, were up 33%. But they also have these contracts with those doctors that try to give a lot of care called value-based care, which means they try to hold in costs among that Medicare population. And that ate into margins. Their margins came in a bit lower than expected and was down sequentially, which is something that people looked at.

But CEO, Andrew Whitty, said it's one of those headwinds that he'll take in terms of future growth. I think, you know, if I had the choice on a slightly surprising, press margin in Q2 or the very significant growth that we've taken in. I'll take the growth all day long. And I'll take that growth because it's going to underpin years of growth going forward. The stocks today getting a boost across the sector, but this sector has been under an awful lot of pressure with a lot of concerns about the end of the public health emergency. You take a look at them year to date.

A lot of them are at or near beer market territory, but a very strong day to day, thanks to UNH. Back over to you guys. Okay, Bertha, the obligatory mention of artificial intelligence and earnings calls seems to continue this season. Do they have a real story here, particularly on margins? Can they use it to save money? You know, it's one of the things that C.O. Dirk McMahon talked about. Very interestingly, he was saying that they could try to use it to boost efficiency and to deal with issues like what's impacting margins on the services side. So they said, you know, we could use it to help handle calls when people want to call. and find out whether their doctors within network.

They could just do it with generative AI, and that would free up people at the call center to actually deal with more complex issues. Of course, there are people on the provider side, doctor side, who worry that they're going to use this generative AI to make it easier to deny claims and to make it even easier to deny pre-authorizations. So when you get the 800-pound gorilla talking about generative AI,

I've seen some people on the other side really, taking notice here and wondering how that's going to impact them. It's all fascinating, Bertha. I think there could be a lot of good, but also potentially some harm, and we certainly don't know the end of either side of that. Thank you very much. Well, coming up, some big econ data this week, markets and the Fed reaching an equilibrium for the summer. Most of the rate hike policy is priced in, but what about the fall? Plus, further ahead, the Hollywood picket sign. Actors joining riders in a strike against Hollywood and big media companies. The last writer strike changed the industry permanently shows getting canceled or taking a deep dive in quality.

So what can we expect this time around? We're going to talk about it when we come back. Welcome back to Power Lunch, the Dow rallying, the S&P and NASDAG, just above even on the back of a strong start to the second quarter earning season. One thing hanging over the markets is the Fed. While a rate hike is widely expected in July, the debate on Wall Street's already focused on what's going to happen in the fall. Here to discuss is David Spica, president of Guidestone,

capital management. David, is this market yet factoring in rates staying high? Oh, absolutely not. The market is now trading above where it was when the Fed started raising rates in March of 2022. I think the market, again, is looking at a soft landing, which means lower Fed funds rates. So a lot of optimism around the CPI report this week. That's leading people to believe the Fed will be lowering rates, maybe by year end. And I think that's what the market's factoring in. clearly is not factoring in a 5% plus Fed funds rate for a sustainable period. Given how strong things seem, I mean, relatively speaking, I don't understand the scenario

where the Fed is cutting rates, not hearing that yet. What does that mean about the attractiveness of fixed income here versus equities? Well, fixed income is very attractive. We've got yields particularly short end of the curve as high as we've seen since 2007. And the other thing that we thought would be attractive, would be less rate volatility. Now, we've continued to see a lot of rate volatility, but you're being compensated by that yield. So fixed income investors today, particularly in higher quality fixed income, because credit spreads are very narrow and subject to widen out. Those in higher quality fixed income are in a great shape. And again, attractive yields like we haven't seen since 2007 and something that's a great place to be today

if you're worried about volatility in the equity market. Where else, though, would you be if you are willing to take on a little bit more risk, when you're looking at the equity market, what areas are stocks in particular are attractive to you? Well, we would favor companies that have visible earnings growth. And we've really seen year today growth outperform value. We think that's likely to continue because when growth becomes scarce, which we believe it will, investors bid up growth stocks. And so companies in the technology and health care space are areas that we feel like will do well. They've got visible earnings growth,

notwithstanding the run tech's had year to date, but if you're selective and pick good companies that have that visible earnings growth at our high quality, I think you can weather the storm fairly well. Can you be selected for us and give us some names? I mean, tech is a fairly broad recommendation. Well, I want to go ahead and go with Microsoft,

one of the ones that's run the table this year already, but you've got to invest in something that has AI exposure. You just have to today. This market reminds me, me a lot of the late 90s and early 2000s. You had the Fed raising rates, you had valuations at an extreme, a very concentrated market, and a new technology, the Internet. And those were the companies that benefited from that. So today, it's AI. And Microsoft is one of those companies that's well positioned to benefit from the growth of AI. David, we're in this position,

especially with fixed income, where, as you mentioned, it's been like more than 15 years since we've seen some of the conditions that we have here. We have a whole generation of investors, probably in their mid-30s who haven't been working at a time when they have to think about fixed income in the way that they do now. So tell me, especially when it comes to tax-advantaged fixed income, things like munis, beyond just high quality, what sorts of things should the people at home be looking into and seeing if they fit? Well, you make a great point. There are a lot of investors today that have never seen a market like this. They think the Fed moves the market and that interest rates are always at zero. So it is something that they're not used to. The whole

6040 is dead. I don't buy that. You need fixed income in your portfolio to offset the volatility of the equity markets and risky assets. Municipal bonds are attracted. Whenever you have yields at this point, municipal bonds are attractive. But even for taxable investors, I think when you own bonds that are yielding 5% plus that are high quality bonds, it's worth the tax impact of that. Today, the equity market, the juice just isn't worth the squeeze. We've got the lowest equity risk And we've seen since 2007. And so fixed income, people are going to look back and say, you know what? I wish I'd had more fixed income there in the second half of 2023 because that was the place to be. You know, I'm looking through your notes here, David, and I see an interesting point about stock valuations.

I mean, do you think that there's, I don't know, some mystery that stock valuations are sort of hiding below the surface that we need to be a little cautious about looking forward? Well, there's a theory that, well, the market's being driven by the top five or ten stocks, and they're the only ones that are really pricey. But the broad market is a reflection of what is expected from the economy and from earnings. Lower inflation is a function of lower demand. Lower demand means that earnings and economic growth are both going to be lower. The market's not pricing that in. We're trading in almost 21 times today in an environment where earnings growth is basically flat, year over year, and where the Fed is at 5% plus on the Fed's phone's right with the expectation

is going to go higher. This market is not only fighting the Fed. They're trying to deliver the knockout load of the Fed, and it just doesn't make sense. David Spica, thank you for joining us here on this Friday to try to measure it all together. Thank you. As we had to break, we've got a mystery chart in today's three-stock lunch. This name is hitting a Nirvana up nearly 700% this year. What is it? We'll tell you, but you got to stick around. Power Lunch back in two. Welcome back to Power Lunch. Stocks higher on the day and the week, the NASDAQ, up nearly 4% this week. And the highs on the day for the NASDAQ and the S&P 500.

Highest levels of the year since April of last year, actually. Now let's turn to the bond market and Rick Santelli. Speaking of those high yields from our last segment, Rick, take it away. Yes, I'll tell you, it's been a wild week on every level. Did you pay close attention import export prices this morning? I did, and it was important to do so. Year-over-year import prices, 27-month-high. Think about what that's telling us.

Importing, countries exporting are hurting. Prices aren't going up, they're going down. And if you look at year-over-year exports, it tells us that our exports at minus 12 percent is the lowest since 83 record-keeping. Why is that important? That also tells you that the rest of the world just isn't doing as well as the U.S.

Now, if you look at a week-to-date of tens, wow, they might have popped on University of Michigan sentiment being a little. little bit higher on the one year and five to 10 year inflation rates. But wow, is it down significantly on the week? And the dollar index at current levels is down almost two and a half percent on the week. Let's go find a trader, Dave Meeseo. Dave, how you doing, buddy? All right, it's been a crazy week. You've seen all the data. Give me your thoughts. My thoughts are CPI, very low. They're priced in that we're going to have a rate hike again, another quarter percent. Don't know why.

There's really no reason for it? Is it just because they've already put it out there and said, oh, yeah, we have to, why can't we just follow the numbers? Just because it was telegraphed a month ago, why do we have to keep going, even though the numbers are telling you something different? At the beginning, they paused way too long and never did anything. Now they're going too much too fast. You know what?

Those sentiments are echoed by many, and I understand what you're saying. And I also see it from the Fed's perspective that market participants are keeping the percentages of the July rate hike near 91, 92 percent. But you're also correct that the Fed could do some independent thinking and maybe it's best to break this relationship where they lead the market by the nose all the time. They don't have to telegraph everything. But they are worried about volatility, so we need to understand that as well. Is that their job, though, to worry about volatility? Or is their job to keep things in line?

Well, based on the way they were talking when they first started hiking rates, their job was to slay inflation. No matter what, recession doesn't matter. So once again, I see your point. Now, let's consider what's been going on with volatility in stocks. You know what? It certainly seems the way stocks trade this week that they're thinking it's done in terms of our central bank. I agree. I agree.

It seems like it's done, and they don't want to rock the boat. So I don't see much else going on. Is there any talk in the pit about the B-O-J and the fact that the Bank of Japan real quickly may actually change yield curve control? Oh, yeah, I mean, because that's the last bastion of kind of free money out there. and if all the sudden they start raising, oh, wow. Gotcha. You know, it might be a big deal.

Dave, it's been great. Oh, man. Thank you. John Fort, back to you. Old school, Rick and the Bond Pit. I love it. All right. Now, let's get over to Kate Rooney for a CNBC News Update.

Kate. Hey there, John. Here's your CNBC News Update at this hour. Vice President Harris is announcing a new $20 billion investment in clean energy projects. These projects include installing electric vehicle charge stations, building more energy-efficient homes, and adding battery backup power for communities. The money comes from two grant competitions

with the goal of funding low-income or disadvantaged communities with concerns about environmental justice. The first Vermonter has died as a result of the state's recent storms and historic flooding. The man drowned in his home. That's according to the emergency management agency. This is the second flood-related death in the Northeast this week and more rain is expected in the region.

And Saracha prices are, skyrocketing as chili pepper supply remains scarce. The high-fong company's signature hot sauce used to go for $5 to $10 a bottle, but third-party sellers are now listing the sauce for up to $150.50 the chili pepper supply an issue for several years now. And the company hasn't given an estimate of when it believes it'll get better. Guys, back to you. I'm more of a Franks hot sauce person. I am too, Kay. So I'm kind of glad I'm not on the Saraji craze. because this is a saracha craze, because it seems a little wild. People are paying astronomical sums for this on eBay, I've heard, like bottles going for hundreds of dollars.

Exactly. Wild stuff. Thank you very much. Well, coming ahead on Power Lunch here, this next week could be a make-it-or-break-it moment for the film industry. Three big blockbusters with viral hype fueling them. But even if it's a box office blowout, now the Hollywood strike is putting the entire industry on hold. Plus, the retail end of Prime Day. You'd think Amazon is leading the charge in games this week following its big sale, but some other names are actually beating it out.

We'll discuss all of this when Power Lunch returns. Welcome to Power Launch. We just want to show the NASDAQ has turned negative here, just ever so slightly on the day, down about a tenth of percent, but still at more than 3 percent for the week. The S&P 500, that one lower two. The Dow is still positive, thanks to United Health, which is accounting for all of the Dow gains. Dow Jones Industrial average higher by about four tenths. of a percent. Yeah. All right. It is just a few months after more than 11,000 film and television writers went on strike. Actors in the Screen Actors Guild have joined the stoppage in the first

tandem strike since 1960, effectively grinding all Hollywood production to a halt. Now, ahead of a crucial box office next week with Barbie and Oppenheimer, and we've got to mention MI7. Come on. The move is cataclysmic, according to one of my next guests, could reshape the industry for years to come. Let's bring in Brent Lang, variety magazine senior film and media editor and Robert Thompson, film and media professor at Syracuse University. Welcome, guys. Robert, is all of this really due to an oversupply of content? I mean, Bob Iger was just on our air talking about how they made too much in Marvel,

made too much in Lucasfilm. Is that driving down what content creators, the actors, the writers are worth to the studios? I mean, it's part of a really, really complicated equation and one that I see no in the immediate future way of actually sorting all out. You know, we keep citing that 1960, the last time everybody, the writers and the actors were all on strike. Back in 1960, we were dealing with the issue of how are we going to pay people when films play on television? That was the new medium. And that was pretty simple. We're now moving into a period where all of the entire industry that actors and writers and everybody else has been working with is changing on such fundamental levels from the means of distribution to the number of episodes to all of this kind of thing, that all of that is going to have to be kind of built from the ground up.

Now, certainly, the idea of all this spending in to compete to get as many subscribers as possible in the streaming wars, in its early years has certainly messed up some of the, some of the meth. But there is an awful lot to be sorted out here, more than I think in any other negotiations that people in these industries have done in the industry's history. And I don't see any signs, certainly in the writers, almost 75 days, haven't, don't look to be making any progress. This is a huge job. Brent, why do you think that this is cataclysmic here for the industry? And do you agree with Robert that the timing of this is potentially also very troublesome? Well, I think Robert's absolutely right.

And I think that's part of the reason why this is cataclysmic, apocalyptic, however dramatic descriptor you want to pick here, because these companies are not doing as well as they once did. Their bet on streaming has not paid off to the extent that they think. thought it would. It has required enormous amounts of capital. It has required them to take on an enormous amount of debt. And I think that they do not have the financial wherewithal to be as generous as maybe the actors and the writers would like them to be. So they are not, you know, as strong as they were just a few years ago. And as Robert alluded to, the issues here are really

Byzantine. Like, how do you reimagine a model? How do you make sure that people are fairly compensated for their work and a business and an entertainment ecosystem that looks completely different than it did nearly a decade ago. But Robert, didn't Hollywood, the powers that be the media companies create this problem by flooding the zone with content and by spending tons of money on it? I mean, if they were to just pull back and make less, then maybe you wouldn't end up with this issue. I was just reading in the New Yorker of this story about how the orange is the new black actors, their residuals are terrible, and I can't help but think that's probably because instead of watching reruns of Orange is the New Black, like we used to back in the 80s and 90s,

now the industry is pumping out something new every single week, much of it of questionable quality. Okay. We made about five points there, all of which go into this complicated sort of mess. Yes, money used to be made. You'd make a show. It'd become a hit. It would go into syndication, and a few people would make wheelbarrows load full of cash.

Your point about how didn't they bring this on themselves? You know, I used to think when I was a young student of the media of film and television that these big executives, these Hollywood moguls, these people whose biographies I would read, really knew what they were doing. I no longer have that confidence anymore. I think in a lot of ways they barreled into this new technology. In many ways, with one thing in mind, we've got to settle this new territory. we've got to get as many streaming subscribers as we can, as quickly as we can, until the frontier is cleared, and we'll worry about the consequences of that later. Well, the consequences have, of course, come. You're right about one of the ways you just keep getting more and more material, and you don't have to watch old episodes of I Love Lucy anymore like we used to. So all of that stuff goes into this. And it gets even further. There's so much.

much inventory that in many ways, some of these streamers can wait this out because I could watch stuff on Netflix from now until the day I die and never watch anything that I'd already seen before. There's this weird sense that if this strike goes on for a long time, Netflix, Prime, the rest of these, they can become the equivalent of TV land or Turner Classic movies, just showing all this stuff that they've already got. You know, Brent, before we wrap up the segment, we have to talk about AI's role in all of this. I do find this very fascinating. And Duncan Crabtje, Ireland, who's the National Executive Director and Chief Negotiator for SAG, basically says that what the Alliance of Motion Picture and Television producers are offering is a joke. He says, look, they say

that the performer should be scanned, get paid for one day's pay, their company could own scan their image and likeness and should be able to use it for the rest of eternity and any project they want with no consent and no compensation. So if you think that's groundbreaking, I suggest you think again. It appears they're very, very, very far apart when it comes to artificial intelligence and where they should come to a compromise. Yes, and I should just say that the studios say that that is not exactly what they were proposing, but chances it was not terribly generous. And I think it goes to a central issue here, which is that nobody really saw AI as being a big problem when they were going into these negotiations,

but it is a huge problem and it is a really animating force for both the actors and the writers. the writers really believe that they may be replaced by AI when it comes to doing things like doing a polish on a script or even writing a script. And it's a little frightening to me that this is going to be decided by, you know, studio chiefs who I'm not sure really know much at all about artificial intelligence and what safe, sane, rules of the road should be when it comes to governing this new technology. Do any of us really know anything about AI with what it could do? I think this conversation is going to be continued for some time. to come. Brent Lang, Robert Thompson. Thank you so much for joining us. Come back soon. Thanks. We're for the under the radar retailers. That's the recommendation from our next guest. Look at those, especially the names well below recent highs. Power Lunch will be right back as we

discuss. Welcome back to Power Lunch. I'm Christina Pards Nevelist at the NASDAQ. Let's talk about NVIDIA shares because they're seeing a little bit of volatility today. They started over 3% higher after Truest boosted its price target by $16% to $545. The analysts saying their industry contacts in the electronics business are increasing their demand for data centers, which of course bodes well for Nvidia. But you can see right now shares have dropped in are, you know, about negative 0.5, half percent lower. And that's because options contracts in VINVIDIA right now are triple today what they've been in the last 10 days. That contract volume shows investors using derivatives to chase money and usually results in more stock volatility in the future. So a little bit of uneasiness right there, and that's why the stock is sold off.

throughout today. Interesting. Thank you, Christina. Obviously, this talk we watch very closely. Well, a big week for online retail, not because it was Amazon Prime Day, believe it or not. The online retail ETIF, I buy, up more than 9% this week. No thanks to Amazon, shares, up only 4%, but other online retail plays like a firm, Carvana, up more than 20%, Peloton up 8% for the week. So what is all this say about the strength of the consumer or these different technical moves? For more on the consumer and where to invest in retail, let's bring in managing director at Loop Capital, Anthony Chacamba.

Anthony so much, thank you so much here for joining us earlier in the show. We were talking about Fed policy, where we are in the interest rate environment, what the banks were telling us about consumer spending and credit. So let's kind of start big picture. What is your assessment of the current U.S. consumer right now as we're heading into the all-important back half of the year with back-to-school spending and, of course, the holiday? The U.S. consumer is in a really good place right now. I mean, let's sort of go through it.

The unemployment rate continues to be very, very low at 3.6%. We also see about 4.5% wage growth. And for the first time, in a long time, wage growth is actually higher than inflation. So consumers purchasing power is getting better. The housing market has clearly bottomed. It seems like it's getting better. And you saw the University of Michigan Consumer Confidence number this morning that was certainly better than expected and have pretty significant sequential improvement.

from June. So the U.S. consumer is in a great place heading to the back half of this year. So, Anthony, I hear what you're saying. But if that plays through, why then is discount retail the way to be? If consumers are stronger than maybe some think they are, why is discount where you want to put your money? I think that even though the consumer is in a great position, they don't necessarily feel like they're in a great position, right? So even consumer competence that I mentioned, even though it's improving, it's still low. relative to historical level. So that consumer, they're almost waiting for that other shoe to drop. And so while they might be spending, they're being a bit more judicious in terms of

where they are spending. So we are seeing some trade down from, say, for example, supermarkets, drug stores, convenience stores, into the dollar store. So think dollar general, dollar tree. There's probably Walmart and Target benefiting from that phenomenon as well. Anthony, here's my concern if I'm looking to take the other side, which I always am, on just about everything. Yeah, wages are staying high, which is good if you're looking at consumers being able to spend, but prices are also staying high on all kinds of things, on housing, which we're going to talk about in a bit, on goods. They're not not going to be rising so much, but they're staying high. Isn't that creating pressure on the overall economy and continuing pressure on a consumer

whose savings have depleted? So I think we have to always think about the trend, right? Because, you know, if we were having this conversation literally a year ago, inflation was at 9.1%. The latest reading was 3%. So it's really come down pretty significantly. And we're getting pretty close to spitting distance of the Fed sort of preferred, you know, 1 to 2%. In addition to that, like I mentioned earlier, wage growth is actually faster than inflation. So purchasing power is improving. So I'm not saying that what you're saying is incorrect, but I'm saying that I always try to think about, you know, the trends.

Kind of like, you know, why was Wayne Gretzky so great at hockey, not because he was where the buck was, but where it was going. You know, Anthony, you have a really varied coverage list. So putting all of this together, what are your top buys, suggestions for investors right now in the retail space? Yeah. So one of the things that that I was looking at recently is the fact that even though the economy is getting better, it's largely discounted a lot of these retail stocks. And you talked about some of the moves that we've seen some of these retailers. So I'm looking specifically at retailers that are trading at pretty significant discounts with a 52-week highs. So, for example, there's National Vision, the value-optible retailer. Stocks had a nice move recently, but it's well

below the 52-week high. Dollar General is in that same camp, and as I said, will benefit from the trade down. William Sonoma is a stock that unfortunately everybody kind of loves to hate. They're in that same camp. So those are three companies that I'm that I'm keyed in on right now. Interesting stuff. Anthony Chacomba. Thank you so much for joining us. We'll see how all this plays out following Amazon Big Prime Week. Today's three-stock lunch and close to home, we will explain. The Power Lunch return. It is time for today's three-stock lunch. Looking at some movers of the day in all kinds of directions. First up, Home Builder stock, Lanar, getting an upgrade from Raymond James along with Pulte and KB Home, citing the buildup of demand in single-family homes.

a refreshed valuation approach. The stock is up 45% year to date, about 2% today. Here with our trades today is David Wagner, portfolio manager at Aptus Capital Advisors. David, what's your take on, Lanar? You know, John, I've loved home builders for a very long time. I've been overweight there for about the last 15 months. And I think that momentum can actually continue right now because it feels like a lot of the positive news coming out fundamentally and macro, you know, is just keep flowing in. I mean, just look at the recent data on the resale inventory. The number of new listings entering the resale market, well, continues to surprise to the downside. I think it was down like 21% year of year, or just last week

alone. But I do think that the existing home inventory environment is going to remain challenge, given the fact that 60% of the outstanding mortgages in the U.S. have a rate lower than 4%. And that's relative to current rates of about 7%. So with existing homeowners hesitant to give up their cheap mortgages, homebuyers, well, they've started actually taking market share away from that resale market. And for Enart, the stock we're talking about, you know, they were the original engineer of that mortgage rate buy down, which has now become industry standard, almost creating a competitive moat around an industry that was once considered to be commoditized. So look, John, you know, Homebuilders, yeah, they're not the deep cyclical companies that a lot of

investors recognize them in. Yeah, you've mentioned that they've run a lot year to date, but I actually think that there's still a lot of upside here right now, but more so coming from a valuation re-rating that's well deserved. That's very interesting. It seems like the only way on these is up when you look at the trend of where Lenar has gone over the last year, year to date. Next up, shares of company pool are down more than 4% today after pool supply company Leslie's cut its fiscal year sales and earnings outlook Thursday evening. Warning of abnormal weather and a more price conscious consumer. David, this is interesting. It's hot outside. I'd like to be in a pool, but are you bullish on the stock? Yeah, I'd love to be a pool too right now. And I am long strong in the stock. But this leds report, Courtney, definitely catches my attention, not just because of them citing

weak foot traffic and slowing same store sales, but just look compared relative to Poole's last quarter. Their last quarter was horrible. And I mean, investors in Poole, they're not accustomed to back-to-back poor quarters. I mean, their management team has a long, strong history of great execution. And not only that, being very conservative on their guidance. And last quarter's missed basically implied that it just wasn't all weather baked into that guidance. So the potential for another poor quarter, poor pool on this lessee reed is definitely getting a lot more attention from investors right now. But long term, yeah, I'm long as stock.

I think has a lot of structural benefits as about 60% of the company's revenue is recurring on the services side, which is definitely insulated some if there is some type of downturn in the market. Plus, it trades it like a two standard deviation discount relative to a 10-year historical average. So I'm long here. All right. Last but not least, Carvana.

parked in the driveway today down 3%, but skyrocketing more than 600% this year, down roughly, as I mentioned, 3% today. J.P. Morgan says the stock could fall more than 70. David, is it time to reverse on Carvana? Yeah, you know, I think it hasn't been as much of a short squeeze as many people have originally thought. So I think if I was as short the stock, I'd be very careful here. But I just feel like a lot of the good news is really currently priced into the stock,

especially as a company has actually been losing market share as they cut costs. I mean, basically for this story to change, they have to persuade investors that they are once again a growth stop and not just a turnaround story. So that just does not fancy my interest here, John. All right. Maybe not reverse. Maybe emergency break, though. David Wagner.

Thank you. Well, let's cap off the week with some other stories that we're watching. Closing time is coming up next. We only have a little more than two minutes left in the show. A bunch of more stories, though, that you need to know. I'm going to get right to it. Eli Lilly is acquiring for SACA, privately held a BC drugmaker for up to $1.93 billion to expand its weight loss treatment portfolio. The deal is Eli Lilly's latest attempt to capitalize on the weight loss industry rush, which began last year after Novo Nordisk, popular injections were gobi and OZempec boomed in popularity. I mean, that OZempic craze, John, does not seem to be going away.

I can imagine if you're a drug maker of any kind, you're looking to see what might be available in this industry. It's not just, all of these words are hard to say, because some of them aren't like real words, but Mujaro. Eli Lilly's got that. That's expected to perhaps get approval for weight loss later. Versanis has Magramab. Why don't they name these things like they name hurricanes, like Chris, right? Chelsea.

Yeah, we could do that. Yeah, exactly. We could. We could. Well, ahead of the much anticipated Barbie movie next week, Mattel, climbing 4% just this week, now of 20% for the year. But is this a sign of strength for Mattel IP? Or is this specific to Barbie?

We talked about this yesterday, John. I feel like it's a little stealth move. Obviously, there's a lot going on in Hollywood right now with a strike, but this movie's still set to come out. There's a lot of buzz. Yeah, but what's the next Barbie move, right? So if this is successful, do you do Barbie 2? Is there a Barbie TV show?

Is this tongue-in-cheek? Is there a teen play? I don't know if they've got the plan. That's what it's going to take for this to become like Marvel, like Lucasville. Yeah, I think this is the play on the Barbie players of your like me, and I think maybe the next move

is how do you capitalize on the current generation of potential or current Barbie players? And maybe an unforeseen return to office hiccup. Now, some employees haven't worked outside their home in months or even years,

those who joined the workforce during COVID. They'd never been to the office at all leading to some issues about dress code, proper office behavior to address these concerns. More than 60% of companies or giving or plan to give their employees etiquette classes by next year.

Let's just hope they're not those online things where you have to watch a video. I hate those. I know because, I mean, who's actually going to pay attention? And if you really need ethical classes, we need you to pay attention. That's going to do it for Power Lunch.