Power Lunch - Too Late Cutting Rates? 8/2/24

Episode Date: August 2, 2024

Stocks are falling once again today, with the S&P 500 headed for its worst session in almost two years, as a much weaker-than-anticipated July jobs report ignited worries that the economy could be falling into a recession. Prior to the jobs report, traders were banging the table for the Fed to lower interest rates by a quarter percentage point in September. Now, markets are pushing for it to cut rates by at least half a point. We’ll tell you all you need to know.  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. We are seeing stocks sell off sharply for the second straight day as the jobs report comes in weaker than expected. Much so, 114,000 jobs created. 4.3% unemployment highest in a long time. And here are the numbers in terms of where the market stand right now. Dow's down 900, heading back towards session lows. SMP is down 2.5%. NASDAQ down 2.8. The Dow's back below 40,000 and now up only 4% on the year. believe it or not. The S&P and NASDAQ falling back to levels from late May or early June. The NASDAQ is down 5% in August, and it's only the second. Bond yields are plummeting this week as weaker economic data leads some to believe the Fed will have to get more aggressive, maybe even cutting a half point in September. There you can see the 10-year yield in particular down sharply. And it's not just data and rates that are troubling the market. Earning's not helping to picture at all. Apple slightly higher after its results,

but Amazon down 10%. That's a couple hundred billion dollars. of market value and Intel getting crushed and taking chip stocks along with it, much more on all those names coming up. But meantime, let's start with today's big market sell-off. The NASDAQ now down nearly 3%. The Dow off about 900 points, about 2.5%. CNBC contributor and I-Fi AI CEO Ron Insana. I hope we got it right, sir. Here to help us make sense of it all along with the Fitzgerald Group's Keith Fitzgerald. Welcome, gentlemen. Ron, you say a Bad Moon is rising with a reference homage to Creedens Clearwater. Hope you got your things together.

Hope you got your things together. Hope you got your things together. Do you see this as a longish period of correction and adjustment or something different? I mean, right now we're just in the midst of a correction, believe it or not. I mean, we're not even down 10% on the major averages yet. The semis are, obviously. I think I'm going to mix a couple metaphors here, including Credence and the Olympics and a couple of other things. Okay.

The Fed has not stuck this off landing yet. And I think the important question of the Fed is what didn't they know and when didn't they know it as a Watergate illusion. I think they're missing this. You know, with what didn't they know that would have led them to cut rates just earlier this week? Everything. Rates are down. Stocks are correcting. Earnings guidance has been abysmal for consumers in particular across corporate America.

Energy prices in the midst of what may be a regional conflict in the Middle East are crashing. across the board, whether it's crude oil, whether it's gasoline, whether it's heating oil, whether it's natural gas. All of these are coming down amid concerns about the U.S. and Iran going to war potentially. It's not happening necessarily. But, you know, all these message of the market type triggers. What the hell are you waiting for? Yeah. And they should have done it in July. I happen to think they should have done it earlier than that. Now everybody's putting them on a half-point cut. But how do you react to that, Keith? Is it sort of a what are you waiting for here? and is the Fed at the risk of getting behind the curve to use the cliche?

Well, I got to tell you, I'm all with Ron on this one. He makes some very insightful points. And to my own credence, I'm playing in a traveling band. I think the Fed has been wrong all along from the very get-go. So I'm not surprised to see this, but here's what gets my attention today is the psychology has changed. And that, to me, is significant. So I'm just going to take a look around.

I actually did a little shopping today. Let's talk about Intel, as I just saw its numbers there, down 21% today. Keith, I think of Intel, and you know what I think of? I think of General Electric. Oh, you know, it's very interesting. You mentioned that because we just had that discussion in our office this morning. You know, the company is struggling to remain relevant, which is unheard of for people who grew up in the generation I did where that was a household name and could do no wrong. So, you know, to me, I think it's unfortunately, it's dead money.

This company was like General Electric, Ron, on the Mount Rushmore of companies, frankly. 1999, 2000 was among the top five market caps in the world all at $600 billion, including GE, Microsoft, Cisco Systems. Can they get the mojo back? I don't know. Well, they're in a different business, right? I mean, they're not competitive in the sense that an Nvidia is competitive or even an AMD, which they were, in fact, fighting with decades ago.

there's been just a wholesale shift in what's important in the chip sector. And so I don't know. I mean, I know Jim, Kramer, and Carl and David Faber were talking this morning about some analysts using or questioning whether or not Intel could be a going concern. I think that is a bridge too far. But it tells you how far we've come. Yeah, yeah, absolutely. But when you start asking those kinds of questions.

Yeah, well, it's not good. It's not good. Well, GE's completely broken apart, right? Right, exactly. Yeah. Keith, you mentioned you were going shopping today. If you want to kind of button this with any thoughts on Intel or tell us what you buying well i you know intel is one of these stocks i'm going to stay away from now at all costs

you know pun absolutely intended but i went after apple today i went after microsoft i added shares of palan tier uh you know i'm going to look to some of those other names that have been hit hard because opportunity is usually made on days like today you just don't know it until the rear of your mirror all right so one of the questions keith we've talked to you at great length about nVIDia and your love for it and some of the big tech stocks over the last couple of years Is this a moment of doubling down on them? And if you think they're great at Nvidia at 140, you must love it at 104. Well, I have no problem buying it, but I'm playing to a longer-term perspective.

I think, you know, Ron makes a very important point. You've got to be very calm about this. We don't know exactly if the game's over, but we definitely know it's underway. So this comes down to tactics and psychology. If you're worried about what happens in the next 24 hours, then yeah, it's kind of a problem. But that's not my viewpoint. I'm looking at three, four, five years, especially on a pullback. like this. Ron, you look at what seems to be happening with the consumer. You look at

Procter & Gamble. You look at McDonald's. These are the ultimate consumer stocks. Yeah. And they're flagging here. And they're saying, they're admitting it too with their forward guidance that this is a difficult, more cautious consumer. And it's not just those too. It's really across the entire spectrum of consumer companies who are saying that they're pulling back. Well, now. Almost. Here, so I'm glad you said this because this is, I'm scratching my head about this, frankly. Absolutely right about McDonald's. Absolutely right about you. What about What about wing stop? What about Shake Shack? What about MasterCard not seeing any weakness in the consumer? Lifetime, we just talked to a little about the higher end. It's a little bit different story. But some of those places we would expect to see corroborating data points about a slowdown. I feel like I'm not getting them. Probably segmented. You know, I mean, and so middle and lower income people are obviously feeling a pinch. A luxury, though, if you look at LVMH and, you know, across the pond is doing horribly. Yeah. China, though, is a big part of that. Yeah. And China, look, I don't you think China is getting any better. And so I think beyond what's happening domestic.

I think all these markets, if you want to go to the message of the markets type thing, when you look across the entire spectrum of commodities, bonds, and stocks, you're getting global weakness or global recession worries, not just domestic. Keith, final thought? Well, if I may, you know, don't forget, Kelly, that a lot of those businesses you just talked about are credit card driven. We know that spending can be shifted from cash to credit. So what we really don't know is if the spending is occurring or just debt simply piling up.

The data seems to indicate that debt's piling up. So you've got to stick with the quality names here. Keith, do you have a favorite Creedons Clearwater song? Can you think of one? Travel and band. Absolutely. All right, Ron. Favorite?

Up around the bend. Can we just say? A good choice for me. They play it all the time. I don't care. Awesome. I love it. It's great.

It's good. Yeah. All right, guys. I'm more of a Zeppelin guy anyway. Well, and what do they not play of Zeppelin? All right. Ron Insana. Keith Fitzgerald, thanks.

Thank you. Let's see if Rick Santelli see just trouble. the way. He joins us from Chicago with bond yields down sharply. Rick, Mohamed Al-Aryan was just tweeting that a 100 basis point move in the two-year is a really, really worrisome sign. That's a month to date over the past month. What would you say? I would say that I would have expected some worrisome signs considering everything we've been through, how long they kept rates low, how they have used their models and trusted all the data, given that seasonalities maybe a bit different than they were pre-pandemic. I'm not surprised.

As a matter of fact, if you look at the one-week charts, the week to date, I mean, we closed at 438 in the two-year. You can't make the, it's a huge move. He's right. I just don't think it's surprising. And if you look at 419, close in tens. Now, here's what's really interesting. I continue to say that these guys, one of the big trades, everybody's talked about that

is working quite well, is that steepener, two's tens. It's hovering under minus 10 right now. It's at a two-year, the least inverted. And look at the VIX. Right now, it's flying at the highest level, since. It's March of last year, and that is a good segue for this guy. Hi, Chem. Hey, how are you, right?

If I do recall, we kind of warned viewers the last time we chatted last week that volatility could get really juice, especially some of the sector rotation. Why don't you pick it up right where we left off? Yeah, buy them when you can, not when you have to, right? The reality is there's a rotation that's been going on. Risk is in the market, ultimately, everybody is a buyer-de-sellor. It's a zero-sum game, right? But when risk gets concentrated into a part of the market and leverage, it becomes a problem.

So a very violent rotation like we've been seeing can catch certain people off guard and really drive volatility at the center of the market. And that's what we're seeing, along with poor VAL supply in the back end of the curve, now VAL is starting to expand, and that becomes a self-fulfilling prophecy. Yeah, we've talked about this, this reflective kind of strain that's always present in the market. We're talking about it with regard to mortgages. So mortgage rates are moving lower now. Maybe they'll get to six and a half. Maybe they'll actually get lower than that. But what can that do?

What do we think of? Well, it's asymmetric, right? There's enough pent-up demand. We're running a demand-style economy now that when those rates come down, much like they did in December when they started pricing in the cuts, you can see a pretty quick reaction to GDP and to growth. The problem is it's a slowing economy. It's dramatically slowing. And there's a wealth effect, which is ultimately with the market coming down,

reflexively slowing the market at the same time. So we'll likely get demand, which will drive inflation. And pricing pressures, and the Fed's going to have to deal with its own medicine. But yet, we all know that housing is huge if you want to try to spark some life back in the economy. Any final thoughts? Well, I would watch, you know, Powell and what he has to say coming up. I think they were very vague for a reason in the last commentary. I think they really have an adjustment to wake.

this is a to make this a reflexive machine. And he's watching these markets closely. They say they don't manage markets. The markets are money supply. And the more the market goes down, the more problem we have with liquidity. Absolutely. And anyone who doesn't think they have both eyes on equities today is probably wrong. Tyler, Kelly, back to you and try to have a good weekend. Don't look at your 401K. Indeed. Buy some bonds. No, I'm kidding. Rick, thank you. Let's turn now to that weaker than expected job support because we learned payrolls grew by just 114,000. in July, way below the 185 estimate. The unemployment rate jumped to 4.3%.

That's the highest in nearly three years. Let's get some reaction from Corey Cantanga, senior economist at LinkedIn. Corey, now that we've had, you know, six hours to digest it, what are your conclusions? Well, if we got a job support like this a few years ago, think like 2017, 2018, the response would have been something like, meh. But now, you know, with this job support post-pandemic, here we see people running up the tower reading the bells. I think there are two things that we need to know from this job support. The first thing is that the window to a soft landing looks a lot smaller this week than it did last

week. So we are likely to see a conversation about the Fed cutting rates in September. The question is how much? The second thing is that we've seen the labor market slowing down going into the summer. So if you were banking on riding a resilient labor market to 2% inflation, you probably have to rethink that now. When you say the question about about September may pivot away from whether or not they're going to cut rates, but by how much? What would a 50-half-point cut mean? What would it signal? So right now, I don't think the Fed is necessarily signaling whether it'll be 25 or 50. What we should expect to see is that there won't necessarily be a big bump from the Fed cutting rates now.

A lot of that's already going to be priced in and businesses are already taking stock and making their hiring decisions. ahead of time. So we're not necessarily going to see a pickup in the labor market immediately. But a half-point cut is not priced in. So for some folks, they're probably pricing it in now. Right now, I think if we start to see that getting priced in later on, because there's going to be some signals coming from Jackson Hall at the end of August. So by the time we are in September actually looking at rate cuts, that could be priced in and we could be having a different conversation. How weak do you see the labor market being and getting? So right now, the labor market is showing some vulnerabilities. That's very clear.

And there are some very particular vulnerabilities that I'm paying attention to. One, skewness and job growth. Most job growth came from government and health care over 70%. Those areas still have some runway to grow. So it's not like we're expecting a negative payroll number anytime soon. But there's also other vulnerabilities. And that has a lot to do with hiring. So hiring hasn't picked up.

In fact, it's slowed down coming into the summer. And we're not going to continue to see unemployment remain contained if people can't find work. So on that front, Corey, when we talk about kind of what the Fed should do here and whether they, in retrospect, should have cut on Wednesday, what are their best options now? TD is now calling for a 75 basis point cut in September. Some others are now at 50 and many who didn't think we were going to get a cut are now at 25. What do you think would get the best outcome for the economy? So I think there's something that's been very much overlooked that we have to keep in mind, and it was flagged in the Fed's statement this week.

And that's that they're looking for price stability over the long run. So what would be a particularly worst outcome for the Fed is if they cut rates and then inflation went back up and they found themselves having to go through another tightening cycle. For the Fed, that might be the worst of all worlds, because we're already seeing some vulnerabilities in the labor market, hiring is slow, there's not a lot of churn. And then in order on top of that to have to raise rates again to slow things down even further, that would be kind of a bad outcome for the Fed. So that's something they are really keen on and that's why they want to see more inflation data. But I think that balance is kind of tilted now.

They're looking more at the labor market. They're paying closer attention. That did seem to be sort of the subtext of the statement on Wensi and Chair Powell's commentary about it. As you look out toward the end of the year, how many rate cuts? are you expecting? Well, right now, I wouldn't be surprised to see a couple of rate guts, one in September, one potentially in November and December. That seems to be where the Fed has been signaling recently.

And unless we see something change in the labor market or elsewhere, I would think that's the path the Fed's going to follow. All right, Corey, thanks very much. Corey Cantanga, LinkedIn. Thank you. And still to come, Apple's surprising analysts topping sales estimates, we will break down the numbers. Next, that's a reversal there of the past. As we headed the break, time for today's power check leading declines on the S&P. That would be Intel on the positive side. You got GoDaddy Holdings. That's your power check. We'll be right back. Welcome back, big verdict for Apple. It's positive, not just today and after what's happened with big tech earnings in general, but especially with this market tape right now. It's up almost 2% after a top and bottom line beat last night. Let's get to Steve Kovac with the details and why Steve.

It remains somewhat immune here. Yeah, Kelly. And also, I should note after hours yesterday, the stock was down as much as two and a half percent. So a big reversal there. But look, the story here, Kelly, is Apple is growing again after reporting sales declines in five out of six quarters. Sales were up 5 percent for the June quarter. And that's going to continue. The company says to expect similar top line growth for the September quarter that we're in right now.

But that growth likely isn't going to come from the iPhone. Services is picking up much of the slack. Apple said it'll have another quarter of double-digit growth for the services segment. Everyone's looking to the iPhone 16 cycle, though, of course, which the street believes will see a big upgrade boost with the launch of Apple's AI features this fall. I caught it with CEO Tim Cook on the results and asked him what demand signals he's getting following the AI announcement back in June. He said it's not really going to be clear until Apple AI actually launches, but he did say

he thinks it's going to make a compelling reason for folks to upgrade. their iPhones. Beyond that, China, of course, is a big downside here. Sales were down six and a half percent on the quarter, for the quarter, rather. The AI launch there will be important since Chinese customers tend to buy when cool new features debut. But it's not going to be easy for Apple to launch AI out in China. The government needs to give its blessing first. I also asked Cook about that AI rollout in China. He told me, quote, we're working on exactly what we will do there. And there are definitely regulatory questions. there that we have to respond to, and we're working constructively on those. So, Kelly, it's going

to be a while before we see this AI really hit the global markets, but at first just going to be here in the U.S. Right, indeed. And again, it's quite a verdict. I mean, Steve, people are asking now, as they look through, sift through the damage, what are the safe havens amid this broader pivot that we appear to be in? And today, it seems like Apple could be one of them. Yeah, that's exactly right. And that's exactly where we're saying. The money has to go somewhere, I guess. It looks like it's going to Apple. And look, it was a good quarter.

I mean, they did be in the top and bottom line, showing growth again. I mean, after all that sales declines we've seen, just coming out of COVID, the economic situation in China is still dragging them down. But the services resurgence is really helping them a lot. Double-digit percentage growth. The App Store is just on fire right now, plus just so many subscriptions going through. And also, I would just note, I asked. CFO Luca Maestri yesterday on these earnings, too, about those regulations in Europe, the Digital Markets Act, that could impact the services business. It doesn't seem like there's much going on

there as far as a negative impact, but they're still working through with those regulators to figure out how to comply. All right, Steve, thanks very much. We'll see you. We'll see you when you get back. All right, let's move on now to another tech company facing its own challenges. Amazon getting crushed following its results. Revenue did jump 10% to $148 billion, but that was a little bit shy of what analysts were looking for. Let's get to Kate Rooney now with more on what's going on on Amazon. Kate. Tyler, so Amazon is the biggest laggard right now on the Dow. The consumer side of that business, so e-commerce is really what has Wall Street worried today after yesterday's report marked the first time Amazon's revenue guidance has missed in almost two years. Profit Outlook also came up short,

and then online sales did slow to 5% down. from about 7% in the prior quarter, CEO Andy Jassy, on the call with analysts called the consumer cautious, said folks. They're now trading down to lower priced items, but did argue that faster shipping for Amazon is giving them a bit of an edge. And then as RBC put it in reaction, the concern from here likely switches from that AWS reacceleration, that cloud growth concerns there to views of a softening consumer, effect on margins, and rising capex intensity.

They joke, where have we heard this before? It's a theme throughout big tech. One reason for the choppy forecast. The CFO told us on the media call that consumers are distracted by the news cycle. The Olympics, for example, and the attempted Trump assassination are causing people to defer sales said it's going to make it hard to forecast this current quarter. And then advertising growth did slow, sequentially. Executives said it's coming off a larger base at this point.

They highlighted that as a bright spot with prime video ads now rolling out. And then those concerns about the consumer slowdown, they did outweigh some of the cloud growth, which really was a bright spot. AWS revenue was up 19% better than expected AI and CAPEX, took up a lot of the oxygen on that earnings call after spending $30.5 billion in the first half of the year, Amazon now expects capital investments to be higher in the second half of the year. The majority of that spending is going to go to support the growth needed

for AWS and infrastructure as well as AI guys. Make it simple for me, Kate, in terms of what Amazon's real core businesses are. One is the consumer business. Two would be AWS. And three, it would seem to me, would be the growing future in AI. All of the other stuff that they're in, whether it's Apple Prime and streaming and so on and so forth, seems almost like rounding errors to me. Yeah, well, there's also advertising, which is a growing part of really the bold case.

But it goes back to Apple's origins and founding. That's the core side of the business, e-commerce, them selling things online. It's a lower margin business. It's kind of, you think of grocery stores and normal retailers. That's really what they're known for. And when most people interact with them, you've got the prime subscription business, which is a part of that. And their whole bid has been, all right, we want people to stay on our platform. They're shopping with us.

But they're also, that helps the ad business. They're buying these subscriptions. And so they call that the flywheel effect. And then AWS really sprung out of nothing from Amazon. It was built and is now the higher margin, really higher growth side of the business. So it's kind of, you can think of it as sort of these. two parts. But one way, I was thinking about this analogy. I'm not sure it's a perfect analogy for the quarter. But if analysts and investors were going to give Amazon a haul pass on spending,

you saw this with big tech, they've got to really nail it on their core business. You saw this with meta. They're going to have to nail it. It's kind of like your parents saying, okay, you know, if you do your homework, you can go out and play with your friends. If you do your homework in the case of Amazon, if you're really nailing it with e-commerce, you can go out, we'll give you a hall pass, we'll let you go, you know, spend big on AI and do all this CAPEX, that's really what they were not able to accomplish in the quarter. So that's kind of the analogy I'm going to go with. That's a great analogy. Yeah, didn't stick that landing a particularly well as Ron said earlier. All right, Kate, thanks. Kate Runny. Thanks. Thanks, guys. And after the break,

another key tech name going in the opposite direction. Intel's sinking big time after missing on guidance, cutting its workforce, and cutting the dividend will break down all the chip stocks next. Don't go anywhere. Welcome back to Power Lunch. Shares of Intel are having their worst day since 1974, falling 26% after poor earnings. Joining us now is Vivek Aria, who covers semiconductors at Bank of America. He downgraded Intel this morning, saying they're not equipped to compete with Nvidia and AMD, and there are no easy or quick fixes for their problems. And he joins us now. Vivek, it's great to see you. And, I mean, again, this is not like down 26% off an all-time high. The shares were down 40% going into this, and it's been, I think, on like, a four-year slide.

Thanks, Kelly. I think what's going on is a mix of both the industry factors and then some company-specific factors. From an industry side, yes, demand for AI is very strong. But when you go outside of AI, the demand, whether it's in the enterprise environment or telco or industrial or automotive, is not really doing that well. And Intel's presence kind of exposes them to a lot of those cyclical factors. So there are industry forces at play. But in the specific case of Intel, I think in some ways, it's a classic case of innovators dilemma. The company did everything right for nearly four decades when it was the leader in PC and server CPUs. It kept on making them better and better. But I think that in hindsight made them miss the mobile cycle.

It made them miss this move in the industry towards a fabulous and a foundry model where either you are focusing on manufacturing or you're focusing on design like most of their competitors are. And more recently, I think it made them miss the whole AI cycle where there is a shift from serial to parallel processing. So I think they have suffered from a combination of both industry and company-specific factors. And this thing is not going to turn around very quickly. We do think

they might have to wait until 2026 to see any tangible signs of progress. This is obviously a Harvard business school or any but pick your business school case waiting to be written because there are many, many, many companies that have had exactly this kind of phenomenon that you describe, happened to them. What is the fix here? What is the fix here? or is there a fix here? So what I think Intel still has going for them is they do have a very strong brand name. They have a lot of very good U.S.-based manufacturing assets,

even though they are not up to par in terms of the technology that Taiwan semi has. They are one or two steps behind. And then, of course, they have a very strong position in the enterprise. They have a very strong position in the PC market. So Intel does have a few things working for them. The challenge is that the spending in the industry, right, the broader demand environment is soft,

and a lot of the spending is shifted to AI, and AI requires a very different kind of investment in silicon and systems and software. And I think Nvidia saw this, had this vision a decade ago and has been working at this for a decade, and that's really hard, not just for Intel, by the way. I think it's been hard for everyone else in the industry to catch up. So we do think that Intel's,

stays a player in the industry, but the time for becoming relevant again, I think that time is going to be difficult to get back to. I was just going to say, Vivek, that I think this is a good reminder if we hadn't had AI, what the economy and the business cycle might look like, because the semis are a poster child of someone that's swung from shortages to gluts, much like we're seeing in autos now and so forth. What were there gross margins at peak of the last few years? What are they now?

Sure. You know, at its peak, Intel's gross margins, but over 60s. 65%. Now they are 38%. Wow. Right. As go gross margins, so goes Intel. And, you know, gross margins are a very important indicator of pricing or value capture or differentiation of execution.

And just to put it in context, Nvidia's gross margins are 75%, nearly twice that of Intel. And by the way, those gross margins are after paying Taiwan semi to manufacture products for them. So that's the extent of distance that Nvidia has put between the. themselves and Intel. You listed some of Intel's various assets, the things that they do have going for them. But how do they deploy or use those assets to get back to where they'd like to be? What is the path out or forward? Sure, Tyler, I think some of it is macro in nature also that as we, you know, there's

a reason everyone is clamoring for rate cards because the broader demand environment is not that strong. So as in when we do get that cyclical pickup, next year, for instance, there is the end of life of Windows 10. So many enterprise CIOs might be encouraged to upgrade their laptops. So that can certainly help Intel. You know, if let's say there is a geopolitical situation in China and Taiwan, Intel's U.S.-based manufacturing can grab more market share. More recently, we saw, for example, when there was a strike, when there was an issue with CrowdStrike, a lot of Intel-based laptops with their V-Pro product were able to actually come out of that issue very quickly.

So, Intel definitely has assets that work for them. But the big picture thing is that they are trying to simultaneously compete with the best designers on the planet, which are AMD and Broadcom and Nvidia and Marvels of the world, and trying to compete with the best manufacturing entity, which is Taiwan Semi, and trying to run both marathon and sprints at the same, time, I think it's just very difficult in this industry.

But 30-point collapse in margins. I mean, they've come back from something like this before, or is this just completely different this time because of the competitive pressures? I think it's tougher this time around. And the irony is that their PC business, as much as, you know, there can be a recovery in demand for their PC business, because they fell behind in manufacturing, a lot of their PC chips are actually being manufactured by Taiwan semi. Yeah. So as a result, there is a high. input cost and their own internal fabs are less filled. And that's another reason why we see that gross margins, because if you look at Intel's Q2 sales, they were in line with expectations. The big

miss was nearly a 500 basis point delta in gross margins because of this shift in where it's being produced. It's fascinating. Vevac, thanks for helping illuminate their problems today. We appreciate it. Thank you. Vivek, Ria. All righty, as mortgage rates begin to fall, will housing find itself on a firmer foundation, we will discuss that ahead on Power Lunch. Be right back. Welcome back to Power Lunch, everybody. Oil falling more than 3% today. Economic worries supersede. A big word there, geopolitical tensions, which had sent oil higher earlier in the week. Also heard from the two biggest oil companies today, Exxon and Chevron, reporting results in painting two very different pictures. Pippa Stevens here with more details. A lot going on here. Yeah, it's interesting because they're in the

same operating environment, but we did hear two very different things. And Exxon was higher earlier in the session, which is notable when basically everything is down. It has since given up those gains, but still. So starting with Exxon, they had a top and bottom lead beat that was driven by a huge amount of strength in U.S. upstream. It was 40% above expectations. Their downstream was a little bit weak, but we've heard the same thing from others like BP and Total, and that was overshadowed by that upstream strength. They had record production in both the Permian and in Guyana. But not the same here with Chevron. We saw a bottom line missed for them, and their U.S. upstream was good, but their international upstream is what missed expectations.

They gave a whole lot of reasons for why, including the lack of tax benefits they had last year, as well as FX impact and then lower natural gas realizations. But then, of course, as RBC, the elephant said, the elephant in the room is Hess, and that's what's really weighing on the company right now, those shares. We heard earlier in the week that the case is not going to be heard until May of 2025. So that's a lot later than they thought. And so if that deal goes through, the earliest would be at the end of next year, end of 2025. So that is two years after they initially announced it. So that is a huge opportunity cost there, a huge unknown.

And Guyana was seen, Kess's Guyana stake was seen as a real beacon for Chevron. And so if that's called into question, it's hard to see how Chevron could outperform here. And then finally, one quick talker. Chavon is officially moving its headquarters from California to Texas. They already had about three quarters of their employees there. But still, it's a pretty notable ship. They were in California for nearly 150. San Ramon, yeah, like close to San Francisco.

They were there for nearly 150 years. Wow. I was going to say, that almost felt like the elephant in the room, too. Did they go into much detail about it about California politics or policy? Exactly. So actually, so Becky Quake on Squackbox asked Mike Worth about it earlier, and he said, that, you know, we've been very clear that we think policies that raise costs that put supply reliability at risk hurt consumers, but the economy at risk in California is discouraging investment

in the energy that runs its economy. So some pretty harsh words there. And they're not the only one to leave California. No, but everyone goes, eh, it's Musk. You know, I mean, when it's someone like Chevron, I think you take a little bit more notice. Yeah. It's interesting. Pippa, thanks. Pippa Stevens. Let's get to Kate Rogers now for that CNBC News update. Kate. Hi, Kelly. The Pentagon said this afternoon the U.S. will make changes to its forces in the Middle least to support Israel as tensions boil over following high-profile Hamas and Hezbollah killings. According to a spokesperson, Defense Secretary Lloyd Austin called Israel's defense minister today and reaffirmed U.S. support and informed him of the changes.

Pentagon officials didn't go into detail about what the changes would be, but said Austin is making a decision on deploying additional forces to the region. Meanwhile, a bipartisan group of senators introduced, rather, a bill that would end the military draft in the United States. not been used since the Vietnam War. It comes as lawmakers have disagreed over whether to add women to the draft after the Defense Department opened all combat roles to women in 2015. And Harvard announced today its interim president, Alan Garber, will remain as president

of the school through spring 2027. Garber was appointed to the position in January after his predecessor, Claudine Gay, resigned following backlash over her response to anti-Semitism on the Harvard campus, as well as Mount plagiarism allegations. Kelly, back over to you. Wow. All right, PIPA, PIPA, she said. Kate, thank you. Kate Rogers. Homebuilder stocks are down across the board today. Could the drop in yields and rates help spur more activity? We will speak to an industry insider about that when we return. Hi, welcome back to power launch. Bond yields falling after a week of an expected jobs report. The two-year yield hitting its lowest level since last May and the 10-year lowest since December.

But that is also bringing mortgage rates down just a bit. The 30-year fixed falling to 6.4%, lowest level since April 2023. This is according to Mortgage News Daily. Here for more on the impact on prospective homebuyers and refinancers, Andy Walden, Vice President of Research and Analysis at the Intercontinental Exchange. Andy, welcome. Good to have you with us. Let's talk first about refinancing, which has been sort of a dead zone for the mortgage business

over the past couple of years. Does this decline in mortgage rates suggests that more people will get in and try and refinance? It does. It does. And you mentioned it has been a dead zone and out there in terms of refinance incentive. And what we're seeing with rates falling into that 6.5% range slightly below that, as you just mentioned, is that there are 900,000 more folks that could save 3 quarters of percent through a refinance today than there were just a couple of days ago. We're up 60% in terms of refinance incentive here over the next couple of or over the last couple of days, just because, of that drop in rates and some of the highest volumes of refinance candidates that we've seen out there, really since the Fed started to raise rates in early 2022. So still modest by historical standards, but you are starting to see that activity and that incentive pick up again out there in the market.

You've got rates sort of back to where they were roughly a year ago, right? Yeah, that's exactly right. But the dynamics of the market are slightly different than they were then. We've lived broadly in an environment where rates are above where they are today, seeing a little over four million loans that have been originated with rates over over six and a half percent over the last couple of years. And so you simply have more refinanced incentive on the way down in rates and obviously you had on the way up, which is which is a good thing for the lending markets. Andy, it's Kelly here. Two quick questions. One is something that Steve and Mark Zandi and I and everyone's been talking about, how much bigger is the gap between the 10-year yield and the 30-year

fixed than it normally is? And do you see any sign of that gap narrowing, which would help bring rates down even more. Yeah, it is wide, right? And it's typically, right now, it's about three quarters per percent wider than it traditionally is. It's about 2.65 percent as we stood here yesterday. And so, yeah, it's actually, or leading to higher interest rates than you typically would expect. And the forecast over the next year or so is for that spread to reduce. So along with 10 years coming down, you should see a little bit of reduction in that spread, which should help mortgage rates as we move into 2025 and beyond as well. But what would it take, and this is now a follow up to the first question, but the second one, what would it take on that front and or on the 10-year front to get

the mortgage rate back in the fives? Down into the fives? So subtract two and a half off of that, right? So you're talking closer to two and a half percent 10-year treasury yield is probably what you would need, or three and a half percent is what you would need. So you're going to need some considerable movement down from where we are today. You're going to need some compression of that spread. You're going to need both of those together. And, you know, when you look at the 30-year rate forecast for the next 18 months or so, a couple of days ago, we were talking maybe low sixes by the tail end of next year with the lower Fed dot plots here after the latest meeting. Now, maybe we're talking in the 5% range, high 5% range as we get into the tail end of 2025.

So here's the question that should be obvious, but I do wonder, and I wonder if you'd kind of be sort of walk with me on this journey. falling mortgage rates, do they mean higher home prices or lower home prices from here? It's a good question, right? So if you look at our ICE home price index over the last couple of months, you've seen the housing market slow, right? Rates have been in kind of this high, 6% range, low 7% range. You've seen the housing market slow for each of the last four months and suggestions that it would cool a little bit more over the next couple of months. I think this is a needle mover. This is a game changer in terms of the way that the housing market moves. There have been

a couple of times over the last two years where 30-year mortgage rates have been where they are right now. Both of those times have resulted in the housing market heating back up, demand heating back up, some of that supply, which has been a bright spot for the market that's been rebuilding, getting bought down. And so I would expect a little bit of a transition here from a cooling housing market to potentially a little bit of reheat here over the next couple of months, given the additional buying power folks now have. All right. Very interesting. Andy, thank you very much. Andy Walden. We appreciate your time today. You bet. Thank you. Still amazing to see the 10-year printing at 3.79 right now in this broad sell-off in the market.

Intel's lower, so are most of the other chip stocks today. But there is one name among the carnage that's perhaps a buy. We'll ask our trader which one that is in three-stock lunch next. Welcome back. Let's close out the show today with three-stock lunch as stocks continue to sell off. We're looking at some of the worst performers of the week to see if there are any bargains, according to our trader. He's Scott Nation's, President of Nations indexes. Scott, welcome. Thanks for playing ball today. Let's start with Boeing shares, which are down 10% in the past week.

The company reported those Q2 results showing a huge decline in revenue, fewer deliveries, that new CEO. The shares are down 35% this year. Would you step in and be a buyer here? I would be a greedy buyer, Kelly. And by that, I mean, I'm putting bids below the current approximately 168 price. You mentioned the new CEO. I think new leadership is absolutely critical. It means Boeing is turning the page. importantly, he's a mechanical engineer by training. He's not a finance guy. He's not a marketing guy. That means that Boeing is going to refocus on engineering, design, manufacturing.

He's their guy. Maybe most critically, he's announced that he's going to be based in Seattle. And you'll remember that a couple decades ago, the company moved its headquarters from Seattle, first to Chicago, because they wanted to be closer to international customers. And then to Virginia, because they wanted to be close to defense buyers, I think it's just absolutely critical that they're back in Seattle. If there's a problem, and the reason I would be a greedy buyer,

is because the company has 200 planes parked in various locations, waiting for parts for final assembly. That's going to be job one for the new CEO, Kelly Orpard. All right. Let's move on to Moderna. Those shares are down 30% or so in the last week. The company reported its Q2 revenue beat estimates and a narrow than expected loss for the period. But it did slash full year guidance.

Shares of Moderna down almost 10% today. This one has been struggling. Scott, what do you do with it? Yeah, this unfortunately is a sell. To many people, they were a hero of the pandemic. But as you pointed out, they just lowered full year guidance by 25%. Losing a ton of money. Europe has announced that they're going to buy less of the COVID vaccine.

It's about $86 now. But the price to pay attention to is the price at the start of 2020 before the pandemic, pandemic was in full bloom, if you will. That price was $19 a share. So if you love what they did during the pandemic, that's great. But you don't have to be along for the ride all the way back down to 20. So this would be a sell for you? This is, yeah, Moderna's a cell for me.

Madurna's a cell. Okay. All right. Let's see about Micron. Ben, those shares are down 16 percent this week. It's down four of the past five sessions, but still up about 8% on the year. What do you do with this one, Scott? Micron is a buy.

It's fairly priced with a forward PE of just 12 and a half, fairly well diversified in their product line. They mostly make memory chips, largely DRAM chips. But those DRAM chips are important in AI in that they're bundled together to create high bandwidth memory applications. There's a little bit of a glut of memory chips right now, but that's easing. That's going to help Micron. The only concern for this company is CAPEX. They're going to have to build three plants, spend a bunch of money. But I love the fact that they're solidly profitable and relatively well diversified across the chip space. We have our buy. It's been a tough week. So broaden it out, Scott, over the weekend. What kind of

homework are you going to be doing? Are you stepping in here to say this is two much of a growth scare and it's time to get positive on stocks, or is it time to move to the sidelines or rotate? Well, there's lots of concern because we have slowing growth and we still have a substantial amount of inflation. I'm old enough to remember when everybody talked about stagflation. That's a concern. One thing that really jumps out at me is that we calculate and publish an index T-D-E-X, tail-dex, which measures the cost of crash protection. And it's jumped more than 100% today alone. It's only done that six other times since 2005. So people are finally getting the message that stocks can go down and they're just desperate to get protection right now.

Where would you, if you were a defensive-minded investor, where would you go? I would go to consumer staples, particularly the biggest names with the most pricing power, the strongest brands because they are going to have to not only continue to sell a bunch of stuff during a slowing economy, they're also going to have to do well in the face of inflation. So if you're somebody like Coke and the average cost of the product is a dollar and you have pricing power and great brand equity, that's going to do really well in relation to the broad market. Another one would be Procter & Gamble. Same sort of set up, wonderful brand equity, relatively.

low-cost product and the ability generally to maintain pricing power in the face of inflation, you really would have to have a strong stomach to step into the tech space or AI space right now. Only quick comment on that, Scott, as I see some of the CPG consumer package, good companies, still retrenching from inflation. They have disinflationary pressures, but the market is speaking. And certainly Coke is cheaper than a bag of chips to go back to the discussion point we've been having for months now. And then on bond yields quickly before we go. Look at gold's breakout. Yeah, I think bond yields, they certainly were falling on lower,

on slower economic growth, but right now much of it is a flight to quality. People are just buying bonds, but they're not worried about the return on their investment, the return of their investment. So there's a flight to quality right now. All right. Very interesting. And we go into the weekend after a very busy, thank you, Scott, by the way, very busy week.

Fed meeting, obviously lots of earnings reports that have been sort of spotty. Hatchy, I guess I would call them. And the jobs report today. Indeed, I will see you at 6 p.m. We have a special. We will have some live coverage. Looking forward to it on the market sell-off.