Power Lunch - The Teflon Rally? 5/10/24

Episode Date: May 10, 2024

Stocks are losing some steam, but the Dow is holding onto gains, which would make it an 8-day winning streak. What could derail this rally?Could it be the Fed? We’ll hear from 2 Fed presidents, Neel Kashkari and Austan Goolsbee, about when the central bank’s  first rate cut could come.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Glad you could be with us. Stocks losing some steam this afternoon, but the Dow's still holding on to gains, which would make an eighth session winning streak. So what could potentially derail this route? Could it be the Fed? We'll hear from two Fed presidents, Neil Cashkari and Austin Goolsbee,

in just a couple of minutes. When might the first rate cut be coming? We'll see if they answer that. But first, let's get a check on these markets with the Dow coming off a seven-day win streak, trying to make it eight, about 100 points higher right now. The SMP's up 6 to 5220. NASDAQ still down a little bit, so we've picked up some steam in the last couple of hours. Speaking of which, take a look at shares of Zeker.

Zeker. This is a Chinese EV maker, a little on the luxury end, going public, pricing at $21 a share, opening at $26, trading at 27 and change. And Novavac shares doubling as the company reaches a licensing deal with Sanofi. The deal involves developing COVID and flu vaccines. As part of the deal, Sanofi, will take a stake in Novavax and provide a $500 million upfront payment. All right. First, let's begin with the market and how what the Fed does and says from here will impact this rally.

Mike Santoli joining us from the New York Stock Exchange. Good to see you, Mike. Kelly, you too. I mean, I think the first thing I would observe is that, you know, if interest rates by the Fed's making are stable for 10 months, which is what they've been right now, I think you'd have to say the policy setting is in a pretty good spot when you've had the economy growth. and inflation has mostly continued to go down. So to me, that's the basis for whatever we discussed here, but what the Fed does next. It's clear that there is an orientation toward trying to get in some easing action. It might not be multiple cuts,

but really the gesture of easing and putting a punctuation mark on the tightening cycle, I think is out there. A data-dependent Fed right now just means an inflation-dependent Fed. They are really looking to see if the inflation numbers can cool enough to open that window wide enough for them to get perhaps that easing in. But they've shown they're going to be patient along the way to making that call. Mike, you have a fun take on this that we've been talking about. Is it, I mean, I think it's a great point.

It's this year an echo of 2015, but in reverse, meaning back then they were so desperate to do the first hike to show that the crisis was over and we could exit QE. Now they're so desperate to do the first cut. I think that's right. I mean, I've been talking about this for about a month. It just feels like the mirror image of 2015. Now, we should point out, not everybody walks around with the macro narrative of previous calendar years in their head like I do. So in the end of 2014, the Fed dot plot suggested there'd be multiple rate hikes in the coming year off of zero. They didn't do it. The data did not cooperate. It was very slow growth.

Inflation was almost non-existent in 2015. The Chinese devaluation, markets were a little bit choppy, industrial recession. But in December of that year, after a close call in September, there was one rate hike and then nothing for a year. I don't know that we're going to necessarily take it down to the wire like that, but it's also the case that the economic data are not really helping out the Fed and its intention to get less restrictive. I think that's also a key point. By the Fed's own framework, they are restrictive, no matter how the economy is behaving with the short-term rate at five and a quarter. The thing that it makes me ponder, Mike, is the sense of back then we were all eager to move on and we couldn't.

And I wonder if now is the same way. We all want to move on to the rate cuts and the slowdown that's supposed to be coming an inflation going away and what have you. and I wonder if it just might be a longer wait as it's already been than we anticipate. Exactly. I totally think that's the case. People want to turn the page on this. I think maybe there's also perhaps going to be an acknowledgement already has been that if inflation remains sticky, you know, is one quarter point, one direction to the other going to be the difference in how sticky it is or whether it rekindles? In other words, policy maybe has done what it can do for the moment and we'll see where it goes from there. All right, Mike, thanks very much.

Mike Santoli reporting. So with the Dow on track for its eighth winning session in a row is the stealth rally back for the third consecutive quarter. Revenues and earnings for the S&P 500, coming in stronger than expected. But our next guest says he's still not convinced that inflation and Fed policy uncertainty is completely priced in. And he expects another leg down for this market. Phil Orlando, chief economist with Federated Hermes. Phil, welcome. Good to have you with us. Earlier you all, thanks for having me back. You all called for a 5 to 10% correction in stocks, and we actually got that. We got it back like a 6% correction, but I guess you don't think that's quite the correction

that's enough to correct the market. Why another 5% decline potentially? Fair point. So from that 6% correction, we've rallied about 5% back almost to the old highs over the course of the last three weeks or so. Now, the reason for that, I think you touched upon it. We've had a pretty good earnings season. You know, we're 90% of the way through earnings, but earnings revenues are up about 4% year

every year, earnings up about 6% year every year, and those are better than expected. That's the third good quarter in a row. But with earnings behind us, the market has to shift its focus to something else. And I think the question of stagflation that Chair Powell addressed from his presser last week is one that's going to come to the forefront. Look at that Michigan number. We just saw this morning, Tyler. The Michigan sentiment number dropped by 10 points,

but the inflation expectation increased by 3 tenths of 1% for the next year. As we shift the focus of the calendar to next week, we're going to get updates on wholesale inflation, retail inflation, and retail sales. Our guess is that retail sales are going to be soft, and inflation, as Mike said, is going to be, sticky and persistent, and perhaps that seeds this, you know, further correction that we might expect over the course of the second quarter. I'll spot you the idea that inflation seems to be

moving in it, maybe not the right direction, and maybe not, maybe it's moving a little bit higher. But on the stagflation question, we had quite a conversation about it last week during the Fed meeting. And most people felt that we were nowhere near a stagflationary moment, because when you look back to when there really was stagflation, number one, unemployment was a lot higher than it is today. And number two, so was inflation. It was a lot higher than it is today. So are we talking about the stagflation that we knew a couple of, a few decades ago? Or are we talking about another more benign form of it potentially? I don't know. Excellent point. We're not looking at a revisiting of the stagflation we saw in the late.

70s and early 80s. What I'm referring to, Tyler, is directional. You look at GDP, gross domestic product over the last three quarters. We were at 4.9% in the third quarter of last year, three, four in the fourth quarter and more recently, 1.6% in the first quarter of this year. So the economy is slowing. Yet inflation measured by the CPI, nominal CPI, has actually gone up over the course of the last three months. We're seeing the base effects of benign contributions to that inflation rolling off. We're replacing that with higher levels of inflation with energy, electricity, food, housing, wages. And that suggests that directionally we could be looking at slower economic growth and higher levels of inflation. But by no means are we looking at

late 70s, early 80s levels of stack inflation. Okay, great, great answer. Let me just say, okay, given that hypothesis, what sectors of the market should I be looking at and where might a pullback take the biggest bite? Well, the reality is that the stock market's up 10% in the first quarter of this year, up 28% since the end of October through the end of March,

largely driven by, you know, AI FOMO with the MAG 7. So let's say we were to get hypothetically a 10% correction from these levels over the next, you know, quarter or two. I would argue that it's the Mag 7 stocks that have done really, really well. A 10% correction, maybe those stocks will be down 20%. And the other stocks, domestic large-cap value, small-cap growth, international stocks, which have not participated to the same degree, maybe those stocks will be down, you know, marginally to 5%. So I think we've got to just be a little nimble and play a little defense here until we've got a better sense of what the trends are on both economic growth and inflation.

All right. A few dink shots, not slams. That's what we'll go for, Phil Orlando. Was that a pickleball reference? That was a pickleball reference. Wow. We've got the latest numbers from the Treasury Department on how much the government is spending and on what? A main focus right now with rates. Megan Kisela has those details. Megan? Hey Kelly, so new Treasury data shows us the U.S. government is spending $102 billion on interest costs last month. That sets a record for the month of April, and that's a 35% increase from the same month a year ago as the deficit grows and interest rates remain elevated. Now, fiscal year to date, interest payments are up a similar 36%. And for five straight months now, they've been rising faster than any other line item in the Treasury's budget.

Other increases last month, Social Security spending was up 11% from last. last year because of the higher cost of living adjustment. Spending at the Department of Health and Human Services was up 64% over the year, mostly due to higher costs for Medicare and Medicaid. So across this report, really, you can see the impact showing up of high inflation and high interest rates on the government's budget. Now, overall, April was a surplus month because of tax season. So for the fiscal year so far, Treasury is running an $855 billion deficit. That's 8% smaller from this time a year ago. Kelly? Very tough situation.

Megan, thank you. We appreciate it. Coming up, access to the Fed. We will hear from two presidents, Neil Cashkari and Austin Goolsby looking forward to it. Further ahead, consumer discretion advised. Disney, Whole Foods, McDonald's, all seeing signs of weakness while Uber and Shopify are seeing resilience. Should investors proceed with caution and where? We'll discuss when Power Lunch returns. Welcome back to Power Lunch.

The Dow is set to close the week with a two-year. 2% gain and an 8-day winning streak. We'll see if it holds up this afternoon. But the fate of the rally really could hinge on what the Fed does and when. For some key insight on that, we go now to our Steve Leasman with not one but two Fed presidents. Steve? Kelly, thanks. We have an extraordinary two guests here. We have Neil Kusker from the Airbus Fed and Austin, Google, Chicago Fed. And what you may not know is that they sit together at the FOMC meeting, although apparently it's reversed. We're like the two guys on the Muppet show, you know, up in the balcony. Gentlemen, I did a little research before we started. The Vikings over the Bears, 65, 57, and two.

However, and the Vikings have a real bit of home advantage. Fake news. 3824 over the Bears. However, the Bulls have an advantage over the Timberwolves, 39, 28. So we'll see how we score this at the end, okay? Okay. Neil, we're going to start off with you. You written a piece on Tuesday talking about this idea,

using the 10-year tips as the measure of how restrictive the Fed is. So give us a very quick explanation of why that's a good measure, but more importantly, how restrictive is the Fed right now? Well, in a sense, we have six policy tools. The federal funds rate, the expected path of the federal fund rate, the balance sheet, expected path of the balance sheet, actually four, excuse me. And how do you put all that together and say how restrictive is policy? The thing I like about the 10-year tips,

it incorporates all of those factors and the outlook for inflation over the next 10%. years and we know investors based their investment decisions on longer-term interest rates not on overnight interest rates so for me if I had to pick one measure on how restrictive policy is it's the 10-year tips relative to where we were before the crisis or some version and that's come down a little bit's 2.1 is that good enough for you well we've raised the 10 year tips by about 200 basis points since before the pandemic which is about equivalent to as much tightening as we did in the 1994 tightening cycle that suggests policy should be pretty

tight. But when I look at real activity, such as in the housing market, we're not seeing as much as a pullback as I would have expected. And that's what makes me cautious that maybe we're not having as much downward pressure as 200 basis points of long tightening would have implied. Are you as cautious based on the economic data that says maybe we're not as tight? Maybe the Fed is not as tight as they thought they'd be given how much rates have come up? I would say Neil and I are both in a, it sounds like a spot where we've had credit. cross currents coming through in the data, we had inflation, which I've been highlighting the price inflation data, and especially the housing part of it, has been forefront on my mind. We had great

progress in 2023, and we've hit these bumps at the beginning of 24, and it feels like we're both saying we need to gather more information and wait and see. Now, I, on the question of, Are we restrictive? The Fed doesn't really control long rates. There's a lot that goes into longer rates. So I tend to look at the Fed funds rate minus inflation, the real Fed funds rate. And to me, the level of that is as high as has been in some time. So I feel like we're in a restricted.

But let me respond to my good buddy, Austin. We do this in FMC meetings. I was at the Milken Conference earlier this week. Yeah. And the number one comment that I heard from major investors was, why does the Fed keep saying that financial conditions are tight? They're not tight. We think that monetary policy in part works through financial conditions,

and if the business community does not feel like financial conditions are tight, that makes me question, maybe we're not as restrictive as we would have guessed. But it begs the question, do you want to go higher then to make it really tight? Well, for me, I think... Don't tempt them. No, no, you made me do that. Austin and I are actually landing in a similar place from different perspectives. I'm in a wait-in-see mode.

let's get a lot more data to see if this inflation is going to continue or if we're stalling out. But you're not ruling it out, Neil. Well, you can't. Nobody can rule it out. But we are all committed to getting inflation back. I agree. I don't know. I don't rule everything. Nothing is never not on the table and the job of central bankers to be paranoid about everything.

One of your colleagues this morning, Austin, said that she did not believe that rates should be cut this year. Was that a question? It is a question. Okay. Look, as you know, I don't like that. like tying our hands even partially when we're going to get a lot of data and important information between before the next meeting, much less for the rest of the year. I think I don't want to speculate about the conditions. What we need, the data dogs need to do some sniffing and figure

out, are we going to be on the path like what we saw last year where inflation fell almost as much as it has ever fallen in a year without a recession, or did we kind of use up all of our good luck, and this bump of the beginning of the year is actually a sign of overheating. That's the thing that we're trying to wrap our head. Before you answer that question, I'm going to throw those in question to you, but he called disinflation the last couple months bumps. How do you think about it? I don't know. We saw massive, I know Austin and I agree. We saw tremendous gains in the supply side of the economy last year that drove a lot of the disinflation that we experienced. The question I have is, are we going to get more supply side gains? I'm a little suspect of that. And if now

it's up to monetary policy to bring inflation from 3% to 2%, that's why my question of how tight are conditions right now, to me that's paramount, because if it's all up to us and not the supply side, then we need to pay very close attention to whether or not conditions are tight enough. And I just don't know right now. How do you respond to what your colleague said this morning about the idea that maybe we don't need to cut this year? Then Austin and I are in exactly the same place. We need to get more data in. A lot more inflation data. We have a dual mandate.

Have to watch both sides of the dual mandate. That will guide us. So I don't know. I'd rather speak in scenarios than in saying this is necessarily what I think is going to happen. Kelly Evans back in HQ has a question. Go ahead, Kelly. I really appreciate it. And I really appreciate both of you highlighting the tension and your views where there's consensus and where there's not.

And President Kashkari, if I may, I would like to ask why we haven't seen more of an effect from what by the tips would seem to be very tight monetary policy. over the past year or so. Do we have to keep waiting for the lags, or is there something else going on? Because if you were to use that metric alone, you would have thought the Fed should have backed off or maybe eased a while ago. I'm just wondering how we use that measure in real time then

if it appears that all of this tightening is not yet having a bigger impact. Well, it's a great question, Kelly. I'm wondering, in the piece that I wrote, I'm wondering, is there an argument that this notion of a neutral rate has at least temporarily gone up? I mean, we believe, I think Austin and I agree that things like demographics and long-term productivity growth drive the neutral rate over the long-term.

But is it possible the reopening dynamics, some unique features in the housing market right now, the under supply of housing for a decade, has that all led to a temporarily elevated neutral rate that could be explaining the constellation of data that we're seeing? I just don't know. And that's why I'm in a wait-and-see mode to get more data, both to ferret out, where is the neutral rate, how tight is policy, and what's happening to underlying inflation? Because would it suggest that we can only use it if we know kind of what the level should be? So if the tips, is it to and change and it needs to be higher. Yeah, and obviously President Gould's, we please weigh in. But, I mean, are we talking about 3% being, you know, restrictive there or what's the level? How much further might we then have to forget talking about cutting?

Might we have to raise the Fed funds rate? Well, look, once we get into the question of, well, what is our star when we can't observe it, I fear we can get into a chasing our tail situation. And even the question of financial conditions as an element of restrictiveness, I'm more old school. You know, Paul Volger was my mentor. I worked with him through the financial crisis. And I believe his statement, let's remember the order.

Our job is to act. The market's job is to react. And let's not get it mixed up. Austin, spin for me, I guess you could call this an al-Upe, all right? if we're playing basketball, so it's an easy pass. It's been for me the way that inflation comes down in the next year. Where does it come from? When you're looking at different segments of the economy,

especially when you have ideas out there like, hey, we have this de-globalization thing, and that means that you have upward pressure on inflation. You have an economy still running relatively hot. Upward pressure on inflation. Spin the deflationary or the disinflationary story. I think it would go, A, look. look at the last seven months of 2023. We were at or below our 2% target. And that came from goods,

going back to mild deflation, services coming down to something like what it was before, and more progress on housing. That's why I keep saying, for me, the very forefront indicator is this puzzle that housing inflation has remained well above what it was. was pre-COVID. If we got benefits in 2024, I think it would be that the labor supply increases that we saw in 23 continue to benefit through the economy, even if they don't continue growing, those benefits have a lag, and then two, you see progress on the housing. Can you get behind that, or do you think that's more skeptical of a scenario where inflation continues to come down? No, I agree with the scenarios. The question is...

If you saw that. If you look at new leases, they're ticking up in the most recent data. Which, again, goes back to wondering why is that? I understand Austin's math is right. We think we understand the mechanism by which new leases eventually roll over into CPI inflation. But if new leases are now trending up, that's a concerning signal. And so I don't want to read too much into just a short run of data. He's totally right.

But we've got to pay attention to that. It's totally right. Would higher rates or a rate that's higher for longer fix that problem? Eventually, yes. I mean, the first thing is it's going to happen. I think we're all mostly in agreement that if we get concerning inflation data continued, we're going to sit where we are for an extended period of time. I mean, I think that that's the default, that we don't feel compelled.

If the labor market stays strong, we don't have to do anything. And we can stay here as long as needed. I think the bar is much higher that we'd have to say, well, we need to go higher in the federal fund rate from here. But again, not ruling it out either. That same question? Look, the scenarios, Neil and I offer. agree that if we saw scenarios of this form, how would we want to react? If we saw scenarios of another form. So then it's just a question of, well, which of those scenarios do you think is

likely? I want to thank both you gentlemen for joining us. I'm happy to come back to Minneapolis in May. What a great place it is to be. Perhaps not in April or March, but Minneapolis in May is fabulous. Thank you for joining us today. Austin Goolsbee from Chicago, Lucas, from Minneapolis. Back to you, Tyler, in New Jersey. Minneapolis is pretty good any time of the year. It is a really nice city. Thanks, Steve, and thanks gentlemen for joining us. Further ahead, Apple facing growing labor unrest at its retail stores. Employees at a location in New Jersey voting weather to unionize this weekend. We'll discuss what this could mean for the company. Let's check out shares of alphabet popping midday after Sam Altman tweeted that

OpenAI is not going to announce a search engine at its event on Monday. We'll be right now. Welcome back, everybody, to Power Lunch. Let's get some reaction. to that discussion with Neil Kashkari and Austin Goolsby and see how the bond market is reacting. And for that, let's turn to Rick Zantelli in Chicago. Rick. Hi, Tyler. Well, I'll tell you what.

I would like to tell you that the market had a large response to that wonderful interview that Steve had. But really, the market didn't move much, and that makes sense. There wasn't anything there that you could really bite into that would give you a more accurate timeline of what the Fed may or may not do in the future. But to me, that's the whole thing.

point. They don't know. And that's the way it is. But one thing we did learn at the top of the hour is that if you're looking at how much it costs to service the debt on a monthly basis, it's up 35 percent to $102 billion. Let's annualize that over 12 months. Maybe that's one of the reasons interest rates have turned up a bit, but I'm getting ahead of myself. Let's look at the early morning data. Here's a look at one-year inflation is evidenced by the University of Michigan survey. Now, this shows that we are now turned back up to levels we've seen in November of last year,

which isn't that far back. That's not the point. The point is, in the context of that interview Steve just had, inflation is turning back up a bit. Now, granted, on the left of that chart, it's much higher, but it needs to be lower on the right as well. And on the week, two-year-no-heels, they're actually up on the week. settled yesterday and last Friday at the same level.

482. They're up four base points on the day, four on the week. That's the maturity most closely associated with Fed activity. But when you move to the 10-year and look at that same chart, the right side is not higher than the left side. Ten-year yields closed at 451 last Friday. Now, after that information came out on the monthly budget statement and the University of Michigan this morning, we have seen a more bull. point long end. But until it gets a 451 or higher, we're going to have to say that the long

maturities right now aren't leading the way. What's leading the way is anything associated with the Fed, and that is the shorter maturities on the Treasury curve. Kelly, back to you and have a great weekend. We're glad you're back. Thank you, Rick, and great point you made there as well as we watch 450 on the 10-year. Rick Santelli in Chicago. Let's get to Julia Borsden now for the CNBC News update. Kelly, prosecutors in the Trump hush money trial told the judge this afternoon that is, quote, entirely possible that they'll wrap their side of the case by the end of next week. They are expected to call just two more witnesses with Michael Cohen, Trump's former lawyer and fixer, said to take the stand Monday. He's expected to testify for several days. The trial is in recess until Monday morning.

A federal judge in Texas is expected to rule today on whether new rules on credit card late fees can take effect next week. The Consumer Financial Protection Bureau ruled in March that most companies can now only charge up to $8 for late fees per incident, but the credit card industry sued to block it. And California needs to close an almost $28 billion deficit, and Governor Gavin Newsom announced today a proposed budget that would get there, in part by cutting 10,000 vacant state jobs and suspending some tax deductions for businesses. The state legislature, needs to pass a spending plan by the middle of June. Kelly, back over to you. All right, Julia, thanks. Still to come, some cracks warming in the restaurant space.

Those climbing prices finally driving lower income customers away. We'll have more on that next. Certainly the consumer who's at the lower deciles of income, it appears to be making more choices around how they spend their money. We're not seeing a lot of that right now. We tend to play a little bit higher income. And as a result, we don't see a lot of trade down at this point. We've definitely seen segments where customers have moved from some items trading down to others or moving from one category to another. When we look at consumers, are they trading down, for example, on Uber Eats? Are they eating at less expensive restaurants?

We see no evidence of that. Frequency is up. Our both retention is up in mobility and delivery as well. so we're not seeing the kinds of signs of weakness that other folks are talking about. First of all, the consumer remains resilient. I mean, you're seeing that. I mean, GMV on Shopify is a great proxy for that. A lot of the growth in spending has been in the last few quarters with the affluent customer.

We're seeing a much more cautious low-income consumer. They're feeling more of the pressure of the cost of living, which has been high and increased for them. The average American cares a lot more about gasoline prices than they do about stock prices. And they are getting hurt. Always so pithy. There's the read on the consumer from several executives of major companies on CNBC this week. Signs of cracking, but also some signs of resilience. Let's get to Kate Rogers with more on the state of the consumer right now.

Kate? Hey, Kelly, we're seeing a lot more restraint right now and how consumers spend their time and money, particularly in the restaurant sector. This earning cycle, there's been a big emphasis on value as brands from McDonald's to Wendy's and Dave & Busters, all noting that low-income consumers are starting to spend less. In fact, we just learned from two sources familiar that McDonald's is actually working on plans for a $5 value meal that will potentially include a McChicken or a McDouble with a four-piece nugget, fry, and soft drink. So four items for $5, as it continues to build out a value platform. But there have also been some exceptions in the restaurant sector.

Chipotle, Wingstop, Dutch Bros, all posting strong same. store sales numbers. Chipotle actually noting it was seeing growth in all-income cohorts, which is a rarity in this environment. Another outlier, sweet green. That stock was flying today more than 30 percent on the heels of earnings. I spoke with the company's CEO, Jonathan Neiman, today, who said they're not seeing a consumer pullback. Take a listen. You know, what we offer compared to the competition, especially if you think about over the past four years and the amount of inflation we've seen, fast food has gotten very, very expensive. really a lot of things have.

And so on a relative basis, you know, I think Sweet Green is actually doing much better as we've taken less price than most of our competitors. Pricing's up about 4% year-on-year for them. And the average meal, about $15. He says their dinner business is actually growing because 15 may seem pricey at lunch, but for dinner seems like a pretty good deal. Kelly? All right, Kate, I'll pick it up.

Thank you very much. Kate Rogers. Time now for three-stock lunch. And today we concentrate on some consumer-facing names, of course. And here with our trades is Malcolm Etheridge, CIC wealth management, executive vice president, and a CNBC contributor. Malcolm, welcome. Let's start with McDonald's. We just heard Kate talk about this one.

The stock is up about 2% today. Your trade here on McDonald's. Yeah, Tyler, with the number of new restaurants, McDonald's has slated to open up this year, I heard the package there with them talking about going more value. But I think with the 2,000 or so new restaurants, they expect to open this year about 8,000 before the end of the decade. I think McDonald's is going to benefit more than anything from the additional franchise fees that are going to add to the top line revenue. So I think this one's setting up to be a buy for shareholders right now buying this dip. Okay. And I'm looking

forward to some of those menu introductions. Anyway, let's move along to Walmart, B of A, reiterating the shares at a buy expected to report sales and profit gains when they report next week. But Malcolm, what a lead up for Walmart. Which way will they go? Which way will the stock go do? think? Yeah, I think it's going to be hard for them to do to beat and surprise without a holiday season as a tailwind because those shares of, you know, they've done well to start the year, but I expect them to be a casualty of the feds higher for longer stance on rates. When we talk about how stretch the consumer is or from the last package maybe is or isn't, as well as how high credit card balances continue to reach record highs day after day,

I think that hits the average Walmart customer first. So I would consider that when a hole that best. All right. Finally, we ask you to pick your favorite consumer stock, and you said Amazon. Does that say something about how you feel about the strength of the consumer and his and her willingness to spend? It says more about how much I love Amazon's diversified revenue stream, right? So of all the names connected to the consumer, Amazon's a way to play that trend, but mostly with the e-commerce brand being, for one, I like the e-commerce brand better than the others. But two, with them having the ability to stave off any potential recession with revenues coming in from AWS and now digital advertising through Prime Video, those margins are even better

than the e-commerce side as well. I think Amazon just has the best ability to weather any potential storm going into the back half of this year as we talk about rates, staying higher for longer, and maybe don't see cuts until next year. I feel like Amazon's a cop-out last consumer pick. I feel like You don't want to pick any consumer names, Malcolm, which tells us something in and of itself. Well, maybe I'm just an Amazon fan to that extent, but I really do love the fact that their e-commerce platform is as strong as it is. And they also have the ability to cut prices in a way no other retailers do because they have those additional revenues coming from the other two profitable business lines. Walmart can't do that. So I just think Amazon's the better way still to play that consumer.

Where is the week that something does not come to our house from Amazon? Rare is the day over here. That speaks to its strength in the consumer area. Malcolm Etheridge, thank you very much. Appreciate it. And all next week on Power Lodge, we are taking an x-ray of this consumer economy. Try to check up on the health of each and every part. Spending retail travel, head, shoulders, knees or toes.

Make sure to tune in. Coming up, alphabet shares are getting a boost this afternoon. Get this. It turns out OpenAI won't be announcing a search engine Monday after all. Sam Altman tweeted it. We've got much more on this story when Power Lunch returns. Welcome back, everybody. Look at shares of Apple, which are slightly lower today.

But there are still up 7% junts since the start of the month, although the company is now apologizing for that controversial iPad ad. We'll get to that. But first, let's start with something which could potentially be even more troubling. Steve Kovac joins us now. Steve, what's going on? Yeah. unions are back. Apple Store employees in Short Hills, New Jersey, tomorrow they're going to vote whether to become the third retail location to unionize. Now, it's been a while since we've

seen such a vote appear to be momentum around Apple Store unionization efforts about two years ago, but a store hasn't voted to unionize since one in Oklahoma City did back in October of 22. But plenty of labor organization activities still going on. That includes several complaints of unfair labor practices to the NLRB. And just this week, concerning the work, Trade Center store in New York City, where the NLRB said Apple illegally stopped employees from distributing union flyers while still delivering messaging about organizing of its own. Meantime, there are more than 30 unfair labor practice complaints against Apple, either being processed or about to be heard by an NLRB judge. Also tomorrow, the Apple store in Towson,

Maryland, that was the first store to unionize. They're going to vote whether or not to authorize as negotiations with Apple have stalled. Now, back when all this organized, started at Apple stores over two years ago, Apple raised the starting retail wage from $20 to $22 an hour, though they'd said at the time the increase was part of its annual performance review. But remember, that was also a time when inflation was really heating up and the labor market was extra tight. Next test, though, is going to see if that's enough to satisfy employees on Saturday, guys. Is this mostly about wages, then? It's about wages, cost of living. And what I think is really interesting with two years to kind of digest this, when we look back,

that was when people really started feeling inflation, right? These, just this massive amounts of inflation compounding on top of each other. And these unionization's efforts between Amazon and at Starbucks and an Apple were part. It's not the only reason, but that was a big factor in it as well. And COVID, of course, played a part of it. What about the apology for the iPad ad? What does this tell you? It tells me it's over.

The story's over. It's really interesting that, the way they messaged even just the apology. They only gave it to this one trade publication ad age. Oh, interesting. And in fact, when we called Apple yesterday trying to, hey, is this true or whatever, they wouldn't even give us the statement. They're just like, hey, go to ad age and read the article.

So what was the, I'm sorry, I'm completely missed this. See this advertisement here, crushing one consumer product after another, one creative item after another. This is the ad for the new iPad that didn't go over so well. some, including certain senators, who thought it looked a little, you know, what words we pick here? Off-putting, let's put it. Off-putting or apocalyptic. Apocalyptic, yeah.

So anyway, they apologize for it and it's not going to run on TV. But we've got to talk about one more Apple headlines that just came out. And that's New York Times just reported that Siri is going to get a kind of supercharged version coming pretty soon here. This is what we've been expecting out of WWDC, the June 10th event. We're finally going to hear these AI plans long anticipated and enticed by Apple. You see it right here. Going to revamp Siri is what they're reporting right now in order to better compete with what we've seen from ChatGBT, BT, what we've seen from all these other companies.

I feel like this is the future. This is their own option. Well, way overdue. Let's be honest. You know, Siri, no offense. No, plenty of offense. You can offend Siri. You can offend Siri.

It's fine. The thing that I think is most useful about Siri is the voice activation. And if it worked better and answering simple questions and activating commands, I do think that they could, I don't know if they'll have to make any acquisitions if this is all in-house. But if they fold that into Syria, I think they could really be. And they try that. They have it, but it doesn't work super well. I've had it go off when I'm on air, live on TV, and the Siri just starts talking to me. So, yeah, that's not ideal.

But hopefully it gets a supercharged now. I know we have to go. But so there is no open AI search announcement coming out. Yeah, that's another thing. There's just a lot of chat, GPT, news and coming on. Yeah. This is a big deal. So it was, you know, yesterday, Reuters reported that OpenEye is going to reveal a search

competitor or search product tapping into, you know, its large language model. We've seen Microsoft do this. We've seen Google do this. And then today, Sam Altman, CEO, we're looking at his tweet right now, saying, nope, it's not a search thing. We're going to announce something on Monday. Tune in 10 a.m. Pacific to find out what it is. It's not search. And as a result.

Some new stuff we think people will love. Exactly. We saw Google shares bounce up a little bit on that, too, because there's a, you know, big threat there. All right, Steve, you know you'll be all over that one on Monday. It can be a busy day. All right, our 2024 CNBC stock draft is underway. Coming up, we'll hear from one of our key competitors. Washington commanders running back.

Austin Eccler will join us in two minutes. We are two weeks into our 2024 CNBC stock draft competition, and the mentalist, O'S Pearlman, has the early lead. Up 21%. He's got big gains from his second pick. That was Carvana. Not the best start for team experience. star Austin Echler dragged down by Intel. But of course, in football and stock drafts, the game is not

over till the final whistle. There's a lot more time left on the clock. Austin Echler, welcome back, running back. Washington commanders, glad to have you with us. Yeah, thanks for having me back on. And hey, look, this is the game of investing, not trading here. So I know we're looking at the scoreboard, but it's a little too early for me. No, I take your point completely. I mean, this is a long-term game and a lot can happen between now and the Friday before. for the Super Bowl and a lot of people like Caterpillar. Intel has had its troubles, but, you know, they may be due for a run right here. You never know. Let's talk a little bit about your changes. Changes in your life. You've come from the L.A. Chargers all the way across the country to the

team that I grew up watching. The Washington commanders, they're of course known by another name at that time. How exciting is it? How challenging is it to start in a new city under a new organization with actually also a new head coach. Yeah, I think really the thing that is exciting is the challenge. So it's not easy moving your entire life from West Coast to East Coast when you really never spent time on the East Coast. So that was an adjustment that I've been making. And then really just getting acclimated into a new team, building a new culture with a lot of faces, you know, from top down ownership, head coach to a lot of new teammates as well. So it's been a lot of camaraderie building ourselves up, getting to know one another and learning how to work hard and setting a standard that we can

whole throughout the season. Have you had a chance to meet your team's first round draft choice, the quarterback from LSU, who is an exciting player? Yeah, so the rookies just got in and the vets, you know, we just got out. So we'll be acquainted with each other on Monday. So looking forward to getting these young guys in the building and showing them how we operate. Austin, I love what you're trying to do to use technology to build community around sports. A lot of people blame technology for destroying said communities. How are you going to fix that? Yeah, so I appreciate you asking.

So I've been building an app called Experience. It's my team name for my stock draft. That's what drove me to be around Intel. Love the tech market. But really how I see the environment of fan engagement is really broken right now. There's no really place where you can engage with your favorite athletes on a meaningful level. And so I was wanting to build a technology that allows that to be upkept. but also that's easy for the athlete,

because athletes, we have a lot of stuff going on, but also easy for the fan as well. So really looking to implement this into different institutions and professional sports where fans can go and have an interaction and have that opportunity to engage and get that memory with their favorite player. Now we're showing the experience on the screen right now. It almost looks like a stock,

and maybe if you do this the right way, maybe it will be one day. Yeah, you never know. And so that's the goal. You know, we'll continue to build value. and not only in our stock price, but also within society and bringing communities together. That's what we're trying to do. Well, good luck with the commanders this year.

Look into living in my hometown, Arlington, Virginia. It's a great place, great place. Austin Eccler, good luck to you this year. Thanks for watching Power Lunch, everybody. Closing bells are right now.