Power Lunch - The Summer Setup For Stocks, Tools of The Trade 5/28/24

Episode Date: May 28, 2024

Markets are once again split today. The Nasdaq is soaring to a new record high, while the Dow is down nearly 300 points. We’ll examine the setup for stocks now that the summer season is underway.Plus, Salesforce earnings are on deck. And the software stock has been largely overshadowed by names like Nvidia. We’ll take a look at the fundamentals, technical and options trades on $CRM ahead of results. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hello way up there and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Markets. Once again split today, the NASDAQ soaring to a new record high while the Dow is near session lows down nearly 300 points. Healthcare stocks dragging on the Dow. Amgen, United Health, Merck, accounting for about half of the Dow's losses. But the NASDAQ is higher and Nvidia is boosting tech stocks. From the day the NASDAQ first closed above 16,000 in November 21, that was the sort of post-COVID high until today, has gained more than 250%. This is as the NASDAQ is above 17,000 for the first time. And look at this. At how close, Nvidia now is in market cap to Apple,

only about $150 billion behind. As Nvidia's market cap approaches $2.8 trillion, Tyler, we'll have more on what's driving that coming. I could live comfortably on the difference there. Couldn't we all? Let's begin with the setup for stocks right now as we've reached the sort of unofficial start of summer. Mike Santoli joins us now with more from the New York Stock Exchange.

Hey, Mike. Hi, Tyler. Well, if you look at history, you know, June, July, tend to be actually positive when the market's already in an uptrend, which we decidedly have been. And also in election year. So you have a little bit at least faint tailwinds in an upward direction. Maybe it contributes all else being equal to some drift higher from here. All else is never equal, though. And I think today is a perfect microcosm for what this market is, which is it's supported,

very well by overall earnings. They're being revised higher and they're being driven by those high conviction, secular themes like AI investment, like CAPEX in industrials. At the same time, higher treasury yields, challenging things, seeing some consumer fatigue within the market. And you do see a lot of selectivity in terms of leadership. So all those things together, I think, kind of boil into a neutral position short term. You definitely are not seeing any problems coming out of credit. You definitely have to deal with the fact that it's a market again. And the rule has been when treasury yields are higher, the breath narrows. And you really need that line of sight toward Fed rate cuts or bigger drop in yields to have the broad list of

stocks start to participate again. So, you know, maybe a little bit of chop in here. I do think it's very worth noting, though, that when the 10-year treasury yield first got to this level, this cycle, 4.5% in September of last year, the S&P was 1,000 points lower. So it's not just an absolute level of yields. It's how fast they're moving in one direction. All right, Mike. Let's keep you around and bring in Brett Schutie, Northwestern Mutual's wealth management company, CIO. Bless you, Kelly. See, having a little sneeze, a little pollen kicking in here. Brett, because Mike mentioned breadth in the market, I know it's one of the things that has caught your attention. The market has been, by most measures, pretty narrow.

large-cap, big-tech, mega-cap stocks have driven the indexes to where they are. But you think that may change in what you see as the dawn of not a new era, but a bit of a transition in the market. Explain why. Yeah, I think there's a dawn of a new economic cycle. And so I don't think we're going to get out of this without a recession. I still think one is likely in the future because I don't think inflation breaks without one. We've been kind of stuck in this narrative of those large-cap names doing well.

And I think Michael mentioned momentum. It certainly is a powerful tool that people gravitate towards because on Wall Street, we all have to put money to work on a daily basis. And so people have gone to those more seemingly economically reseted names like those big tech companies. But I think when you see the opposite side of this, when you see interest rates come lower after a recession, I think for investors who think 12, 18, 24 months out in the future, I think there's opportunities for the market to broaden back out and bring in things like small and mid-case. which trade at 14, 15 times earnings, and even parts of the S&P 500, beyond those top 10 names, which trade for 15, 16 times earnings. But to me, you can't keep having a market this narrow and economy this narrow without either the economy restricting, causing those names to go up or recession. I want to come back, Brent, to this thesis, which seems like a critical one, of which cracks first, the economy or inflation. But before I do that, back to you, Mike.

How does Brent's thesis strike you? In other words, that once interest rates start to fall after a short recession, once interest rates start to fall, the favorable signs will be sort of towards the mid and smaller cap stocks, not the biggies. Yeah, I think that kind of a reset would be pretty much textbook if we were going to be at that point in the cycle. I just don't know if it's a far gone conclusion that we are, or that we would wait for it, or from what level we'd be rising, you know, if you're as small and mid-caps. So I think it does make sense. I think I'm more just looking at, you know, the direction of change in yields has tended to determine

whether, in fact, smaller stocks and the average stock in the S&P get some relief or not. And so, you know, the marketplace defense against higher yields in some ways by going to the very well-defined themes and those companies impervious to a lot of the macro. So I'm more observing than predicting that that's going to be the way. So, Brent, why don't we go back to that thought? You think the economy will crack before inflation does. Why are you persuaded that way? Because I don't think the Fed's going to be able to cut rates.

And the longer that rates remain elevated, the more they work their way into the economy. You're seeing that at the lower end consumer where they've run out of excess savings, and they're now feeling the pain of credit card and auto loan debts. I think eventually because the Fed leaves rates higher, I do think it continues to work its way into the economy. And we should all remember that on average, it takes 10 quarters for interest rates to impact the economy, at least in the prior times the Fed is hiked. And we're only nine quarters into this. And so we're not out of the historical norm for how long it takes to filter in. And I think you had an economy that was kind of built up against that.

But now you're starting to see its work through. And I think that's where you eventually get a recession because the Fed won't be able to cut rates. And I think kind of tying into Mike's comments, if we're wrong, if the economy does, broaden out. If the Fed can cut rates, I think that's where you have optionality in small and mid, and you can win longer term on valuation in both instances. Yeah, it's tricky, Brad, because some of us have been waiting for that recession for a couple of years now. So in the meantime, the stock market's been a great investment. I'm sure a lot of people feel the same way. Is this basically a case to tilt towards,

you know, the Russell instead of the S&P? I just, especially if a slowdown's coming, I feel like that's going to be a tough sell. Well, I mean, I think if I go back to 1999, actually, small and mid actually did better into the recession and before it because rates started coming down when people opened up to the reality that there was going to be a recession. And so I think Michael mentioned a playbook or Mike mentioned a playbook. And I think people have been playing that playbook with your comments about preparing for a recession the last couple years. And that's where I think these names actually have already discounted some sort of that. And so I think it's always a question of when that turns. And this is a tweak towards that, not an all in or all out.

And that's where we've been trying to figure out, how do you take from what one in the last. economic cycle, market cycle, and position your portfolio for the next one without giving up or losing too much of the upside that you're seeing right now. And I think we've done a pretty good job of that. So tell us what signs you're seeing right now that lead you to believe that a recession is somewhere over the horizon, somewhere over the rainbow. I mentioned that before. I mentioned that the low-end consumer is starting to be harmed. I think the high-end consumer has been helped by a market that's been rising because the Fed really hasn't pushed back on financial conditions, which I think we're all waiting to hear them say that perhaps the market rally has created a wealth effect.

I think once those things occur, I do think you will see some signs of an economic slowdown broadening out, which I think it will. The labor market, we all talk about the SOM rule on these broadcast. 21 states are now violating it. We haven't violated on the overall level before, or yet, but you're seeing signs of weakness underneath it. And so to me, it's when that excess liquidity wears out on corporations, on consumers, and when does the impact of higher rates work their way through as companies repriced their debt and things of that nature, which I think you're eventually going to get to. All right. Interesting argument. Brett Schuette, thank you very much. The R-word part of the

conversation. Mike Santoli, thank you as well. And Nvidia's post-earnings rally is continuing. That's what accounts with the big bifurcation between the Dow and the NASDAQ today. A lot of this since reporting results last Wednesday after the bell. The stock is up 19 percent and just three trading sessions. For more on what's continuing to drive it higher, let's bring in Christina Parzinevallis, 10 for one stocks. Blood obviously could be a factor here. What else? What and why what today now? Ah, there's three reasons. And I'm sure many of the analysts right now with their 1,000 plus price targets are, you know, cheering that they've been correct for so long as NVIDIA climbs. We're joking upstairs, you know, colleagues saying, oh no, Nvidia cratered. It's

under 7% right now because it's trading at 687. Well, let's talk about the first driver. Elon Musk is in the process of building a supercomputer with a startup X-AI, that's valued at $24 billion, $24 billion, not chump change, right? Fortunately for NVIDIA, X-I hasn't talked about building in-house chips like many hyperscalers, Amazon or AWS, Microsoft, meta, et cetera, which means some of those $24 billion fundraising dollars will go directly to Nvidia chip sales, which are necessary for the AI infrastructure. So that's considered one major driver today. Another bullish point for NVIDIA comes from today's business, a business,

piece that suggests that Amazon Web Services, AWS, is struggling to compete with Nvidia chips. AWS makes in-house chips at their Annapira Labs. They're not too long ago talking to the team over there. But unfortunately, this report claims that AWS's largest customers aren't really adopting and using the in-house chips for AWS. It's actually just a half a percentage of Nvidia GPUs in terms of adoption rate. Even some internal Amazon AI projects rely on Nvidia chips versus the Amazon.

Amazon homegrown chips, which is obviously not a great sign when you have this lab that's been around for over a decade. And, you know, they're still opting for Nvidia chips. And the reason for that is Nvidia's software, Kuda. Snowflake CEO also recently just in the last month talked about in using Nvidia chips over AWS chips for its large language model. So that's another driver. And then last but not least, there's another analyst report research, Mellius Research out with a higher price target, 1250 on Nvidia because, quote, they don't see anyone challenging Nvidia's margin. for the next two years.

Wow. So those are new drivers. So the moat is wide and deep. Precisely. Precisely, especially because for our audience that's watching and wondering, should I get in, what else could happen with this company? Well, on Monday, it's Computex. I should say over the weekend in Taiwan,

that is a computer trade show. Normally doesn't make news, but you have Intel CEO, AMD CEO, Qualcomm CEO, Invidia's CEO, and ARM CEO, all examples of people that are going to be speaking and making news. So we can assume that InVio will be. one of those too. There's been some, you know, murmurs maybe AIPC, given this as a computer trade show. They all seem to be talking about that. So that's one major driver for Nvidia. And the other one is the Blackwell chip, the next iteration, ramping in Q3. We should start to see

revenues Q4 of this year. Impressive. And that market cap stat that we mentioned earlier, but the fact that Nvidia is about to overtake Apple, maybe it won't happen. Who knows, the market can surprise you, but that it's even that close in such a short period of time is shocking. Which is why there's still a lot of bears out there because it's so, just so big. Yeah, and so rare for the timeframe. Yeah, it's going so far, so fast. Absolutely. It reminds me of Tesla when it first cracked that marker. And then what happened? Yeah. Christina, thanks. Christina parts and I'm a lot. Thanks. Coming up, a potentially positive change, speaking of which for Apple in China, maybe it can stay ahead of the competition. iPhone sales jumping 52% in April, according to new reports. We'll have details on

that story next on Power Lunch. The NASDAQ is up 13%. So, far this year, but Apple not helping. It's actually down by 1% so far this year. But the stock's slightly higher today on reports iPhone sales in China maybe weren't as bad as feared. Steve Kovac is here with that story. Steve. Yeah, and it looked like they're about to erase those losses for the year of pre-market, but since falling off this highs. But look, Apple's fortunes, like you said, in China might be turning around, Tyler. Shares are up following data out from the Chinese government overnight, showing iPhone sales jumped 52% in April from a year ago. It's been a major laggard behind its peers all years and even lost its most valuable company spot to Microsoft.

Apple's been, of course, struggling in China ever since the pandemic hit, whether from COVID-related production shutdowns or the more recent competition coming back from Chinese brands like Huawei. Last earnings report for the March quarter showed China may not be as apocalyptic as research firms like Counterport had applied throughout the year. Greater China sales were down 8% that quarter, which is, of course, still bad, but not the collapse. some analysts thought was going to happen. And it was an improvement from the 13% dip in the December quarter. And on top of that, CEO Tim Cook said during that report, iPhone sales in mainland China actually grew. And today's report seems to be building on that momentum, yet still going to be pressure

on the iPhone business through the end of the year, especially the new model this fall, which is going to need some impressive AI features to convince folks to upgrade. We're expecting to get our first taste of Apple's AI plans on June 10th, of course, at the annual developers conference. Bloomberg reported some nuggets over the weekend of what to expect from that event, like automatic photo editing and AI-generated emojis. I know you're excited for that, Tyler.

Though the next iPhone will need something special beyond that and unique next month if the business is going to return to growth guys. So how do you account, or how has anybody accounted, for this 50-some percent increase year-over-year? Yeah. Is it simply easier comps? Part of it is easier comps,

And part of it is massive discounts. And so the last couple months, we've seen various retailers in Apple itself just cut prices, basically. And keep in mind, they're going ahead to head with Huawei, which prices their phones typically cheaper, but competes on a spec level. So there's a bit of that going on to. And I guess I would think, you know, the Chinese government has banned for government users, the iPhone. We never got clarity on that. Basically, no, but maybe is kind of the answer. Maybe you can use it, but probably not.

That was a big headwind last year. It seems pretty clear that the word has gone down from Xi that we would prefer you to buy. And this is what we're seeing on both sides. I mean, we see this in the United States with the Biden administration last week. You know, 100% tariffs on electric vehicles. Everyone's going tit for tat back and forth for this kind of stuff. But China is still hugely important next biggest market after it could be up to a fifth of Apple sales. So, you know, if China doesn't recover, Apple.

can't recover. Steve, thanks. We appreciate it. Elon Musk's startup raising another big round of funding, $6 billion to make the XAI now valued at $24 billion. Deirdre Bosa is digging into those investors backing the tech billionaire for today's tech check. It's Deja Vu, Deja Vu, Deja. Deja Vu all over again. Now, pre-Gen AI, though, this is not deja vu, $6 billion for a series B round. That was unheard of. But this is the age of the Nvidia GPU and Elon Musk's expanding universe. A source familiar with the deal tells me that the $6 billion round came down to an allocation game, who got in, how much they got, Musk was personally choosing, and he could have raised more if he wanted to. So you might consider the investors that did get in, they're part of Musk's

inner loyal circle of backers, named at the top of the blog post announcing that round, Valor Equity Partners and Vi Capital. These are two lesser-known VC names that have backed Musk's other ventures. And then there's Sequoia Capital and Andreson Horowitz. These are basically household names here in Silicon Valley. They also chipped in $800 million and $400 million, respectively, for Musk's Twitter acquisition in 2022. Back then, Ben Horowitz tweeted, we invested because we believe in the co-founders Evan Jack's vision to connect the world, and we believe in Elon's brilliance to finally make it what it was meant to be. Now, since that tweet, the company formerly known as Twitter, has lost billions of dollars in value. But two years

in venture capital, that's a relatively short amount of time. The adage of here towards failure, it's generally a lot more accepting compared to many other business environments. Plus, what I'm hearing, guys, is that he's going to be able to draw from those data sets from X, formerly Twitter and Tesla, and that could give him an advantage and edge in this arms race. It just goes to show that Musk has been so successful with, you know, whether if you put it all together, SpaceX, I think obviously gives so much credibility with regardless of what happened with Twitter, Tesla kind of coming through the 2010s, nearly going to bankruptcy and then kind of still being ahead of the curve. So they think hope, expect, okay,

maybe he knows what to do here and can do it again. It's just, it's amazing that they're not more burned by the experience of those losses with Twitter. Not at all. I was looking through sort of the list of investors and there's so much crossover. You mentioned X, formerly Twitter, Space X. There's also Neurlink, right? A lot of the investors that I looked at that have invested in Twitter or XAI have been in NeurLink, and you mentioned Tesla as well, so they don't feel burned. I would say they maybe feel emboldened, and that's why they didn't mind their names at the top of this press release, because they're in it for the longer term. And one thing you hear so often that I hear from founders and investors is don't bet against Elon. Yeah, no, it's betting

on the jockey here, it seems, is kind of a classic case of that. Deirderbosa, thank you. And coming up, A force to be reckoned with before AI cloud was the hot technology on Wall Street. But now even giants like Salesforce have been forgotten a bit compared to the likes of Nvidia. Some analysts saying Salesforce is undervalued. We'll take a look at that at the fundamentals, the technicals, and the options for ticker symbol CRM. That is when Power Lunge returns in there. Welcome back to Power Lodge. Take a look at this bifurcation in markets today.

The Dow down nearly 300 points with broad weakness in areas like health care of the S&P lower by 8, especially after the poor five-year auction at 1 p.m. But the NASDAQ is still higher and was over 17,000 for the first time, helped by NVIDIA. Let's get a check on the bond market. Speaking of that action from Rick Santelli in Chicago, Rick. Yes, it was a $139 billion day for the U.S. Treasury. We started out at 1130 Eastern, auctioning 69 billion two years. Never been a two-year auction bigger.

Look at an intradate chart. 11.30 Eastern, you can see. Yields moved up a bit. But that really wasn't most of the good action. The biggest action based on auctions was at 1 o'clock Eastern. Look at two-year and five-year on one chart. We auctioned off $70 billion five years at one Eastern, and the auction was not pretty.

Yield zoomed up, as you can see. Two-year notes coming very close to that 5% level. We haven't closed to two-year. above 5% since the 30th of April. And as you look at the longer term charts, you can see the 10-year also is now on the north side of 4.5% on pace for a three-week high yield close. These are important psychological yields,

whether it's four and a half on tens or 5% on twos. Tomorrow will complete 183 billion package with 44 billion seven-year notes. Now, not auctions. Auctions today don't necessarily mean auctions in a couple of weeks or in a couple of months are going to continue to go as poorly. But what it does show us as investors

are ultimately demanding a bit more yield to take on all the extra supply by the U.S. Treasury. Tyler, back to you. All right, great point, Rick. Rick Santelli reporting. In the meantime, Hess shareholders voting on whether to approve Chevron's takeover

of the company, and Pippa Stevens has the details. And just now, they did approve that takeover, just now coming in a statement from Hess. Now, this is important because leading up to this vote, there had been some growing pushback. Some parties were asking them to delay that vote simply because there are so many outstanding questions with Exxon, which of course has filed with the international arbitration for that right of first refusal. And Darren Woods recently told CNBC that that could now be pushed out to 2025, that timeline.

So there are some uncertainties here, but still this vote of confidence is a very good one for Hess. And they didn't have a succession plan in place. And so this deal was really going to solidify the kind of. company's legacy, the family's legacy. And the crown jewel are reserves in what, Guyana? That's right, Guyana. So Guyana is currently pumping about 645,000 barrels per day. And this has grown exponentially in the past few years. And some say there's 11 billion barrels in reserves. And it's important because companies don't want to go out and spend on whole new exploration. They just don't have the appetite for that. And so you want to look to existing resources.

And Guyana is so incredibly valuable. But Exxon's saying they put so much time and so much money into this asset previously. And so under this joint operating agreement, which has not been released publicly, they have that right of first refusal. But I do think this overhang on the regulatory state on front is having some sort of kind of cooling for investors when it comes to energy because we have this chart from Bank of America that shows that hedge fund exposure to energy is now at an all-time low. And so if you do have questions about how are these deals going to turn out, are there any risks of arbitration or legal issues, even legal? fees, then maybe you say, you know, not right now in energy. Let's wait to see what happens.

Of course, the other crown, Joel, is the Hess Toy truck at Christmas time. On equal footing. Maybe it will be rebranded the Chevron truck. Who knows? We'll see. Pippa, thank you. Let's get back over to Christina Pardson. Nevelas for a CNBC news update. Christina. Well, we have a second American who has avoided prison time in Turks and Kekos. Yes, a judge sentenced Tyler Wenrich today to time surfer illegally bringing bullets to the island. He was fined $9,000. He's one of the five American tourists found carrying unauthorized weapons or ammo on the island.

The offense carries up to 12 years in prison. The U.S. is condemning the country of Georgia's overturning of a controversial law today. The parliament overrode the Georgian president's veto of the so-called foreign interference measure that critics worry will undermine Georgia's attempts to gain entry to the European Union. The law requires organizations that receive at least 20% of their fundings from abroad to register as foreign agents. And strong storms battered North Texas this morning with damaging winds and large hail. It comes after severe weather swept across the central U.S. and Virginia, as well as North Carolina over the long holiday weekend. Killing at least 25 people.

Right now, nearly 8,000 people in the Dallas and Fort Worth areas are without power following the latest round of storms that you're seeing. Kelly? Yikes. Christina, thank you. Thanks. Coming up, Tesla, shareholders are being urged to reject Elon Musk's massive pay package. We'll discuss the brewing internal fight next. Welcome back to Power Lunch.

We've got three transportation topics to tackle today. So let's bring in Phil Aboe for a power rundown. Phil, it's good to see you. Let's start with Elon Musk and the growing opposition to his very large pay package. What are you hearing? Well, it's Glass Lewis is very vocal and very large and influential. And the question is whether or not in this debate over Elon Musk's $56 billion pay, package, a package that had been approved in 2018 when the company was incorporated, still is

incorporated technically in Delaware. Well, a court there voided that agreement. And now Glass-Lewis has said when this next vote comes up with Tesla shareholders on June 13th, vote no. We do not think that this is a good deal. Keep in mind for Elon Musk, he has long said, and he said this back in 2018, I don't have any skin in the game unless we come through and deliver the result. that you expect. And as a result, he has basically met all of the objectives that were laid out in

2018. That's why he received the $56 billion. That's not enough for Glass-Lewis. Again, we'll find out what shareholders think on June 13th. This would be by far the largest pay package ever. I mean, we blink when we hear some execs getting 56 million. This is 56 billion. Right. Right. You have to understand the way of it. was set up in terms of certain benchmarks that needed to be hit in order for him to receive options, grants, et cetera, that would vest over time. And if you go back and you look, he hit all of them. And that's why you have a number of people who are supporters of Elon Musk saying, wait a second, this was laid out there. These were not easy targets to hit. And he delivered.

Tesla delivered. Therefore, he should have been entitled to that pay. Let's move on to auto leasing making a comeback, including big leasing deals at Tesla. Why is the popularity coming back? Well, for EVs right now, that is one way for a number of people to get into an EV and for EVs to be offered with the federal tax credits because of the rules that are set up there. In general, what we're seeing is greater supply. And because there's greater supply, not just with electric vehicles, but also internal combustion engine vehicles, that means the dealers have more vehicles to offer as lease options. And generally speaking, when you lease as opposed to taking out an auto loan,

you're going to have a monthly payment that's maybe $120, $130 lower than an auto loan. So that is an incentive for a lot of people, especially seeing the auto loan rates that we have right now. All right. We lease briefly. But I don't know rates have made the economics a little different. Phil, here's the question on everybody's minds. What's going on with the turbulence on planes? 12 are now injured on a cutter airways flight, just a few days after more than 100 passengers were injured on that Singapore air flight

and one with the heart condition died during the incident. Then I saw some comments attributing this to climate change. What is the industry saying? Are we making a trend out of nothing? Or has there been a different thing going on here with all the turbulence lately? And does anyone know what's causing it? Well, these are two high-profile incidents. So when you put those close together, it has people saying,

oh, boy, happening all the time. They're happening, I believe, based on what I've been able to determine, at the fairly regular pace relative to previous years. Are they happening more often than, let's say, 10 or 20 years ago? Many believe so because of global warming and the instability that it causes in certain environments depending on where an aircraft is flying. Bottom line is this. Unless the pilot is warned immediately by somebody else who has just gone through turbulence,

hey, watch out, there's turbulence coming up here, and it's relayed by air traffic control, is almost impossible to predict exactly when you're going to be hit some of this very violent turbulence, which is why, and I know people hear this all the time, not everybody follows it when they say, stay in your seat with your seatbelt on, unless you have to get up to go to the bathroom, stay in your seat with your seatbelt on. All right, Phil, thanks very much. Phil LeBoe, reporter. Meantime, sportsbook stocks are lower because of high state taxes. We'll reveal the state that's proposing a big tax hike on the betting operators when we return.

All right, welcome back. Let's give you a quick market check. The Dow falling to session lows now down almost 350 points at 38,730. NASDAQ struggling to hold on to its gains. There you see it up by just a fingernail about 7-100s of 1%. Shares of Draft Kings lower by 10% today on fears of a tax hike in Illinois. Contessa Brewer joins us with the details. Contessa. Not just Draft Kings, but you're seeing Fanduel parent flutter down significantly today as well. Illinois Senators approved a budget proposal that includes a progressive tax hike on sports betting. Right now, those sports books pay 15%. Now, that would increase to 20% to 40% depending on gross receipts. In other words, the largest operators, Fandual and Draft Kings, would be taxed the highest. And then those who have less market share would be taxed on a sliding scale based on their revenue.

If this passes, the Illinois House and the governor signs it, it would make the maximum tax in Illinois. The second highest rate behind New York and New Hampshire is 51%. Illinois is the fourth largest state for sports betting revenue and handle, and betters there wagered more than $1.2 billion on sports in March in one month alone. The Sports Betting Alliance says this will mean worse products, worse promotions, and worse odds for Illinois betters. In a recent earnings call, Draft King CEO Jason Robin said the burden would fall on the consumer should taxes get raised. And collectively, these gaming CEOs guys repeatedly have stressed to me that it gives the offshore unregulated books a leg up because they don't pay any taxes at all. And besides that, they're already capturing more market share than of the other legal players.

Are any other states considering doing what Illinois is proposing? Yeah, sure. In fact, Massachusetts just had a ballot initiative or legislation that they were looking at, and they just nixed that. Because what the industry experts will say is, look, if you tax the sportsbook at a higher rate, they're going to make that margin up and that money up somewhere else. They will have fewer promotions, and therefore they will attract fewer sports betters to the platforms themselves.

And you could see the overall pot lesson, but that the sports books are not just going to pay more in taxes and eat the, you know, what it costs them in profits itself. All right. Contessa Brewer, thanks very much. Sure. And coming up, Salesforce earnings are on deck tomorrow. We'll get the technical, fundamental, and options trade on those shares ahead of their results. And as we had to break, we're celebrating Asian-American Native Hawaiian and Pacific Islander

Heritage Month. Here is Miriam Warren, Yelps, Chief Diversity Officer. Asian Americans are the most likely to be hired into non-managerial positions in tech, but they're the least likely to be promoted into senior leadership positions. Representation is important because each of us need to be able to see ourselves in all sorts of different roles. And without that representation, it's hard for us to be able to aspire to the highest levels of leadership. Welcome back to Power Lunch. Software Giant Salesforce reports earnings.

tomorrow. We're looking ahead to the Dow component with the index off-record highs today. We want to dig into the stock with every tool at our disposal. Let's get the fundamentals, the technicals, and the options. So we've gathered our panel of experts on all of those, on the fundamentals, Eva Ados of ER shares. She's COO and chief investment strategist. On the technicals, Carter Worth, Worth, charting, founder and CEO. And on the options, David Buhl is Baycrest managing director. Welcome to all of you. So let's start with the fundamentals. Eva, what do you see on Salesforce right now? We like them. They've made a huge improvement with their profits. And the big news here is that their

SG&A, sales general and administrative costs have dropped from 55% to 44%. And that enabled their EBDA margin to explode from 14% to 26. Now, the big, big news, though, is that their earnings before tax went out 20 times in two years. It's a very, very unusual statistics. This is why we like them. And on a relative valuation basis, they look great. The total enterprise value to EBITDA is 25 compared to 38 for their peers. And on a forward price to earnings ratio, they look great, 20% below their peers. And unusual time for growth for this company, we like them. All right, that's the sort of fundamental story.

I'm the technicals, Carter. What do the charts say about CRM? All right, so a couple of things sort of stand out. One is, of course, the recovery in the stock right back to the penny to its 2021 peak, where it struck its head. So all the makings of a double top. And then we know the relative performance, which is what defines alpha of CRM

to the S&P 500 application software sub-industry group, peaked in 2014. And relative performance to CRM to the S&P 500 technology sectors peaked in 2019. So we have poor relative performance. We have a chart pattern that is quite sort of clear at this point,

putting in a double top. And its day-to-day price volume correlation is very poor, relative strength poor, I think the risk is you get a workday type outcome in CRM's earnings. Interesting. So a little disagreement there. Let's look at the options bets. David, it's up to you to split the tie here. What do the derivatives say about Salesforce? So options are pricing in about a 6% move on the event tomorrow night. That's about in line with how options have priced this catalyst going back in time. What sticks out to me is that this is often a two-day move for Salesforce.

They're civically follow through the day after. So I'm looking at it more as a two-day move when I'm evaluating if options are cheap or rich. And I think they're priced relatively low because the last three times Salesforce is reported, the two-day move was quite large. It was up 6%, up 13% and up 5% each of the last three times. And also, as just mentioned, software has been a volatile sector. Last week, Workday was down 15% on earnings and there's been follow through to the downside each of the last few days. So I think that options may be underpricing the Salesforce earnings event tomorrow.

And the line that sticks out to me that people seem to be playing are the May 34's 260 puts. So playing for possibly some downside hedging long stock positions is what I'm seeing. All right. So that kind of gives you the panoply of options there. While we have all of you, we also want to get your picks based on your air of expertise, kind of outside the world of Salesforce as we've broadened it out to the whole market. So, Ava, on the fundamentals, what stock jumps out to you here that you, think is a buy. I'll go with a competitor, Oracle. So they're known for their profits. It's a $52 billion

company, $12 billion in profits. That's a very profitable company. EB-down margin is 40% that's double their peers, which is 20%. And on a PE basis, they look great, half their peers, 32 compared to 56 for the rest of the category. And every relative valuation metric that we are tracking looks very promising here. And also, that's a slow and steady. It's a 10% revenue growth company. And in this market where we're uncertain of weather and when will see any rate cuts. I like slow and steady. I think we like slow and steady. Slow and steady will win the race. Well, let's go on to the technical picks. Carter, which stock are you choosing and why? Well, also an earnings play, and this is on Wednesday, Marvell Technologies, a semiconductor,

that is yet to even return to its former high of the past three years. We know that many big stocks, Nvidia, for instance, and the Sox index itself is now making new highs, whereas this stock is a catch-up play. And so we're thinking back to about 100, Marvell on the long side, earnings Wednesday. Okay, finally, then, let's turn it to the options. And David, you're picking a name way outside the world of technology. Well, you know, you're picking Wells Fargo. Explain.

So Wells Fargo's setup is quite interesting from an option's perspective. And I think there's two distinct time frames over the next month or so. From now until June options expiration, there could be a ceiling on the stock. That's June 21st because there's quite literally a call wall at the June 62 and a half strike. There's pretty heavy open interest there. It seems to be sellers to open of these calls. And what that does, if the stock rallies, it could slow trading down in that range, and it can make it very difficult to get through that level. And then the stock could trade more freely after June expiration.

This is just in time for what should be the release of the bank's Fed stress test out the last week of June. And this is often a very large catalyst for the financial sector, notably Wells Fargo, where it's moved about five and a half percent on average on absolute basis, each the last four events and options markets. aren't pricing much in. So what I would do is buy a call calendar. I would lean into this call ceiling, and I would sell the June 62 calls, and I would buy in the June 28th, 62 calls, and hopefully get some very cheap upside

for the potential Fed Bank Stretzis catalyst. All right. All right, folks. Thank you very much. Ava Otto, Carter Worth, and David Bull. Thank you. And remember, you can always hear us on our podcast. You can be doing it right now for all we know.

Be sure to listen to Power Lunch wherever you go. Power Lunch Podcasts. We'll be right back. All right, let's give you a quick check on the markets. The Dow is now down more than 300 points. 319 right now. That is off the lows of the session, which we hit during this past hour. The NASDAQ still holding on to a minuscule gain.

It is up 24 points with about an hour's time to go in trade today. And about three minutes left in our show. Several more stories to discuss. starting with a change to the way that stocks are bought and sold, starting today the settlement cycle for broker-dealer transactions is just one day, or is it called T-plus-1, it had been T-plus-2. So when you buy a stock, it'll only take one day now for that to be officially transferred to your account and for the money to hit the seller's account. Is this good for me as a buyer or a seller? I guess it is. The lags have bothered people because they felt needless in this modern day and age.

Why does it take so long? Yeah. So this is all something behind the scenes that, in theory, you're not even going to know. Absolutely. Except that you won't notice the lag that you typically might have suffered. You might have. You'll see it instantly. All right, Wall Street Journal declaring perplexity, the best overall AI chatbot after rigorous tests against competitors like chat GPT and Google Gemini. Perplexity received the highest marks with the journals highlighting its summarization, its knowledge of current events, and coding as most noteworthy. I am a convert here.

You heard it here first. You heard it here first, right? You talked about how elegant you found it to use, and they found the same thing? Very much so. The two things that stand out. One, it gives you sourcing for some of the things within the text that it gives you, and it also gives you links to related stories, which can be very helpful if you want to go a little more in depth. And I like what Deirdre report about as well, that apparently it draws from a lot of different large language models to kind of find those answers. Very cool.

I also want to quickly mention shares of U.S. cellular popping after TMO, T-Mobile announced plans to acquire most of the company. It's $4.4 million deal. I should say, including their stores, plus some of the wireless spectrum and customers includes cash in up to $2 billion in debt. They expect to close in mid-2025. Doesn't move the needle as much as, for instance, the Sprint acquisition, but it's another incremental step. But it's a big thing in a company that is having a lot of success in this marketplace. Oh, sure. All right, let's, you can't not do an Nvidia story, right? You can't. Invidia co-founder and CEO Jensen Wong throughout the first pitch at Saturday's Oakland, athletics game as they took on the Houston Astros.

There were eight people in the stands watching. Just kidding, folks. He had an ice crowd there. You see, there were more than eight. It was in honor of Taiwanese Heritage Day festivities. Good arm motion there, good angle slot there. He's throwing a, it looks like a four-seum or maybe a two-seener. Festivities at the Oakland Coliseum.

He wore a jersey with the number 93 on it for the year in which Invidia was founded. It put a button on a fantastic month for Mr. Wong. according to CNBC calculations. He added more than $10 billion to his net worth just this month, thanks to his stake in NVIDIA's high-flying shares. And there you see, a happy Jensen Wong having thrown out the first pitch. I hope he continues to have wider and wider name recognition, along with the success he's already had.

And we are sad to report that basketball legend Bill Walton died on Monday after a long battle with cancer. In the 70s, of course, he helped lead UCLA to those seven. 73 consecutive wins, back-to-back national championships. Then he had some good runs, a key part of NBA championship runs for the Portland Trailblazers, Boston Celtics. And after his retirement as a player, we all knew him from his multi-decade career was a two-time Emmy-winning basketball analyst. And for his colorful personnel, I mean, he'd talk philosophy, literature. He was all over the place.

71 years old, he came on closing bell, Tyler, back in the day. I told him my uncle Jimmy was a big fan. He signed a book. And the best part was when I mentioned my uncle was an English teacher, he wrote him a page and a half about how. how John Wooden was in English. When they say this guy was great, this guy was fantastic. He did something like that

with every possible gesture he was offered. Amazing character. Got to leave it there. Bill Walton, may he rest in peace. Thanks for watching, PowerLine. Closing bells starts right now.