Power Lunch - Weekend Double Feature 5/24/24

Episode Date: May 24, 2024

This holiday weekend could be make or break for the box office. Coming off of a series of recent flops, is there truth to the notion that this summer will never live up to 2023’s “Barbenheimer” bonanza? We’ll discuss.Plus, if the summer does prove to be a dud for Hollywood, could that mean less foot traffic for the malls and shopping centers that house theaters? REITs are already showing signs of weakness. We’ll dive into that too. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Glad you could join us on this Friday. Coming up, a double feature this holiday weekend could be a make-a-break one for the box office. Coming off a series of recent flops is the truth that this summer will never, never, ever live up to the Barbenheimer hype of last year. And if this summer proves to be a dud for the film industry, could that mean less foot traffic for the malls and the shopping centers where those theaters are located? Reitz already showing signs of weakness this week with one of the largest. facing a cash crunch. We'll have more on that ahead.

First to check on some of today's movers, some gainers in the retail space. With Decker's, the maker of Ugg and Hoka, up 13% right now. Raw stores up 9% also surging after results. More names reporting next week, including Costco, Best Buy, and Gap. Well, two big moves in the pharma space. Maris soaring 30% on promising results for its melanoma drug. Immunocore dropping despite positive results for its own melanoma medication. And restaurants are still under pressure over pricing concerns.

Indeed, Burger King owned by restaurant brands, is now offering its own $5 value offerings to contend with McDonald's recent rollout. Could this be the start of a larger pricing war? We'll have more on that later. But let's begin with the markets overall higher today. This after yesterday's divergence left investors a little bit puzzled. While the Dow recorded its worst session since March, Nvidia gained 9%, not to mention, in V-Vidia, Alphabet, Amazon, Met, and Microsoft, they were responsible for nearly all, nearly all of the S&P 500's earnings growth this season.

So now, with the quieter summer trading months just around the corner as we head into the three-day weekend, where should investors be shifting their focus? Here now to discuss is Sarah Malik, Chief Investment Officer and Nouveen. And joining us for the hour is CNBC contributor Tim Seymour. Sarah, welcome. Good to see you. How do you see the market continuing through the summer? Are we in the middle of a strong and well-established bull market,

or is it something a little more vulnerable than that? Well, markets are about to close out their fifth week in a row of positive returns, and that's for two reasons, first quarter earnings and inflation data. So first, let's go to earnings, which Invidia is basically wrapping up our earnings seasons with a very strong quarter. But overall, earnings have been strong for the first quarter, over 80% of companies beat consensus. Second is inflationary data that has mellowed out of it.

We started this year with a re-acceloration of inflation, but recently CPI and PPA data came in at expectations, which was positive for the markets. Now let's look at the other side of this. What do we need? We worried about here two things, the Fed and manufacturing data. I'll start with manufacturing data. That's in the good news is bad news camp.

The economy remains strong. That's inflationary. And the Fed remains hawkish. I expect maybe one to two rate cuts this year. This is down from the seven that's, the market's expected at the beginning of this year. So, Tim, I often wonder, Sarah just mentioned, you know, that 80% of companies have beaten the forecasts.

I wonder, the consensus. I wonder if that's because the consensus is bad or the earnings are good. Well, we're worried about this concentration in EPS, but I think it's a function also of where you are seeing at least momentum in some of the broadening of the overall market. So you think about industrials, you think about what we're hearing in terms of the margin profile of a lot of companies, I would say especially, as you get into transports and some of, even the banks. I know we were disappointed about net interest income from some of the bigger banks,

but we're also seeing other parts of the business, the cost savings. I realize the year of efficiency was something meta coined, but other companies are doing it too. I will say, you know, we're probably halfway to our 10% earnings growth in 24. And so we still have a ways to go. Streets calling for 10% EPS growth. And I think that's, you know, obviously, that's something that's still possibly in question. Sarah, just I wonder if the, I sort of take your point about we've been on a decent run for the markets, but was this more of an inflection point this week where however things exactly shake out on the

close here, people are starting to wonder, okay, well, Invidia beat, but that wasn't enough to lift the markets, you know, the rate stuff, the Fed stuff, the hikes that could still be coming. Is it still all Goldilocks? Well, this market, as Tyler mentioned, and has been very much driven by a handful of tech stocks. All of the earnings are coming from those tech stocks. So the question is, can we broaden out from here? I think if inflation starts to settle, there's a chance that the market starts to broaden out. You know, our coin toss will probably be decided somewhat next Friday when we get

PCE data. I expected to come in line. So that's going to be good news. I'm going to be focusing on a portfolio management. I think that will be kind of hot because the markets have rallied. Also, health care, autos and airfare are going to be important in that data. If inflation starts to move towards the Fed's target, I think the markets can hold on as as long as the economy remains strong.

But, of course, then we have to question if the economy starts to slow, what kind of landing do we get? Do we finally get into that recession? I think these higher interest rates and inflationary data eventually will lead the markets into the economy into some form of a recession, but maybe not to later this year or early 2025. How concerning is it, Tim, that so much of the earnings power has been concentrated in five or seven stocks? It doesn't bother me. Why not? Well, because first of all, the leadership in the markets come from the semiconductors. They continue to lead. Yesterday, certainly after that in video print, you've got semiconductors making relative highs to the S&P. This is where we're getting growth. We're seeing

a capex cycle. We've talked about it. To me, it's almost reaffirmation of why I think some of this is incredibly bullish. I think we also just have to remember where markets have come from. I mean, we're up 8% since the April 19th lows, and we're up 30% from the October lows. So we've been in an extraordinary run. The VIX is at four and a half year lows. I mean, you can make an argument that there's some complacency out there. You could make an argument that people are expecting too much out of the top five to seven stocks in the market. But if anything, I think we've heard a story from the broader corporate dynamic around margins that's pretty good. Markets have had a big run. The fact that we got stronger compositing in 2023, they were good.

It was a good year. Look, complacency is alive and well. Don't get me wrong. And I think that's something people need to think about. The Fed is always lurking, although, again, the Fed scared people with some stale minutes this week on Wednesday, rates are moving higher. And if you look at that both, you could go all the way back to July of 2020, you could also say that, hey, even since the beginning of the year, that the bottom end of that up range is traded higher. JGB yields, I think, are pulling up U.S. rates. There are reasons for equities to be concerned, but it's, you know, to me, it's not the EPS profile of this last earning season. It's interesting to see. I might add in. Go ahead, Sarah. I was just going to add.

Yeah, yeah. Yeah, what Tim said, you know, should the narrow, market be concerning, I'm a little bit more concerned because it's like if you're looking at a stock. Do you have one catalyst or do you have 10 catalyst? There's one main catalyst for this market. It's been tech earnings growth and AI. So if that catalyst does start to fall apart, which I don't think it imminently will, then you have zero catalyst. So I'd like to see more catalysts for the market's broader strength across the board, more companies participating with their ability to sort of continue to grow and raise their forecast and beat earnings going forward. I think if we continue to have that, the stocks and the market will broaden out. Great points.

I'd just say, you know, banks, city banks up 75% from October. We're seeing a lot of the industrials, the transports, not so much, but I think it's the time for the broader market. That's a big move. Interesting. All right. Thank you. Sarah, we appreciate your time today. How are retail investors reacting to yesterday's market divergence? Let's ask Michael Noss. He's trade ideas chief market strategist. Michael, it's good to see you.

And what's the buzz? Good to see you again. And you guys hit the nail on the head. It seems like this divergence got everybody a little bit shaken up yesterday, where we had. We had Nvidia and the Q's doing very well, and then we also had the Dow Jones and some other things pulling back. You know, like was mentioned before there, I'm not too concerned about that because what's happening is you have your leaders leading. And if it's a sports team or if it's the market, I don't think there's anything wrong with your best players scoring the most points. And we're seeing that with invidia.

We're seeing that in the semiconductors. And we're seeing that with the market overall. And if we take a look at the Dow selling off where we have the semiconductors and the NASDAQ doing really well about, looks like it's about to break yesterday's high, then that just shows that there's a rotation into more risky assets and assets in which people are okay and market participants are okay, putting a little bit of chips on the table on things that might be a little bit risky. Yeah, in my opinion, that's not what we see in bare markets. Right. It's like a, I like his basketball analogy. Yeah, if LeBron's scoring, the team's going to win. that's Nvidia. You're a big hockey fan too. We need to see more out of Crider and Zabinidad.

I wouldn't know any of them. But it is interesting, Tim, just turning to you quickly on this, even for all that we were making of stocks, the real outperformers this year have been commodities, have been Bitcoin. I mean, some of those, this could be the third year out of Ford, the commodities take the leadership role. I'm long GDX, I'm long gold miners. The copper move is a little too speculative, I think. So it's a little scary, even though, you know, Dr. Copper should be telling us something, not just about supply constraints, but a little bit about the demand side. There's M&A dynamics going on in the commodity space, too. So I do think it's been a fascinating time. I think gold will continue to move higher.

I think gold has had a great run as well. But you can look at a 20-year chart on gold. It's one of the best charts you're going to see. And that's a function of deficit rates, the same things that are driving Bitcoin. Yeah. Why don't you react to Michael on Bitcoin and Ethereum here? Yeah, I couldn't agree more. You know, as a market technician, that 20-year chart in gold is absolutely phenomenal. Same thing we are seeing in Bitcoin versus Ethereum. With the Ethereum news yesterday about the ETF, you would imagine that Ethereum would be outperforming. But I actually have this chart showing that other than when the rumor came out about the Ethereum ETF, you can see here that initial spike on May 20th. That's when the whole world found out that

there was potentially a approval of an Ethereum ETF. But ever since then, and before then, Bitcoin has been outperforming in this chart, and that's why it's moving sideways to slightly lower. So it seems like with gold doing well and talking about the inflation trade and all that, Bitcoin is doing the same thing as the quote unquote digital gold of the world. It seems to be outperforming Ethereum, which may lead to this Ethereum ETF being a bit of a cell-to-news event as people go back into this commodity-driven crypto as opposed to a more usage-driven crypto. So, Tim, one of the points also that Michael is making is that people still want to chase high tech. You know, you mentioned a moment ago.

City groups up and the industrials are up, but they're up, but it still looks like people really want to be with the winning parts of this market. The parts that Tom Lee says could grow to 50% of the profits of the S&P 500. Why do we have to stop at 38? Well, and what we heard from the hyperscalers in their numbers is their KAPX is growing 40% a year. I mean, the growth that's surrounding what's going on in AI, I, I, I, I, I, I understand there's hype attached to it. I understand there's valuations. You know, we can spend a lot of time talking about how NVIDIA, despite this move, is still

trading, you know, 1.7 times an S&P valuation, which makes it cheap to its 10-year. And so, anyway, I think the high-tech part of the market, which is the place that a lot of retail is very excited about, they're probably going to continue to be disproportionately invested there and allocated there. And right now, I have to say that. I don't think that that's a big deal. What does history tell us about how this ends? Is this going to end well?

Well, when I see a VIX sub-12 and I see people not pricing in geopolitics and I see some concerns with the deficit, I see concerns with our political process here. I think the ratings agencies are looking at Washington in a way they never have before. As a guy that's invested in emerging markets, it's interesting to think, you know, how we somewhat resemble Turkey with all due respect to Turkey. You know, these are things that do concern me. And so nothing goes straight to the moon. And if you look at a move that we've had, I mean,

semiconductors are up 82%. Last year we'd be sitting here at Memorial Day weekend deciding what we're going to throw on the barbecue and wondering, should we own semiconductors again? And yet they're up 82% in the last year. So that's concerning. But if you think about where the growth is and where they are really the new commodities. And I think this cycle, I look to be pessimistic, but I also, the market that I have is not one that I want to fight. And when I see semis making new highs to the S&P, for now, I'm good with that. Traditionally a leading sign meaning indicator. Mike, go ahead. Michael, final thought. Trends persist, right? At some point, the trend is going to end in these, you know,

super cycle AI type names. But I don't think the best move is to bet on the, that trend ending. I think we need to bet on it to persist until something tells us otherwise. You know, there's the famous George Soros quote of, when I see a bubble, I run into it. Because if it is a bubble, which I don't believe it is, we have no signs of its slowing. So just like I was on last week talking about the meme stocks and my final thought was have a plan to get out when you start to see things weakening. I think it's no different here. I think we ride this trend as long as it persists and we work on a plan to say when I see Nvidia do this, you know, breakdown a 20-day low or moving average or whatever it is you decide it is. Just have that plan to exit and just enjoy the ride while it lasts.

Michael, thank you very much. Tim, you'll stick around. I hope so. Thank you. We'll see again soon. I hope. All right, coming up, Apple looking to avoid getting bruised, the worldwide developers conference just around the corner. Many waiting for the company to announce an AI partnership of some sort.

With so much criticism around that space right now, is Apple being overly cautious? We will discuss in tech check. Next. Welcome back, everybody. AI has had its share of black eyes lately with drama surrounding OpenAI as well as Google's shaky rollout, all of which could put Apple in a tight spot, as it may be considering partnering with one of those two. Steve Kovac has the details in today's tech check. Hey, Steve. Hey, Tyler. Yeah, it's been a tumultuous couple weeks over there at Open AI, not unusual

for a fuzzy Silicon Valley startup to go through growing pains and a bunch of controversy, but with Open AI, it's actually different. Its technology is the AI foundation from Microsoft, for example, including those latest AI features coming to a fresh crop of AI computers announced earlier this week. Plus, Apple will reportedly use Open AI tech for new AI features on the iPhone and other Apple gadgets. And such deep integration with the two largest companies in the world means OpenAI's problems and controversies, ranging from safety issues to what data OpenAI uses fall on Microsoft and Apple as well, at least until they can make something just as good as Open AI has on their own. Now, to recap departure of a couple high-profile co-founders and execs who were concerned the startup was not taking safety seriously enough. They disbanded a specialized safety team after that departure.

And then, of course, that Scarlett-Johansen debacle playing out this week. Questions whether the company and CEO Sam Altman were fully honest about that situation. On Monday, I asked Microsoft's use of Medi if he was still confident in using open-AI technology safely, given the latest issues at the start. up. We have great confidence in Sam Altman and the team there. They do, they have great work. I mean, that's the whole focus of open AI is to really build a great future of AI for the world. We work with them quite a bit, and we also add our own extra efforts that we put on top of that. So we have great confidence in their work and the work that we put in our products. So now let's spin that forward and think about Apple, which is more vocal about safety in its own products than any other tech company.

And it's been critical in the past about rivals like Meta and Google for playing it fast and loose with privacy issues. Not to mention how concerned overall Apple is about its reputation. We saw that with that iPad commercial a couple weeks ago. Open AI deal would be a risk for Apple if it does indeed go through as planned. We'll likely need to ensure it has its own safety efforts, just like Microsoft said, layered on top to ease any concerns. And of course, the drama is probably not over with Open AI. We'll learn more about that relationship on June. June 10th at the Developers Conference, guys.

Why specifically is Open AI perceived, in your words there, as a risk to Apple? Why would Apple see it as a greater risk than partnering with some others? Yeah, that's, that's, well, keep in mind just all these controversies that are happening right now, Tyler, you know, they have to own that what's happening at the startup as well, and including safety. So again, when they disbanded that safety team a couple weeks ago, that raised all new questions over how that product is being developed. There's this narrative going on right now, Tyler, that CEO Sam Altman wants to move forward, make money, get products out there quickly without necessarily taking the necessary safety steps. Others in the organization, including one of the co-founders, believed

was necessary. So that puts Apple kind of in that risky bucket. And so it will be interesting to see how Apple frames that partnership and what kind of security layers on top of that Apple is going to already have. Tim, Apple used to be the driver for the whole market, or maybe we could argue it still is. You excited about what they might see or are you nervous? Well, maybe we're all happy that Apple seemingly has lagged in AI, but, you know, the reality is that there is a huge refresh. We had Steve Eisman of the Great Short on our show on Fast Money the other night, and he said, look, there's no question an app-based dynamic around AI is going to benefit not only just where Apple ultimately sits, but maybe the biggest refresh cycle they've ever had. So if you think

about what Tim Cook said at the earnings call, you know, Apple is seemingly, first of all, Apple, who's never really, as much as we talk about innovation around Apple, it's often that they have just been seamlessly, and this is back to what Tim Cook said on their call, integrating hardware, software, and services. And that to me is where, look, if you look at Apple the stock, after underperforming the S&P by 20% from December to March 7th low, the day Nvidia reported, and we got AI crazy, since that point, Apple's outperformed the S&P by 9%. So leadership may be back. You know, The market doesn't need Apple like it used to. But again, counting Apple out in the AI world is crazy, especially because they haven't really antied in yet.

And this is why they have to figure out their partnerships and they have a lot at risk. Yeah. All right. Folks, Steve, thank you. Tim, thank you. Coming up, a fast food fight. Burger King matching McDonald's $5 value offering, which chain is better set up to win a price war. That's next.

Welcome back. Burger King is rolling out a $5 value meal of its own next month before McDonald's launches its version on June 25th. Sounds like the beginning of a price for is it? Kate Rogers has that story. Kate? Hey, Kelly, you said it. There's another new value offering in town this time, as mentioned from Burger King. The company confirming to CNBC it is going to be rolling out a value meal of its own for $5 after franchisees agreed to this promotion back in April. The meal will be offered ahead of McDonald's $5 meal, which is coming at the end of June and set to last for about a month. Burger Kings will last a bit longer and have a choice between three sandwiches, nuggets, fries, and drink. McDonald's has a choice between a McChicken or a McDouble sandwich, nuggets, fries, and drink. In a memo sent to U.S. franchisees viewed by CNBC, Burger King President Tom Curtis wrote, quote,

regardless of their plans, we are moving full speed ahead with our own plans to launch our own $5 value meal before they do. and run it for several months versus their reported four-week window. Curtis also wrote that the company is testing additional value platforms alongside this meal. $5-dollar duos and $2.99 Krispy wraps were among the things mentioned. The McDonald's promotion will launch on June 25th and last for about a month. We reported two weeks ago that Coca-Cola kicked in funding for marketing to make that deal a bit more appealing to franchisees.

And earlier this week I reported that some franchisee advocates were pushing for an investment from McDonald's corporate in order to keep the value platform on the menu for a longer period of time, arguing that without that investment, the 30% discounted meal wouldn't wind up being sustainable for operators at current margins beyond just that one-month promotion, guys. How does this work? Do franchisees have the ultimate say on whether they are going to offer it at their locations or what? How do you do it? Yeah, so it definitely depends in terms of pricing before a national value offering like this at both a Burger King and a McDonald's. The franchisees have to agree to it because remember, franchisees do have the ability

typically to set their own prices, but if it's coming from the top down that we're going to offer a $5 value platform, for example, the franchisees have to be on board. And so they do get to decide yes or no, we do want to do this, we don't want to do this, but this is a highly competitive environment right now for consumers. Everyone's kind of vying to get people coming in, increase their traffic. And so, yes, the value wars are heating up and the franchisees are. on board at least for now. All right. Thank you, Kate. Let's go to Tim. I don't know which you prefer to eat at. Look, I feel strongly about it, Tyler. Let's be clear. I'm a McDonald's guy. You're

the McDonald's of Burger King. You're the Stones or the Who, your Coke, your Pepsi. You know, but I'm a McDonald's guy. And I was looking at the credit card bill, which is never a good thing. And I noticed a $17 by the time you door dash happy meal. And so I'm looking forward to the $5 menu. All joking aside. Are your toddlers door dashing? Well, I don't know who's really doing this. I think I know, and I'm coming after you. But clearly what we've heard, and we heard this from restaurant, restaurant brands, international parent company of Burger King, we all know that the consumer is struggling.

We've heard this from McDonald's. McDonald's, by the way, down almost 20% from that $300 high and trading now at a discount to its five and its 10 years. So at some point, is this getting interesting? I think McDonald's, who is going to put this to work on June 25th, their one-month plan, historically, they've extended this. And that doesn't bode well for margins here. I think you're going to get McDonald's lower. Love it. Love it as a stock.

I've loved it as an investor. Love it as a parent. It's the only chicken my kid will eat. So if you had to choose between the two stocks, you'd pick McDonald's. I'd choose McDonald's. And again, I think it's going to get lower. I'm not going to buy it here. But, I mean, 240, 245 is an interesting level.

And the valuation is supported. Interesting. All right. Thank you, Tim. Let's go to Julia Borson now for a CNBC News Update. Julia. Tyler, the city of Yuvaldi, Texas, held a vigil today to mark two years since a gunman opened fire inside of Rob Elementary School, killing 19 students and two teachers. It's one of the deadliest school shootings in U.S. history.

There will also be a vigil tonight to remember the victims. The two-year anniversary comes just days after families of 19 of the victims agreed to a $2 million settlement with the city. An Oklahoma-based group says three of its missionaries were ambushed by a gang in Haiti and killed. comes after months of escalating gang violence in the country. Secretary of State Anthony Blinken has warned Haiti is close to becoming a failed state. Meanwhile, Secretary Blinken will travel to Eastern Europe next week. Concerns are mounting about Russia's advances in Ukraine, potential Russian interference in Moldova, and a controversial new law in Georgia, which the U.S. believes undermines democracy and freedom of expression. The law requires organizations that receive more than 20% of

their funding from abroad to register as agents of foreign influence. Tyler, back over to you. All right, Julia, thank you very much. And coming up, an economic double feature. This summer's box office could be make a break for Hollywood in the film industry, but might not be even more important for the malls and shopping centers that rely on the foot traffic of theaters. We'll dive into all of that when power lunch returns. Welcome back. Last summer, Barbenheimer brought the summer box office over $4 billion for the first time since 2019. But our next guest says we could now see around a 20% drop in tickets year over year. Joining us now is Paul Derogibidian. He's senior media analyst at Comscore. Paul,

it's good to have you here. So last year, we've all been talking about all these different industries post-pandemic. Finally, pre-pandemic levels, pre-pandemic levels. And last year, last summer it was for the box office. Was the celebration premature? Well, you know, that was a very interesting summer. You mentioned Barbenheimer. I mean, Barbie and Oppenheimer, together. generated nearly a billion dollars in domestic box office, according to our comm score numbers. And that helped power the summer of 23 to over $4 billion. We hadn't seen that since the pre-pandemic era. And this year will probably be at just over $3 billion for this summer. But we got off to a bit of a slower start with this summer. And we didn't have a

big lead-in film in April like we did last year with Super Mario Brothers. But helping is on the way this weekend and down the road here on the release calendar with some great films that I think are going to bring people into the movie theater. You know, we're talking around the table here and struggling to even name a movie currently in theaters. Yeah, a big hit, Tim. I mean, something that, you know, we all kind of, and I wonder, is this because of the decline in linear TV and in traditional advertising, but there's still plenty of ways to watch to be

advertised on streaming in YouTube? I don't think there's any question. streaming. I mean, and look at where Netflix sits in the middle of all this. You know, Netflix will have the most summer releases, and they'll be able to deliver it also across, it seems like that the adventure or comedic summer blockbuster is taking a back seat to some drama. I mean, there are taste dynamics here, too. But again, back to who needs this more than anyone? And it seems like Netflix needs this the least and they're best positioned. Meanwhile, Disney, you know, we stock got destroyed on earnings a few weeks back. I think that was

probably an overreaction. The bottom line is the studio at different points has been the bread winner. And part of that flywheel that's really essential to the entire structure, including the theme parks business. So it's a fascinating time. By the way, you're sitting right in the middle of a movie theater right now. So it appears to people at home. So you're in the theater. So Paul, what have been the underperformers so far this year? And what are you banking on as we turn into Memorial Day and beyond? Well, I think a movie that really didn't get a chance to play for the long haul was the fall guy, which kicked off this summer with $27.8 million.

Now, contrast that with, well, there was a run from 2007 to 2019 where a Marvel movie kicked off the summer movie season. And last year, Guardians of the Galaxy, Volume 3, opened to $118 million. So when you have a movie like Guardians opening a summer with $118 million and fall guy this year with barely $28 million,

that definitely, set the stage for a slower month of May, a slower lead up to Memorial weekend. But there are, you know, Furiosa opened this weekend. It's already in theaters. The Garfield movie. And then yet to come is a quiet place day one, despicable me for inside out two. Twisters, I think, is a movie to look out for. And that Deadpool and Wolverine, I don't know what the views on the trailer is right now, but it's in the millions. That's going to be 150 to 170 million dollars. opening weekend in the U.S. and Canada alone when that opens in late July. So help is on the way, just a different trajectory for this particular summer for movie theaters. The Garfield movie,

of course, referring to James A. Garfield. It's a biopic, right? Very famous. Get killed tragically by allegedly a disgruntled office seeker. Wow. I was just trying to think back to, you know, the list you described, Paul, how many of those are iterative? And what What did people love last summer? Oppenheimer and Barbie were highly original. Even Barbie wasn't highly original. Oppenheimer? I don't know. I mean, where's the originality? What's going to get people into theaters? Well, it's funny. You can't always win with that, right? Because people decry the lack of originality. And then when you do something more original, often those films fall flat. So it's really, you know, we're not making widgets here. These are movies. Every weekend is

different. And look, last year was magic. Let's just say, I mean, between, Barbie Oppenheimer Sound of Freedom, those three movies brought in $1.1 billion to that domestic box office in the summer. And we're not going to see that every year. I think next summer will be bigger than this summer. It's a cyclical business. This is not an anomaly. This is what happens in the business. It's all product-driven, though I'm load to call movies product, but it is. I mean, and if the movies aren't there, the strikes had an impact. Mission Impossible moved to 2025. A Deadpool Wolverine was actually supposed to kick off this summer movie season on May 3rd of this year. So it threw things into disarray, but I think we're going to see the year catch up a bit,

but I don't think we're not going to get to $4 billion for the summer. We're not going to get to $9 billion for the year, but still solid movies out there. And if people have a great experience in the theater, they'll want to go back. And of course, there's a lot of options at home, but there's nothing like that movie theater experience. All right. AMCA. Listen up. Tim, thanks. Paul, thanks. We appreciate it, Paul Derribidian of Comscore. Thank you. You got it. So if theaters see less foot traffic, could that threaten the entire consumer ecosystem, namely malls? Mall reits, along with the space in general, are lower for the week. But is there more trouble looming and maybe tied to a subpar movie season? Hassam Najee is president and CEO of Marcus and Milichap. The largest real estate financing firm in the U.S.

and our guest, Tim Seymour, is here as well. Asam, welcome. Good to have you with us. Of all the things that are important to mall owners and shopping center operators, which one is the most important? Foot traffic generated by movies, which seems to me to be rather an incremental thing, the overall health of the consumer, or third, the level of interest rates. Well, first of all, thanks for having me back on the program.

Great to be with you. It's really all three factors that you just need. in that the consumer strength and confidence has to be there. We're seeing record consumer demand and record retailer demand for brick and mortar retail in the last 20 years. We have not seen this much demand for leased space, expansion space, and renewals than we're seeing today by a variety of tenants. That's because of the broader-

Let me interrupt you if I might. I'm because I'm curious about that. Or is that demand in certain classes of malls more than in others? Because, boy, I see an awful lot of strip malls that look like they are about to go out. To your point, there are plenty of retail that's still hurting. Yep. Especially the lower-end retail, the older retail that has not benefited from what is now considered the most important factor behind that broader consumer strength. And that is experiential retail.

Food, fitness, and fun are the three drivers of the renewal of retail, contrasted with 20-plus years of no new construction by any large measurement and demolition of a lot of retail. Some of the retail with dark spaces you're referring to will be reused or retentated. It's going to take time. There's still pain playing out. But much of that pain is behind us because retail was ahead of the curve because of e-commerce in renovating and adjusting to a new economy. We're seeing this record demand across different retailers,

both value retailers for the lower-end lower-income consumer and, of course, the higher-end consumer and everything in between. Movie theaters and other forms of entertainment are a major driver. Restaurant and bars are the most important. Their sales way outstripped grocery sales now, which is really interesting. And post-pandemic, people have been so eager to get out and experience different things, including movies, by the way.

We're somewhere between 20 to 30 percent below where we were pre-pandemic by multiple metrics, but it's coming back fairly strongly and fairly steadily. And theaters are very hard to reuse, very expensive to recycle. So owners are working with theater tenants on this reinvention that we're seeing in the theater space, as well as multiple other aspects of retail. And Tim, I'm glad that Paul, mentioned the strike impact. I forgot. We were in this massive strike last year. It's delayed some of the content into now 2025. So maybe that's a hopeful note. If you're an investor, do you try to pick up

some of the mall stocks, so to speak, on the cheap if they are on the cheap just because of this one unique phenomenon? Or do you worry about the consumer more broadly? I don't know how cheap they are. And if you think about Simon Property, they just had numbers. By the way, their numbers were fine. I mean, and their lease rate, they're, you know, 95 and a half. They're up 110, 110 BIPT year every year. I think mall's biggest problem are malls. And ultimately, I still think there are headwinds there. Some of the discretionary

kind of flags that are planted in terms of the foundation. I mean, restaurants and bars, great. They've had a tremendous run, but all we keep hearing is that there is some pressure from the consumer. But I look at a assignment property. It's near the top end of a one-year range. This is probably as blue chip as you get.

And there's no sign that CRE, again, a year ago, we were just fresh off of S-V. VB, et cetera, et cetera. Right now, that CRE element of, especially the blue chip mall operators, is not a concern for investors. It's more interest rate sensitivity, but rates are up 50 bibs this year, and Simon's up 4%. Hussam, I'd like to get your thoughts on what may or may not be a trend.

You tell me, and that is the frontier of mall operators developing residential properties right adjacent to those malls. in particular of Garden State Plaza in New Jersey, which I believe is a Westfield Mall, if I'm right, there's a plan there that they're going to turn that into a kind of residential area so that people can walk right in. They'll certainly put in a Whole Foods or a grocery store. What about that? That's a great example of the reuse of obsolete retail. We're seeing conversion to mixed-use properties.

We're seeing conversion to residential, as you just mentioned. and even warehousing, the last mile kind of concept, a lot of obsolete retail has great location, but an outdated use of the real estate. And we're seeing that renovation happen. But within retail, you mentioned interest rates. There's been clearly a significant shock because of what the Fed has done in a very short period of time. But retail, interestingly enough, had higher cap rates or ingoing yields. And therefore, it was less vulnerable to the interest rate shock.

than, say, multifamily properties that had a very low yield because of its favorite status for industrial warehouses, those yields were in the four, four and a half percent range when interest rates were running around the same, three and a half to four. Retail yields were around six and a half to seven percent. So there was a lot more cushion to absorb what the Fed is done. And as I mentioned before, because retail had gone through a significant revaluation and repricing, it is now the most favorite asset class. By the way, is the largest investment. broker in the United States and the largest broker of retail properties, we're seeing both that tired, maybe a little bit older strip center you referred to earlier in our discussion,

as well as trophy malls and trophy lifestyle centers and power centers all see demand come back, both from investors and from tenants alike. Interesting. Hassam, thank you so much for your insights today. Hassam Najee, Marcus, and Militab. Thank you. Coming up, start your engines. We'll get a live report from the site of the Indy 500 when Power Lunch returns. Welcome back, everybody. Memorial Day is a weekend, is a massive economic ecosystem, travel, food, entertainment, all in focus over the next few days. That's where my focus will be. One event that combines all of those into one is the legendary Indianapolis 500. Brian Sullivan, live from the event for a special edition tonight of Last Call.

Brian. Hey, Tyler, thank you. Listen, we're about two days away already from the 108th running of the Indy 500, but it feels like there's a hundred and eight thousand people already here partying spending money and we're still two days away from the race but we did not come to the indianapolis motor speedway merely because it's one of the greatest single-day sporting events in the world although that's a darn good reason this is a massive money event it is a massive contributor to the indiana economy you have got hundreds of thousands of people that will be at this track an estimated 350,000 people on Sunday, all having fun, spending some money, buying food, drinks, clothes, et cetera.

In fact, could be more than a billion dollars all in. This is also a big corporate event. All the sponsors on the cars, Tyler, their CEOs are here. You got PNC Bank, you got Verizon Shell, many, many others. But the one name, of course, that sticks out above all of them is Roger Penske. Roger Penske, Penske, not only owns the Indianapolis Motor Speedway. He is the chairman of Penskeke Automotive Group. But, oh, the most successful owner in car racing of all time.

He's won 19 Indy 500s. Earlier today, we sat down with the man they call the captain, and we talked about the race, yeah, but I also asked him about the macro economy, given that he is one of the world's biggest auto dealers. Here's what he said. Well, I think obviously higher interest rates are impacting us in the car business. It's affecting our leasing, affects our used car business,

but overall, the pent-up demand that we've had, had because of supply chain issues during COVID and what have you has made a difference. So we see volume up. We see our margins are down. You've seen most of the publics have had lower earnings this last quarter, but we see our self driving out here. Lots of difference when you look at electrification today. I think that's making a big difference.

Lots of comments about it. So Roger Penske, Tyler, had a lot more to add about the consumer economy, the car business, and of course, this race. We're going to be joined tonight. We've got Roger Penske, the governor of Indiana, the CEO of PNC, and the CEO of Eli Lilly, and probably some surprises. That's tonight.

That's a great lineup. Brian, thank you so much. Looking forward to watching that. We appreciate you bringing us that interview as well today, Brian Sullivan. Summer is heating up. So is our stock draft. Mentalist O's Perlman is in the lead, thanks to Carvana's surge.

He's the mentalist, you should know. We'll ask Tim Seymour, just how much he really does know. And remember, you can always catch our podcast to listen. and follow. Find power lunch on any of your favorite platform. We'll be right back. Shall we give you a quick check on the markets there? The industrials are basically flat. S&P up three, two-thirds of a percent. Nasdaq up another full percent at 16,908. And the Russell is up about eight-tenths of a percent. Tim, your thoughts is we're not really at the midway point of the year, but we're not far off. You know, there's kind of a relief. I think there's a

buyer of the relief dynamic around Nvidia. You know, we got confirmation of the next two to three quarters, I think. And I think there are plenty of people that in terms of that stock, but as I've mentioned earlier, with semiconductors. It was also weak. We have a lot of interest rate volatility. Rates have kind of ticked higher, some Fed concerns, stronger economy on the services side, which is the part of the economy with a lot of inflation and the biggest part of the U.S. economy. So markets have had a big run and volatility is probably too low. Yeah. And just to put a point in it, today's action is quiet, but potentially significant, to get us back in the green for the week, have the semis leadership, kind of shaking off the

whole whatever happened after the Nvidia trade yesterday. Nice, nice tone to end the holiday weekend. Should we check our stock draft? I think we have to. I mean, this is one of the great events in sports and markets all at once. All right. And of course he is mentalist. O's Perlman is leading the way he picked Bitcoin and Carvana folks. That has him up 24% in just what a couple of weeks. Steady Eddie, the legend NFL legend Eddie George had Nvidia and Apple. He's on its tails. And catfish host, Neve Schulman, surprising with BootBarn and Crocs is doing quite well. Last place right now, Washington commanders running back. Austin Eccler, who picked Caterpillar and Intel.

Tim, you are a draft day. That was one of the more exciting draft days, Tyler. We were there. I'll say, you know, O's who plays this game as it's supposed to be. You buy the things that are the most bombed out or the things that have the highest delta. Eddie George played it also how you're supposed to. Invite is like, oh, that's not going to go up anymore. And this is what happens.

And I think the year before. And as you pointed out earlier, Apple has come back since the March 7. Don't count Apple out. Don't count anybody out in the stock draft. It's exciting all the way through. But you can count out anybody. I'm sorry the Washington commanders, the team I grew up with. So sorry, folks. The law, there's still time.

We'll leave it there. Tim, great being with you for now. Thanks for watching. Power Lunch, everybody. Closing bell starts right now.