Transcripts For CNBC Power Lunch 20240713

Thinks there could be a demand problem. Power lunch starts right now the dow in triple sdwrdigits take a look at the financials. The worst performing sector today on track for its worst week since march it wasnt the drop. It was the rally ta got every ones attention. The dow has dropped 1200 points at its low this afternoon. Leading the pook wack was semi conductors it was all those names analog, qualcomm and micron. I want to keep an eye on those big names. Home depot, mcdonalds, costco, nike industrials did okay but their rally was much, much more muted. Caterpillar but not as much as more growthy oriented stocks i think the other important thing is probability of a rate cut by the Federal Reserve for this month now 90 probability of a rate cut, 50 in december as well you can see yields also stop going down just about the same time as the market stops going down melissa, back to you kelly, back to you thanks very much. President trump talking all angles of the china trade deal earlier today. Reporter the president doubling down at a dramatic and significant way at a time when democrats are pursuing impeachment over the question of whether or not the president asked a Foreign Government for information about his political rival. The president today on the south lawn suggested he wants a second Foreign Government to investigate that same political rival. Here is what the president said about china earlier today. Like wise, china should start an investigation into the bidens what happened in china is just about as bad as what happened with ukraine reporter the president there saying that the Chinese Government should start an investigation of joe biden and his son hunter biden over hunters fund raising for a private equity fund. White house officials mum this afternoon. Ive asked a number of officials why its appropriate for the president at a time when hes negotiating an enormous trade deal to suggest believes they should be investigating his political rival. One spokesperson told me no comment. Other officials not willing to go on the record at all to defend what the president said part of the reason for that may be the president s traveling in florida. Hes speaking now at a Health Care Rally in florida. Well see if he addresses this to reportseers on the way back. Thanks very much. Concern is rising about the Economic Outlook on main street and wall street. It was weaker than expected now, the Manufacturing Sector and the Service Sector have both now been declining since late last year and both have hit multi year lows with no soecheno a bottom americans are picking up on this weakness attitudes took a sharp turn downwards in the quarter the poll registered the highest level of pessimism the index was hitting new record highs. I was running out of ways to describe it. Attitudes about the current state of the economy this quarter with little changes. All about the outlook. Other key indicators down. 30 think their wages will rise next year. Thats the lowest since march 2016 35 say now is a good time to invest in stocks also the lowest in three years and just 23 are saying the economy will improve in the next year its the first time in 11 polls we have conducted during the Trump Presidency that the pessimists out number the optimists. Is that a good sign i dont know. You guys can take that and put it into your i understand indica indicator, formula there this was taken in the weak the impeachment inquiry came out i think the problem for the president is the profile of the independent voter looks more like the profile of the democratic voter in terms ho s of how they fel about the economy. The president s policy did not fall well either on border and immigration. I think that is bothering the public as well thank you can the Federal Reserve offset the rising concerns what does it mean for the market margaret, where do you stick your money for the rest of the year with all this going on . I think at this point its really hard to tell whether this is a soft patch or the beginning of something worse we have been spending time thinking about 2015, 16 if you think about what happened then, there were two 10 draw downs in the market. We emerged from that in thanks to accommodative policy. In did we emerge because of president trumps election so much of the data right now has taken us back to 2016 preelection levels. Hard to say when china starts improving, that means industrials start improving. A lot of similarities between here and there the volatility will continue where do you stand on the size and Service Number . It was worst than expected it was still a decline at this point you can argue the fed would have fewer bullets, if any bullets to stave off any recession in the economy we took at look back at when ism started. Only 44 of time does the u. S. Economy fall under recession its not the greatest karat of that the interesting part is its more dangerous for the manufacturing for dangerous for your stock portfolio to be extremely high youre up pretty nicely 86 of the time in the following years. For all those instances do we see that weak manufacturing number spill over into the Services Sector . Thats really at the heart of the fear right now that services and services a proxy for the consumer effect so the consumer is starting to feel the lowdow in manufacturing that were seeing in the economy . I agree the hard part is youre right. Services is a bigger part of the economy. Consumer is a bigger part now. The problem is we dont have as long of a data set there thats what were focused on we think the consumer is holding in even though things are slowing down and you might say well see more tomorrow but its not falling off the cliff. As long as people have job and we see wage growth, we think consumer sticks in there the Manufacturing Sector is in recession. Michael, that tactical positioning has been really important this year. You can be in stocks like costco and do great and be in other parts of the market and have done awfully especially the more exposed ones to manufacturing and that side tell us where you think investors should stay or start new positions with all of this happening now as we watch the data kelly, i think that with all of the volatility we have seen, this is kind of the warning sign that perhaps were entering Hurricane Season and you ought to hurricane roof your house we had enough warning now you should be having some risk out of your portfolio. We have seen a shift i would also say you can look at very selectively i think at some point you have to look at the financials. Defense makes sense. Its a little early yet to be planning the bull markets funeral. Marg graret you were saying u saw two 10 declines in that sort of environment does a booking holdings, do they get dragged down as well they must. They absolutely do. They out perform some other markets. I think tech will have more risk than booking. Com interesting thing about booking, if consumers dont travel as much, hotels still need to fill the bed. They tend to gain share during that period and the o. T. A. S can cut costs easy i think theres some defensives here anywhere Profit Margins can go up in recession, thats a good place to be thanks. Appreciate it. To the bond market now, rick is tracking the action at the cme. So many interesting things that we can learn todays market look at the tens minus twos. You remember about five months ago or thought was were at minus three, minus four and this means a recession. Should we all be celebrating no it shows us how limited a view some of these important barometers in todays marketplace. Another issue is it tells us were backing the fed. Why is two year going down faster than ten year fed, come and help if you look at tens minus boon, this is the tightest its been the closest to our heels in 20 months its affecting the long end as you think it would if you look at the s ps on top of the difference, how inlighteniinlighte i enlightening that is our growth is slowing and our yields are getting closer together back to you. Thank you the fall season is living up to its name. The dow is down 3 october is only three days old weve got a guest that says a major rebound is on the way. Hell tell us why. Retail stocks falling 3 a top analyst says theres one na tt n atr e ormehacawehethstm. Those stories and much more. Stay with us on power lunch. [spokesman] if youve tried college but never finished, group cheering snhu lets you transfer up to 90 credits toward you bachelors degree. [woman] it doesnt matter how old you are, you can do it, you can finish. [spokesman] finish your degree at snhu. Edu welcome back the retail etf is down kohls down 7 macys down 6 gap and best buy also under pressure christmas is fast approaching. Projecting as much as 4. 2 sales growth for the Holiday Season. Last year their predictionwas well above the actual figure can the Holiday Season help turn the group around lets dive deeper into retail with oliver chen you nervous about what the holidays will bring . Theres people talking about how many bankruptcy well see coming out of this one. Theres a lot of cautious optimism theres six fewer days november could be tough if its warmer there are fears around the mall and also womens apparel that being said, there are some great opportunities. I would go for value, grocery. You think about Business Models like costco with an excellent product assortment and great prices we like walmart and target as well pl Planet Fitness is a great option as well. We have so many problems with mall and mall traffic. Photographic is running negative three to five. The battle with amazon is a big factor too physical retail is profoundly changing and Companies Like macys and other Department Stores really need to close stores and repurpose their stores they are competing hard against off price sector which is a clearer value. You can get great clothes at target and costco. We like a Business Model called revolve. Its digitally native. Its profitable. Being profitable and digital dont often go together. The revolve Business Model is something we like. The changing pace and apparel, versatile dressing, athleisure is leading to tons of competition. Its difficult for traditional derpt sto Department Stores. At what point do they get expensive not just relative to the group but relative to themselves target growing eps at lower rate and walmart is slower we like target because the pe is more attractive realtive to walmart. What we see is the world of retail and robotics. Retail needing more capital. Also curb side pickup. Thats a big deal in unique capital. The bigger getting bigger and the stronger getting stronger. As we approach this season of tariffs, fears, vegrecession, te are nice, safer places to be right now were in a good place. The reality of owning retail and consumers how to compete it strikes me that blue barn is on your list. What we see with boot barn and ulta, if you can specialize well in face of amazon you can have a compelling growth story a booth ticket price is fairly high its an investment piece its a piece you may need for work those are aspects that give it pricing leverage as well thats an interesting special story. If you specialize, you have to be awesome ulta and boot barn are you like ulta we do we think beauty is a great category you should see melissa iron my costco jacket its great stuff. Ive got a second one coming. Its a nice looking jacket. They sell great diamonds too. Appreciate it good to see you today. Big market boost one market watcher says its a case of october phobia but it might not be as scary as it sounds airlines having a bumpy ride is it just the time to get on board . Weluh. Th os will debate atn por nc did you know that americans that bought gold in 2005 quadrupled their money by 2012 . And even now many experts predict the next gold rush is just beginning. So dont wait another day. Physical coins are easy to buy and sell and one of the best ways to protect your life savings from the next financial meltdown. [narrator] today, the u. S. Money reserve announces the Immediate Release of u. S. Governmentissued solid gold coins for the incredible price on your screen. 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Gold is now on sale at prices unseen in years and this year could be one of the greatest goldbuying opportunities of all time call now while vault inventory remains. As one of the largest u. S. Gold coin distributors in the country, the u. S. Money reserve has proudly served hundreds of thousands of clients worldwide. Dont wait another minute, call now to purchase your American Eagle coins at cost for the amazing price on your screen. Welcome back airline stops hitting some turbulence as the u. S. Announced tariffs on air bus planes. A downgrades to neutral from buckingham research. Are there stormier skies ahead lets bring in the trading nation team. Are any of them looking like they might be turning for the better the weakness is wide spread over the last few days thats started to accelerate. One stock jumped out at us and that was american. The stock was so bad, we questioned is it good. Right now it sit ons a critical level of support this is where it is in 2013. In 2016 you had a strong bounce off that 24 level were questioning this could have chance here we say last chance support if we break 24, theres no technical level to stop the decli decline. Very key area right here for sure. Mark, know that you have been a fan of delta what is the layest news mean for that story yes, i still like delta here. This thing is just way over sold its come book maybe 20 or so from its peak a few months ago these Airline Stocks will stake it on the chin the consumer is still strong as long as thats the case they will travel. Delta will be my number one airline. Number one they dont have any 737 max exposure they have the ability to increase capacity while none of their competitors can be seen. They have the best Maintenance Team in the industry and that helped to extend the useful life of their aircraft which helps margins and they have the best margins in the industry. The third thing is their partnership with American Express is the Gold Standard and it delivers cash straight to their bottom line while smoothing out the cyclical nature of their business with the 3 dividend yield, delta is a buy for me. You didnt mention the air bus exposure is that not an issue for you its an issue at the same point in time we dont think these will be enacted. Thanks a lot. More more trading nation head to our website or follow us on twitter. Back over to you thank you ahead, october phobia. The Economic Data starting to spook investors. Industrials taking the brunt of the pain this week. Well tell you which stocks are declining and one from downgrading tesla on the back of weaker than expected delivery numbers. All this when power lunch returns. As the death toll from vaping continues to rise, the ftc will study ecigarette makers sales and promotion it has ordered six makers to release information on all three. Three people were killed and three others injured after a single engine plane crashed at an airport in lansing, michigan. The pilot was approaching the land when something went wrong and the plane crashed. Kroger is cutting hundreds of jobs. Midlevel managers have been left go while other divisions have been told to look for ways to cut Staff Members as well the new york mets have fired manager Mickey Callaway after two seasons of not making the playoffs the gm said it was hard decision but it was in the best interest of the france chihise youre up to date. Thats the news update this hour back to you. Markets right now, lets get a check of the major averages. Quite a seesaw day when we were down and now were up 100. The s p is up 20 points rye rooi right now. The nasdaq is up we have some big movers in the social media space today check this out snap is falling while facebook rallies after facebook announced a private messaging app called threads which can snap users face well continue to follow that story. Industrials one of the worst performing sectors this week we have more there will these growing concerns among Industry Analysts that the te clidecline will makt harder for industrials to meet their profit target. Inventory levels are on the rise now companies that have exposure to the u. S. Agriculture sector have cut production at two plants as farmers hold off on purchasers due to the uncertainty around the trade war. Packer a pa paccar and cummins are having difficult. Despite slowing growth, a number of industrials have been growing their dividend even caterpillar increasing its dividend in may yielding 3. 4 . I think it brings up an interesting question not just for industrials but broader multinationals. How they allocate their capital . Will it be more into technology where its not always clear or put into Share Buy Back and dividends. Or just cut back period thank you. Markets are raising earlier losses despite new signs of an economic slow down our next guest says things arent that bad. The volatility could be the result of what he calls october phobia jehov jeff, well start off with you it goes back years many years. Is it justified i think so. It sits at a critical point of the calendar october is improved but its actually second worst. Its a little more weakness and vowel till its not as much surprising. Weve been prepared for it you think back to the time when just before earning season things started to crumble a bit. You went into the 20 decline towards the end of the year which is highly unusual because of the seasonality factor. Usually a lot better than that is that a reason for it to not happen again this year that and i think its a different situation. The fed has been ahead of everything. Below this s p, below that, 27, 25 where we held in june seems to be more critical. If you look at the chart. 28 and 22 is the level that we held right here. Ill agree with the level. Thats close enough. If you look at where were at now, we had a little bit of a rising little bit of a higher low situation that we have been dealt with in the mark place heres the problem if you look at this level, this was a disaster basically right there. Thats the one that you really want to keep an eye on the main problem is that right here you want to be above that 29, 25 level or 2950 level thats better for the markets to feel a little bit better about themselves and be less jittery Going Forward with all this stuff that jeff already laid out. The odds of having the same october, november, december seems slim in my mind but the market is still worried about a redo of what we just saw what do you make of the bounce particular when you look at the nasdaq youre seeing semiconductors do well a lot of the ipos have been battered are bouncing today. That is all to me, you got that terrible number coming off of the worries that weve seen in the last couple of days that leads you you believe its about a fedless cu lesrescue you saw the odds of a december cut. Its all but in the cards for october. December is what were looking at thats why technology took the lead the election looms very large. I know you said theres some election patterns. They dont play out every time what is the window for the president. Off the top of the show steve talked about the numbers of how republicans are losing their optimism about the economy what is the president s window to change that in order for it to have i think its in the market so far. It hasnt been that much these are very candid it usually happens in the preelection year. Thats why its the strongest. If you were to fwollow this cycle, you would see that happen before the end of the year thats why we have that rally. Most of these ties and preelection years are in december that would looking historically, i would expect try to get done next year is almost more bullish when you have a sitting president running for reelection. Fair enough jeff, thanks. The nba is joining forces with one of americas biggest sports book operators for an official partnership ill bring you the details straight ahead on power lunch. E. Youre right sir. Everything. No not everything, i mean youre still blatantly sucking up to me gary. Brilliantly observed, sir. Always three steps ahead. Six steps ahead. Sixteen. So many steps. You done . A million steps ahead. Servicenow. Works for you. We believe in education built for all people. , [woman] snhu was the best experience of my life. 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It will be a bar and restaurant accessible inside the arena during games and accessible during street at other times he said he wants it to feel like an apple store he thinks thats ha young people are used to. They pay rent for the space. He said people could go on their lunch break or all other times of the day this is the future now can i ask a stupid question why do you need to go in place of that. If youre really young and tech savvy, why cant i pick up my phone during the commercial break . Depend ons whs on what statee in you can bet on sports in washington, d. C. They pass the laws but it hasnt started there yet they are betting policies are less liberal than new jersey you can bet on sports but you have to go way upstate to that casi casino its a different political access its got more power. They need to protect the casinos. Its small enough dchl d. C. Is small enough you can bet there and a couple blocks of that mobile is not quite the same but the d. C. Lottery which is a monopoly government institution. They are involved with sports. This is why the leagues didnt want the Supreme Court to rule this way they didnt want a different rule in every state. Thats what were now getting is a different rule in every state. Is it going to be a bad look or is it just the ship has saled and we should get used to seeing sports operations. Get used to seeing them where its legal its some push for some federal law so they can try to have uniform rules across the country. Easier for operators. The operators definitely want one set of rules thank you one top analysts think there could be one explanation for the miss lack odendf ma hell explain why he is downgrading the stock. Pportunit. And to manage this risk, the world turns to cme group. We help farmers lock in future prices, banks manage Interest Rate changes and airlines hedge fuel costs. All so they can manage their risks and move forward. Its simply a matter of following the signs. They all lead here. Cme group how the world advances. Tesla delivering a Record Number of vehicles in the Third Quarter but the stock is down about 5 today phil is here to tell us why. Its down in part because people look at the components within those overall deliveries falling about 2,000 in total delivery they focus on the model three. In terps ms of model three, did i crease yes. Was it as much as people wer expected not necessarily. Weve seen a couple of analysts trim their estimates in terms of what they are expecting for model 3 deliveries in the Fourth Quarter. When you look at the model 3, the Fourth Quarter could include some deliveries in china and china will be foin cuss this quarter for tesla. Why . A number of things are happening. Shanghai plant is scheduled to open in the Fourth Quarter low initial production but plan on having some production, some deliveries yesterday they announced plant financing agreements, they have been extended. Those agreements reached with banks over in china. Another catalyst for those who are optimistic about tesla those who are the tesla bulls. Remember in the Fourth Quarter well get the electric pickup truck reveal doesnt mean they will Start Building this pickup truck right away but its coming in the Fourth Quarter, likely in november those events historically, guys and those type of events that tesla bulls rally around and say look this is the next great Growth Opportunity lets see if that happens when they show us those pickup trucks if you can put deposits down another source of cash thank you, phil. The stock is downgrade, how much demand is out there for teslas car. The. Are aeroflot with Jmp Securities you effectively went from a bull to neutral on the stock. And you write in your note we believe tesla could have manufactured more should it have chosen to which really underscores this whole question about demand when will we know the answer to whether or not demand is actually leveling off . Well, i think well get additional insight into it in q4 i think the way to come at this, i heard phil mentioned china will ramp towards the end of the year and i built that into my numbers. If you back that out and look at the run rate thats implied in their guidance it does suggest they think they could hatch made more than 100,000 units in the Third Quarter if demand were there. I look at that crease. Theres a lot of focus on consensus. What i want people to focus on they deliver 97,000 units in the Third Quarter and 95,300 units in the second quarter. Thats not a big bump and thats really what caused me to say hey im not absolutely sure that the demand is going to support them getting to that range they put out there. Why do you think if demand is leveling off what factors do you think are at play . Is it saturates . Is it consumers dont want to buy cars any more . What is it i couldnt tell you my process of elimination, i could say i dont think its the competition. Weve been out test driving the competition and frankly its been pretty disappointing to far. Could be model 3 is leveling off and weve seen if you dig into the numbers as phil did model x and model s have flat lined. Im not sure what is it. It is true that what has been this driver of very steep growth the model 3, has leveled off and the pickup truck is cool i think it will be need to see what matters is model y which isnt coming until next year im wondering until then maybe we see the growth start to level off a bit. Ultimately, joe, whats the number one factor behind your downgrade of the stock because i mean 97, its not a huge miss. You mentioned that you believe the manufacturing capacity is for what they would need to hit that year end target anyway. Is it really that youre concerned that demand wont be there in the Fourth Quarter . I guess you could encapsulate it that way. I just do the numbers and go where they lead me i know consensus was at 98,000 frankly if i had 98,000 i wouldnt have been buying the stock. We had been saying it was a buy based on number that we had for next year and based on an appropriate multiple when you sit down and run that through with this number that was frankly below what i thought they could do and then value that you get to a took you dont want to buy. Its less about the consensus for me more about how this came in relative to my own models and what i think they are capable of doing. Thats really what drove the downgrade. More broadly were seeing a rotation within the market or have seen one away from Growth Stocks weve seen markets punish stocks that dont make money and burn a lot of cash. How does tesla fare if this continues and the economy continues to slow . Well, its a high multiple stock and its a growth stock and those companies do get punished in environments like this one where you get a flight to quality its important ive seen some people suggest theres liquidity challenges for this company and i dont believe that weve modeled that very carefully. Any time you get a company sitting on high teens multiple people get worried those stocks get pressured. Thats true. Great to speak with you thanks for your time check please is next hi, my name is sam davis and im going to tell you about exciting plans available to anyone with medicare. Many plans provide broad coverage and still may save you money on monthly premiums and Prescription Drugs. 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Barr plans to send a letter which is said to be released with new data sharing arrangement between u. S. Law enforcement and uk Law Enforcement. The letter says quote companies should not design their systems to include any form of access to content even for preventing or investigating most serious crimes facebook responding saying we believe people have the right to have a private conversation online wherever they are in the world. We are consulting the child safety experts, governments and Technology Companies in devoting new teams and Sophisticated Technology so we can use all the Information Available to us to keep people face facebook works to integrate all of its messaging service and make them end to end encrypting. They say it protects the messages of a billion people daily and i just want to note is this beginning of a battle between privacy on one hand and Public Safety on the other hand. Facebook is really sitting right in the middle of both of those concerns back over to you where is end to end encryption used now . Is it primarily whats app what facebook is trying the to do is trying to integrate the back end of whats app, facebook messenger, so wherever youre messaging your friends across Facebook Family of apps everything is end to end encrypted and they hope this will make it easier for people to stay within family. Apps rather than switching from whats app to one of the other services all right. Thank you. Julie boorstin with that news alert on facebook. What a day on the markets. The dow is up by 70 points thanks for watching. Closing bell starts right now. Welcome to the closing well. Im Morgan Brennan it has been a residualer coaster day on wall street Weak Services data that sent the market plunging for the Third Straight day then the bulls charged back in, sending stocks back into the green. The dow is up 76 points. S p is up just about 18 points where will the market end at the close . We have 59 minutes to find out im david faber in for wilfred frost. Lets look whats driving the action a weak read on Services Sector that number along with