Power Lunch - Wall Street volatility, a bull-bear on Amazon and Transportation Secretary Pete Buttigieg 7/5/22

Episode Date: July 5, 2022

A volatile day on Wall Street as recession fears mount. Plus, Amazon CEO’s turbulent first year. We lay out the bull case and the bear case for the stock. And, Secretary Pete Buttigieg discusses the chaos at airports and what can be done to lessen the number of air travel cancellations and delays. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, thanks very much. Kelly. We'll see in a couple of seconds here. Welcome to Power Lunch. I'm Dominic Chewin for Tyler Matheson this afternoon. On a very volatile day for Wall Street, investors gripped by recession fears at this hour. So how to invest as growth slows, possibly an uncertainty ramps up. A look at what's next for two battleground stocks. We're talking Tesla and Amazon and Transportation Secretary Pete Buttigieg is here to discuss fixes for the overall airline industry. following a holiday weekend that saw thousands of delays and cancellations. But first, a check on the markets, Kelly, which are, by the way, off their lows of the session. They are, Dom, and a break on the jet fuel front, at least for the airlines. But let's run through everything else that's happening. The Dow's down 483, so we're about 300 points off the lows. The NASDAQ was down 216. It's currently up 55.

It's the only major average in the green right now. And over in the bond market, some major moves to report as well. The 10-year and two-year yields inverting, the 10-year three-month yields I like to follow, also falling to almost one point from over two points earlier this year. So on both fronts, these yield curves have really corrected sharply. Crude making the biggest moves of the day, breaking not only below $100 a barrel today, but below 99 and now below 98. It's down almost 10%.

Even a bigger drop for Brent. This could translate with what we're seeing in gasoline futures into a 30, 40, 50, 50, drop in gasoline prices in the next several weeks, absolutely keep an eye on this space. But it's not just oil. U.S. Steel and Alcoa are also down about 6% today. And by more than 50% from their recent highs, and these recent highs were only a couple of months ago. As Bespoke points out, these declines are even more extreme than what we saw with the hypergrowth

stocks beginning last November. Just extraordinary price action for some of the materials, metals, commodity stocks. J.P. Morgan, Caterpillar, Deere, those are some of the names, also hitting 50. week lows today. And as recession fears mount, what's already priced into the market now? Seems like kind of a lot. Michael Santoli down at the New York Stock Exchange with more. Mike?

Yeah, Kelly, I was about to say a lot. Maybe not enough, but certainly plenty has been priced in. If you take a look at where the S&P 500 is, whether it's the compression and its valuation from the start of the year or here, the year-over-year change. Bespoke kind of put this chart together. Tracking the S&P's year-over-year change with the ISM manual. manufacturing index. Obviously, what it shows you is that the S&P at this level is already kind of

discounting, or at least would coincide with the conditions of a contraction in manufacturing, which would suggest maybe that wouldn't be tremendously newsworthy to the market if we were to get there. I think it's fair to say you put a lot of the evidence together, Kelly, that we are discounting a stall speed economy, something that's a steep slowdown or a recession scare, such as we got in 2018, early 2016, 2011, those times when it seemed like we were on the edge and it didn't quite get there. So that would suggest if you do get an outright recession, if you do have to have hack away at those earnings forecasts, maybe we have more reckoning to do, but it's not as if it's starting from a position where the market is already assuming things are good

and growth is on a pretty good glide. One final point, as many have noted, the average peak to trough decline in the S&P over the course of history during a recession is 30-ish percent. Now, we would suggest with 22 percent loss already in the S&P, maybe that says more than halfway there. Of course, we all know market got cut in half twice since the year 2000 in bad recessions that had exacerbating factors. But that's what the averages tell us anyway. All right, Michael Santolian, credit markets for sure. One of those things to watch as well. We appreciate it.

Let's continue tracking today's market slide. our next guest says markets are pivoting away from inflation worries more towards economic recession and you might want to adjust your stock picks accordingly for that shift. Joining us now is Mike Vogelze and CapTrust Chief Investment Officer. I mean, Mike, you just heard Mike Santoli's report on kind of what we're seeing as what's priced in the market right now. Do you feel as though this is an environment where there's still a bit of that rotation happening to more defensive names as opposed to what we're seeing today, which is huge,

outperformance, by the way, in some of those names that were considered growth and perhaps higher valuation-type stocks over the last several years. Yeah, exactly right, Dom. Just take a look at what's happening, right? We've got a huge economic slowdown trade on today. And the NASDAQ is up, right? Those are the things that aren't as economically sensitive. They've also been crushed in a lot of ways. And so we're getting clear rotation away from inflation worries and higher interest rate worries and into sort of economic recession worries. I think Mike Santoli had it exactly right. You know, how much has been discounted? One thing about this potential recession, which frankly, we don't even know how to define, is that it's pretty anticipated. And usually the market doesn't

get hammered when it anticipates things this much. And so there's some cheap stocks out there. And I think a lot of it has been discounted. So if it has been, I mean, like you said, if a recession does come, you can't say that you weren't prepared for it, right? Because we've been talking about it now for about six months and even more so for the last three. If you talk about those stock picks, then, what are the places to be in? Is it strictly utilities and consumer staple stocks? Or do you kind of still play the diversification game, given the fact that there is an opportunity that may present itself in certain areas in the market? Yeah, I think as we come into earning season, it's really important to give yourself some flexibility, right? That's sort of number one as we face

the next three weeks or so. I think it's not like you can be dope slapped and say, wow, I didn't see a recession coming. And we've been talking about it, as you point out, for a long time. And as a result, you know, I think some of the things that are recessionary are really inexpensive. There's lots and lots of names that are. I mean, we're looking for a couple things. You know, AT&T we like because of the pricing power that they seem to have and evaluation discrepancy. You know, they've got a long sort of runway ahead of them. in order to deliver shareholder value. You know, LRCX, Lamb, research is just a wonderful business that we've held for a long time

and have made a ton of money on, and we've been through many cycles. This is not a tradable name, in my opinion. This is a name you want to own as technology continues to advance across the globe and across the sort of the development of technology. And then Wells Fargo is simply, I think, the cheapest bank out there. Part of the challenge with talking about individual stocks when the market is melting down, as it's been this year, is it feels a little bit like standing in the middle of a house that's falling down around you and saying, wow, you know, these kitchen cabinets are beautiful.

It feels a little odd to be talking about stocks that are getting hit so much. But, you know, there are some valuation opportunities. And I think as we get more and more discussion around recession, I think it's going to be interesting to see what plays well. So, so what, I mean, the idea of what plays well is absolutely in play right now for not just the Treasury side of the fixed income market, but credit. as well. I wonder in your mind, whether or not you are seeing some signs. I mean, we know that the Fed is going to commit to balance sheet reduction, to raising interest rates and whatnot, which should put

pressure on fixed income markets. At the same time, if a recessionary narrative just really does take hold, that does send a flight to safety towards the full faith and credit of the U.S. government at the same time. So what does a recession look like when it comes to treasury yields in your mind? This is an incredible game of chicken we're seeing play out, right? I mean, we were at what, 340 or something on the 10 year a couple of weeks ago, a month or so ago. Now we're at 280, wherever we are this afternoon. And, you know, this is, this is the Federal Reserve having credibility. Jay Powell has been very clear in his earnestness about controlling inflation and not letting it get ahead of itself. And I think the market's taken him at face value at the moment.

And as recession continues to creep closer, it'll be interesting to see. The challenge with the recession here is we've never had an economic recession as defined by the N.EBR, right? Their recession dating committee that's had really strong employment. And so we don't even quite know what it's going to look like this time around with such strong employment and yet weak overall demand and production in the economy. So even defining a recession this time around is going to be odd. And I think the Federal Reserve is simply going to say, as long as we have covered from the employment picture, we're going to keep the pressure on. Tough waters for a financial advisor to navigate right now.

Mike Vogel saying thank you very much. We appreciate it. Thanks, Don. Turning now to Tesla, the shares are down more than 35% since the start of the year, and they're extending their slide today, although they've just perked up after the company reported a quarterly drop in deliveries for the first time in two years. Our next guest is calling the pullback a generational buying opportunity, citing a strong pipeline of future products. CFRA's Garrett Nelson still has a strong buy on the stock. He trimmed his price target $100 today to $1,100.

What prompted the trim, Garrett, the numbers? Yeah, thanks for having me. It's mainly expectations for lower valuation multiples across the auto manufacturer industry in this environment in which, you know, we're seeing increased odds of a recession. So it's just a lower target multiple. Our estimates for next year in 2024 actually did. didn't change at all. So it wasn't about the quarterly delivery figures? It wasn't. And if you look at, you know, Tesla shipped about 255,000 vehicles, that was up 27% year over year. If you look at the rest of the industry, on average, automakers sales declined by about 20% in the second quarter. So,

you know, Tesla continues to outperform. And we think with the company in the process of ramping up, their new factories in Austin and Berlin. The second half of the year is going to be a lot stronger in terms of their production and sales. So we remain very positive on the stock. Sure, although maybe there's a difference between sort of positive for the long run and generational buying opportunity. And maybe there's not. I mean, could you make a case that Tesla has now priced in much of the success it's going to have in the years to come already? Yeah, we put this report out And we looked at the long-term earnings potential of the company. So Tesla earned a little less than $7 a share last year.

They did $54 billion in revenue. We think by the end of this decade, their earnings could be north of $30 a share in revenue north of $300 billion. And so, you know, we view this 35% drop in the stock price is really a generational-type opportunity, you know, similar to an Apple or an Amazon, say, a decade. ago in terms of a company that's really disrupting their industry is going to take a huge amount of market share over the next decade. And so, you know, we view this as a really good entry point for the long term in the stock. Gareth, it's dumb. It's trading it 55, 56 times next year's anticipated earnings. Even with the pullback, some would say that's still too much. How would you counter that argument? Yeah. So we would say look at the

where it's traded over the last five or 10 years on a forward PE basis. And the multiples are well north of 100 times. And so it's actually trading at the lowest multiple that it's been trading at in a long time right here. But it's still, what did we say, you know, 55 times forward earnings or what have you? How are you valuing Tesla, Garrett? And what does it have to do for the next couple of years to justify the current price? Yeah, we think they just need to continue to execute. They have an impressive pipeline of future products with the cyber truck and the semi coming next year, followed by the Roadster.

We know their long-term goal is to grow their annual volumes from half a million vehicles sold in 2020 to more than 20 million vehicles in the year 2030. And so that's the long-term growth opportunity. And while the stock is down 35 percent year-to-date, it's been the best-performing auto-manufacture equity by a wide margin so far this year. And so we just think they need to continue to execute and innovate. And the share price will grow along with their earnings over the long term. Yeah, that share price has already dropped 35 percent, just year to date. Garrett Nelson, the CFOA, thank you very much. We appreciate it.

Thank you. All right. Coming up on the show, Andy Jassy's turbulent. First year is Amazon CEO. $600 billion in market value wiped out. The bull and the bear case for that stock. Amazon coming up next. And shares of Delta, United, American, all falling about.

20% over just the past month. This says air travel hit a pandemic record, record over the weekend. Transportation Secretary Pete Buttigieg is here to talk about the delays, the cancellations, and the chaos at our nation's airports. And check out shares of Roblox bucking the market trend today higher. Up by about 28% just over the course of the last month, up 13% just today. Keep an eye on bucking the trend. Roblox. We'll be back after this break. Welcome back. Amazon shares bucking the trend, trading higher. by about 2% on the day as CEO Andy Jassy wraps up a rocky first year marked by what else. Inflation, unionization efforts, and of course overcapacity as well.

Now, during Jassy's time at the helm, the stock is down about 36% underperforming the 13% drop for the overall S&P. So joining us now with the Bull case for Amazon is Jason Helfstein of Oppenheimer. He currently has an outperform rating on Amazon with a $175 target price. And with the bear case for some balance here, we have Barton Crockett, Rosenblatt Securities, who has a hold rating on Amazon and a $107 price target. Jason, Barton, thank you very much. We will start first of all with Jason. He's going to make the case because this is a stock that is obviously on people's shopping

list if it goes down in value. Why does it belong there and how high could it go, Jason? Sure. So this is a business today that the market's basically valuing the retail business at zero or less than zero. So when you take a look at the AWS business, I think it's ironically, basically to Internet slash media analysts, you know, talking about this company when effectively 100% of the value today or most of it is actually the cloud business. So if you put 25 times next year's AWS profit like EBIT, including depreciation, and then you put. but 10 times on advertising this year, eight times next year, EBIDA, assuming a 65% margin, you're basically paying, you know, nothing for the retail business, nothing for prime,

nothing for pay by prime. So really, that is the opportunity. So unless you were at bear on AWF long term, you have to buy the stock. All right. So, I mean, $175 implies like a 50-some percent upside surprise there for the stock. if it does come to fruition. Barton, you've been on the right side maybe of this, arguably speaking. You've been a little bit more negative on the stock here,

and the price action has kind of validated that view. Why does it keep going lower? Okay. So, look, I don't have the same sum of the parts that Jason has. I think that the multiples for cloud services companies are not what they were. You know, I think if you do a multiple that's more in keeping with where the peers are trading, you don't get all of the value in AWS and you do need retail to work. And I think that the issue with retail is that this is the company's legacy.

It's Amazon's core. And it's not a gross story. It's a day two story, which I know Bezos has argued that that's death, but I think it's not. I think that's an oversafe and I think it's normal maturity. And for some number of quarters, these guys have not been outperforming retail at large. And I think that there's a lot of reasons for that. One of them is that they've killed the weak links and the competitors are stronger and they're better in e-commerce and they're better in click and brick combinations than Amazon is right now. And I think the consumer is rotating away from where Amazon is and retail towards services away from things.

If you have these guys growing like they have been for some period of time, the consensus revenue estimates are too high and they're coming down. And I think that's difficult to make an outperform argument for a high multiple stock like this. you know, when the revenues are at risk versus the sell-side consensus. Pardon, if I could follow up on that, I mean, I get the reasons why you feel a little bit less optimistic about this. Let's take this and say from an operational standpoint, you take a look at the numbers, you scrutinize them on a daily basis, what needs to change, what would be those tea leaves that you start to say, hey, maybe this is trending in the right direction, what would get me to be more constructive on the stock? What would you need to see first and foremost to make you

feel better about Amazon story going forward? Well, I think, you know, one thing that would help is if you were buying the stock at a lower multiple, which means the stock can be cheaper than it is here. You know, I'm, you know, I have a neutral rating on the equity. So, you know, I do think there's a real business here that could be attractive. You know, I think that expectations are too high. I mean, the fact that I'm the bear on a bull bear debate speaks to the fact that everyone else on the street has a buy on it. You know, so I think that there needs to be a reset in expectations. There needs to be a realization that, you know, the numbers need to be adjusted. And I think that would help a lot.

I think retail, you know, it's a great story historically, but I think there needs to be an acceptance of, you know, think trees don't grow to the sun. There is a point where things start to normalize. And I think the numbers argue that we're approaching that, heading into a recession with competitors stronger in online. And that needs to be in the consensus. Hey, all right, Jason. How strong is the Amazon brand when it comes to its overall presence in retail? big. We're just about a week away from their marquee shopping event of every year, that Amazon Prime Day, right, the couple days worth of specials that they have. How important is that retail story going to be for Amazon if, hypothetically, we do enter the U.S. economy into that so-called

recession? I think what's so hard for everyone looking at this is basically, you know, the e-commerce basically went from gaining, you know, 150 or, you know, 150 or 170 basis points of share, right, to kind of four to 500 basis points of share during COVID, right, which was basically too much. So we're still burning off the COVID hangover, right? So first of all, I think when you look at retail as an overall industry, you're just starting to see kind of like going back to the normalization of online versus offline. I think that's going to make just all e-commerce companies look better, particularly as we start to look at the backhand, even if we do go into recession.

The second, I think when you look at this company internationally, yes, Amazon did not gain any market share based on our data last year. Their market share in the U.S. was about 40% about flat. But in other countries such as Germany, UK and Japan, they gain share in all those countries last year. So, look, I think you have a whole bunch of compliance factors. I think when you also look at the valuation, the biggest driver of like the short-term movement in the valuation is.

are the margin e-commerce. And for the first time, largely, you know, again, I don't know if it was just because Andrew Jassy or this would have happened if Bezos was so at the helm, you are seeing them actually proactively trying to tackle costs. And again, I do agree with Barton. There is probably some risk to the actual street numbers, but the market is valuing your retail at business as at zero to negative. All right. So the case being made there from Jason Helfstein, the Amazon Bull over at Oppenheimer. Thank you very much. Also, Barton Crockett, the Amazon Bear over at Rosenblatt. Gentlemen, have a great day. Thank you. Here we go, Kelly. I'll take it. No, no, no. This is all you.

Ahead on Power Lunch. More on this volatile session. The Dow is still down, but we are more than 400 points off the lows. The NASDAQ is now positive. It's up almost two-thirds of 1%. The chip stocks, some of the biggest laggards, though, will get the latest action there. Plus, key stocks that are moving lower in today's the three-stock lunch. How about Ford, HPQ, and Freeport MacMaran? Are any of them buys? We'll ask car to work. Welcome back to Power Lunch, everybody. While the Dow and the S&P are still lower, the NASDAQ is holding up and the whole overall tone here looks a lot better than it did this morning. Now, the chip stocks are helping. Micron, for instance, up 4% as investors try to figure out

where we are in the chip shortage. Maybe the picture brightening there. Christina Partsenevilus has the latest. Christina? Well, Kelly, it's a day. tale of two cities within the chip space. Firstly, you have weakening PC and handset demand that we've talked about, along with bloated inventory levels that are hurting memory and storage chipmakers, chips that are vital for electronics. Micron, for example, is 55% exposed to that consumer end user market and actually guided lower into the next quarter as the CEO doesn't think things will improve until 2023. Micron, though, is on pace to snap a four-day losing streak, but still more than 30% off. It's one year.

mark, but 40% off year to date. And it's not just PC and handsets. There is further demand weakness in graphics chips. These are causing GPU prices to drop. So, InVIDIA, for example, covers about 75% in the market in terms of market share, followed by AMD and then Intel as a new entrant. So demand is weakening on one end, and that's reflected in the SMH ETF that hit its lowest level today since November 2020, while the supply crunch still persists on the other end within the auto sector. a tale of two cities. Stalantis union workers, for example, say the worldwide chip shortage would cut into its Italian production by more than 200,000 vehicles per year. And GM said on Friday that they have 95,000 cars in storage because of missing semiconductor parts. Companies like

ST microelectronics, Texas Instruments, and NXP all make chips for cars, but you can see that they too have unfair too well this past year. The Chips Act, that is still a factor here as well? Well, you have certain companies like Intel that are very vocal, but the latest, according to the Niki right now, is the Taiwan semiconductors are actually thinking about pulling back some of their expansion into the United States. You can blame the chipsack or you can point out to the fact that just four weeks ago, Taiwan semiconductors said, hey, things are getting really expensive here in the United States, much more expensive than we originally thought. Nonetheless, global foundries, global wafers, Intel, and now TSM are all, you know, flashing warning signs because of the United States. the chipsack, which needs to get passed before August recess, right? Right, right, exactly. The clock is ticking and some huge projects are at stake, like Scott Cohn explained the other day. Christina, thank you very much. Christina Parts in thevelas. All right, guys. Well, let's get out, Frank. Let's go out to Frank Holland now for a CNBC news update. Good afternoon, Frank. Hey, good afternoon to you, Don. That stumble is contagious, apparently.

Here's a news update for this hour. In the UK, the leader of the opposition Labor Party is saying it is clear that Prime Minister Boris Johnson's government is now collapsing. The two Two senior members of Johnson's cabinet, the country's finance and health ministers have suddenly resigned, and now they're calling for Johnson to step down too. In the latest of a string of scandals, Johnson's been forced to apologize for appointing a top conservative party official even after he had been told of the sexual assault allegations against him. In hindsight, it was the wrong thing to do. I apologize to everybody who's been badly affected by it. And I just want to make absolutely clear that there's no place in this government for anybody who is predatory or who abuses

their position of power. And President Biden ordering American flags to be flown at half staff across the United States until sunset on Friday to honor the victims of Monday's July 4th parade shooting attack in Illinois. It is still under investigation. And firefighters, they battled an intense blaze overnight in Cleveland. They say that was started by young people throwing fire works into a vacant house. Now, despite all the flames you see right here, fortunately, no one was hurt. That's the very latest. Kelly and Dom, back over to you. All right, Frank Holland, thank you very much for those headlines. Coming up on the show, the ongoing, call it flight mare. Airlines struggling to meet demand, thousands of flights delayed or canceled. This weekend, we'll speak

to Transportation Secretary Pete Buttigieg in just a few minutes. And as we head out to break here, check out what's happening with oil prices, heading lower, breaking now below that key, 100 dollar mark in today's session for U.S. benchmark crew prices. Energy names overall have now been hit with huge declines to energy ETFs, oil services names like Halliburton, big names like Exxon Mobile, all lower. Keep it on oil. We'll be right back. Welcome back, everybody. Less than 90 minutes left in the trading session today. The market's looking way better than it was this morning, but let's get fully caught up across stocks, bonds, commodities, and with Transportation Secretary Pete Buttigieg, starting with stocks, where the Dow is still down more.

than 1%, but a 330 point drop is nothing like the 742 point drop we had at the lows earlier. The S&P down half a percent still. The NASDAQ is up 1% right now, and it's some of the big names taking us higher like meta, Amazon, which we were just debating earlier. Netflix, Google, the original old school thing, if you will, they're up in the range of almost 4% today. Even with those recession fears creeping up, the discount retailers among the biggest gainers today, Dollar Tree, Tj, Tj, Raw Stores, Dollar Tree up 4%.

So what is leading us lower? United Health, the worst performer in the Dow, even worse than the energy names. It's costing us about 120 points right now with a more than 3% decline, turning it negative year-to-date. Let's move on to the bond market where we've also seen some pretty dramatic moves. Yield on that 10-year below 2.8% back above it by just a hair right now. But a huge drop from the highs of 3.5% we saw just about three weeks ago before that Fed meeting where they hiked by 75 basis points. very quick moves here. Sharp move lower and the 10-year yield has also inverted it with the two-year as I throw a glance over to Dom.

A lot of people view this inversion as a warning sign. It's already inverted once this year in March and again in June. The 10-year three-month, just another gauge, another way to look at it, is also dropping back to about a point, so that one at least still in positive territory. Not positive is oil today. Even as the market tone improves, we are not seeing that with commodities. Oil not only below $100 a barrel pippa, Last check, we were below 98. What gives?

Yeah, Kelly, that's right. U.S. oil tumbling below $100 for the first time since May 11th. And today's big slide comes down to recession fears and concerns that that will curtail demand. The dollar also jumping today, which makes oil more expensive for foreign currency holders. And looking forward, analysts are split on crude's direction. City said today that if there is a recession, Brent could fall to 65, by the end of this year. The firm said that while demand goes negative in only the worst global recessions,

oil prices fall in all recessions. Goldman, meantime reiterating its call for $140 brand this summer, so some drastically different views here. Let's check on prices. WTI down 8% at 9977. That is well off the lows of the day, which was 9743.

Brent crude down 9.2% at 103, and gasoline futures down more. than 9%, which could mean some relief at the pump. And turning to energy stocks, which are the big loser today, every single component apart from Kinder Morgan now in bear market territory, APA, Devin, and Halliburton all down more than 30% from their recent highs less than one month ago, which really points to the speed with which investors have fled the sector, Kelly. Amazing, Pippa, that move in gasoline futures, you mentioned, 33 cents just today. We're talking about substantial declines that could be showing up at the pump in the next few weeks, right?

Yeah, absolutely. I mean, there are a lot of moving parts here, and I'm hesitant to, you know, to make any kind of prediction because, of course, a lot does depend on the direction of crude, but that is a huge drop for gasoline futures. And remember, the national average is at $480 right now. So it's already down from that $5 mark we saw earlier in June. So hopefully some relief there for consumers as demand does start to come down a little bit. Right. And as you are showing there, the flip side of the story for energy stocks. That is definitely for sure. Pippa, thank you for now, our Pippa Stevens. After the break, our interview with Transportation Secretary, Pete Buttigieg, following the cancellation of thousands more flights this holiday weekend. We'll be right back. Stay with us

on Power Lunch. All right, what we're showing you right now are some of the big gainers on the session so far in a down tape, although I would point out, as Kelly has, numerous times over the last hour plus or so right now. We were down significantly at the lows of the session. And we are now down only 250 points for the Dow. But if you look at the trade so far today, you look at Roblox on the kind of virtual reality, metaverse game development platform side of things, up 13%. Crocs on a weak kind of basis, you know, to date side of things. You kind of got a 10.5% gain.

Then you've got Etsy up 10% as well. And then Norwegian cruise lines, probably more on that economically sensitive, cyclical, so to speak, side of things. watch those names. So some big moves, Kelly, in those names. But I know that we have some big news coming up with regard to economic cyclicality and air travel. A very busy week as well. But one part of the economy is still trying to catch up to changing demand is air travel. The industry has been hit by labor shortages from air traffic controllers to pilots to baggage handlers, cancellations and delays piling up, though they eased a bit this weekend. For the month of June, daily airline cancellations were between 1 and 6 percent, while delays were near 20. 20% of all flights, according to Flight Aware. What can be done to improve travel in this country?

Joining us now as Transportation Secretary, Pete Buttigieg. Mr. Secretary, thanks for your time today. What measures should we expect? So we're going to do everything that we can to support passengers and consumers. I spoke to the airlines after the problems we saw with Memorial Day weekend and spoke to them again going into the July 4th weekend, where we just saw some of the busiest travel days of the year. year. The numbers appear to have improved relative to Memorial Day, but still seeing an elevated level of cancellations. And some stories we're hearing from passengers that are just unacceptable

in terms of their consumer experience. So we're going to continue using all of the authorities that are available to us as a department. And we're going to continue working on the air traffic control side to make sure that we're managing any assets that are under our control to get ahead of issues. For example, a few weeks ago in Florida, we saw a real perfect storm, not just literally in terms of the weather, but there was a space launch going on at the same time as military operations, closing part of the airspace, plus air traffic control staffing availability issues and staffing shortages on the airline side. So we're working to get ahead of those kinds of things going into the rest of the summer and the fall and seem to be seeing encouraging signs, but we can't let up.

Well, as we understand, even shortages at the FAA part of your administration, our department, have contributed to those flight delays in Florida that you were mentioning. So what are you doing as an agency on that front to make sure that you're not a falter in this process? And how many of Senator Sanders calls to action are actively being considered things like requiring you to refund passengers for flights that are delayed for more than an hour? So first of all, just to be very clear, air traffic control staffing issues do not explain the majority of the delays in canceling. we've been seeing. But when there is an issue and as an after shock from COVID, we have seen some impacts on staffing. We're working proactively and engaging the airlines to make sure that we're collaborating on that. A number of issues that we have seen appear to be related to the phenomenon

of airlines, letting airlines, pilots, or sometimes even pushing pilots into early retirement. And I think that's a source of frustration for the public because, of course, lots of taxpayer or money went to these airlines precisely in order to keep people on the job and in order to keep those airlines running in a resilient way. So when the demand came back, they would be ready to respond. These are the kinds of issues that were monitoring. You mentioned a letter from Senator Sanders. I saw him a call. We've talked about some of his ideas. I haven't seen all of the math come back on some of those proposals. What I will say is we do have a lot of authorities for ensuring that passengers are protected. As a matter of fact, earlier, we issued the largest ever

fines against airlines that failed to provide prompt refunds for passengers that they're entitled to. And we're going to continue making sure that the rules are followed and look to expand our toolkit whenever that's appropriate. Secretary Buttigieg, it's Dom here. I wonder, there's no doubt in anyone's mind right now that this nation has been under a tremendous amount of stress from an infrastructure and economic standpoint over the last year, two years plus now. We've seen it on the energy infrastructure side with regard to soaring fuel costs and availability there, and we're seeing it here now with travel, not just in the air, but other parts as well. Do you feel as though your administration, the Biden administration, is now taking a look at some of the

medium to longer term kind of, I guess, contingency plans that our nation may need to adjust or make, given the stresses that we've seen in things like energy and transportation, given these stresses now, can they do anything differently? Can you folks do anything differently to make sure that this doesn't happen in the coming months, quarters, and years? Well, that's exactly right. Look, there are immediate steps available to us when we're dealing with immediate issues that have been thrust upon us, whether we're talking about some of the problems with container shipping that we're happening and affecting our supply chains, or whether we're talking about elevated levels of airline cancellations and delays.

But what we've got to do is make the system more resilient because we don't know what the next shock to the system is going to be. We only know that the better our infrastructure is, the better will be poised to absorb it. Stay tuned for announcements very soon from my department on improvements that we're supporting for airport terminals, for example. They're going to help them become more sustainable and more efficient. This is exactly why we made the case for the bipartisan infrastructure law to begin with, whether we're talking about ports or airports or just roads, bridges, and rails. You know, we have been paying the price for the decades of underinvestment, and we've got to work those long-term issues, even while we're acting more tactically and more immediately.

We get through the issues that we're seeing this month, this quarter, this year. You know, more efficient terminals sounds great, but I think people hope you mean efficient to move through as well as, you know, energy efficient and all the rest of it. There's been some question about going back to, I believe, the Obama administration, when they have regulations for how long pilots and flight attendants can fly before they literally need to leave the aircraft, pack their bags, and go home. I don't know what the term is for this. Can you allow for a temporary reprieve, let's say, in these kinds of regulations that might help airlines meet their schedules better for the time being?

So I'm going to look at every option except any option that would compromise safety. And those are the discussions we're having in the department. When there are ways to update our regulations or our practices or our operations, we're always assessing that. What we're not going to do is consider any move that might feel good in the short term, but would undermine the safety of our air travel system. Traveling by air is pretty much the safest way to get around, period. And that didn't just happen on its own. It took a lot of hard work to get it that way. It takes a lot of hard work to keep it that way.

And that is the bedrock commitment of the FAA. I believe fundamentally, that safety mission is the main reason why my department exists in the first place. And Mr. Secretary, before we let you go, is there anything that you're looking at right now from a transportation standpoint that gives you any indication about the state of our current economy? And what are those factors? And if so, are any of them pointing to a recession? You know, look, what we're seeing right now, whether it's on the cargo side or passengers, is signs that there's increased demand that people have a lot of money in their pockets and are spending it on things like goods that they're ordering in, which is why we have such pressure on our shipping systems, or vacations and travel, which is why we're seeing demand way ahead of where the airline sector thought it would be by the summer of 2022. That's a good thing.

But we're also, of course, seeing these very, very challenging pressures on prices, whether we're talking about energy, whether we're talking about goods, whether we're talking about shipping. And it's that interaction of those two things. High demand, which is great news, but really challenge for the supply side to keep up with that that's put us in an economic situation that continues to be really tough to manage. The president has made clear his top economic priority is keeping prices under control and fighting inflation. we're using all of the tools available to us to do that. But if you just consider the magnitude of the shock that the pandemic created, we're going to continue seeing those shock waves reverberate through our economy, I think, for quite some time.

All right. Mr. Secretary, Pete Buttigieg, thank you so much for your time today. Thanks for joining us. We really appreciate it here on Power Lunch. Thanks for having me on. And again, Dom, he mentioned the airlines there. Early retiring pilots is one possible culprit in this whole. endeavor and we'll see if the industry has a response. I mean, the labor side of that. I mean,

you talk about prime costs for airlines. It is fuel costs and labor costs, the two big ones that you have to worry about. So again, the secretary pointed it out. It's a tough one on either side of it. Absolutely. After the break, the technical take on three big movers. Three stock lunch is next. Welcome back to power lunch. Time for three stock lunch. Today we are taking a technical look at the three big movers of the day. We got Ford, which hit a 52 week low on disappointing quarterly sales. H.P. Inc. lower on a downgrade over to neutral by analysts at Evercore. And then mining company, Freeport MacMaran, is getting dragged lower along with gold and other precious metals and base metals as well on that recession narrative. So here's Carter Worth, founder and CEO of Worth charting to break it all down.

Let's start off now with what's happening with Ford. Sure. Hi, Dom. Well, I mean, it's a classic instance, and you can see it on the chart here. If you can over time, just don't buy stocks and downtrends. Hard to do. We all want to. But what We know is Ford had a great run from its COVID low was $4. It hit a high of 26, and it's been more than cut in half, down some 60% at this point. And why can it go lower? It can. There's the uptrend.

It's a downtrend now. I would just resist the temptation to buy. Different story, a little bit for HP, right, Carter? I think that's right, meaning in the case of HP, the uptrend is intact. And you can see that on the chart as well. And this sell-off leaves us down to trend. In fact, we've touched the well-defined trend line in effect since the COVID low three times, as opposed to Ford, which we've broken trend.

We're right on trend. I think you play for a bounce. All right. So that's the HP side of things. I mean, so Kelly, you and I were talking about this before the show. If you were, for the better part of this year and anything commodity-related, metals included, that was dollar-denominated in any way, you were having a boom. I mean, so let's talk about Freeport MacMaran.

Is this a case where this is a pullback worth buying because it's now pulled back by 30-some percent just in the course of a year-to-date period? Well, it's very similar to Ford. It's the nature of a cyclical asset, right? I think this was $5 on its COVID low, hit 52, and now it's been cut in half at 27. I think the principles apply just if one can try to always avoid buying stocks and downtrends. they can always get worse. That's why they call them value traps. All right. So Freeport, not really the buy that you want to see. Not a vote of confidence there.

At least not from Worth charting. Carter Worth, thank you very much. Have a nice day, sir. You bet. Thanks, team. And still bullish the dollar. Yes. And speaking of which, up next, the currency conundrum will break it down. Don't go anywhere. All right. So, Kelly, for this last block of the show, I thought we kind of bring it full circle to something that Mike Vogel saying kind of talked a little bit about. And that's that diverging talk about. what story is winning out? So we decided to look at it through the lens of ETFs.

And this is the S&P 500 ETF, one of the most widely traded ones out there, the spider, right? Down 20% year-to-date. And we put it up against the I shares Russell 2000 ETF, the small cap one. Now, as you can see here at various parts over the course of the year,

the gap hasn't actually been that far apart between the two. And just in the last month or so, it kind of touched a little bit more closer together, but it's starting to widen out a little bit. The reason why I want to focus on that is because this kind of tells you that story about whether recession,

is the bigger narrative or whether it's the strength of the dollar, right? Because if it was the strength of the dollar, multinationals might, yes, underperform and everything else in the Russell 2000, which has less dollar exposure on a kind of basis would be a little bit better. This is so tight that you think it's more just a pure recession. Well, right now, the large caps are winning out right now. Just slightly, though. But still it means that maybe the recession narrative is a little bit more prevalent than the strong dollar narrative right now. But let's put it up there. The dollar index is a key one, right, Kel? As we talk about this notion of hitting a 20-year high of the dollar versus the euro we talk about.

106 year to date. I mean, this is pretty stunning. That's why I was mentioned we just spoke with Carter Worth in the last block, but to see someone like him a chart is still saying this is an uptrend after how extended it's become is very striking. And so we talk about this idea of whether or not those companies that have a lot of exposure to revenue outside the U.S. could have problems with a strong dollar. Well, some of the names we always talk about with some of that exposure end up being names like McDonald's and Nike overall.

So it certainly would be something they'll take a look at in terms of the... No, it should have been Colgate. Okay, I'm like, wow, that would work too. I think they put a typo in there. That would never happen around here, not around here. Thanks for watching Power Lunch. Don, thanks for being here. All right, closing bell starts right now.