Transcripts For CNBC Worldwide 20240704

Today. Were going to preview whether targets results will hit that bulls eye. And later on the show, the Company Still trying to get workers back to the office and a looming reset of billions of dollars in commercial real estate loans, a health check on the sector from one of the biggest players in that market it is wednesday, august 16th, 2023 youre watching Worldwide Exchange right here on cnbc good morning welcome to Worldwide Exchange. Im frank holland. Lets get you ready to start the day. Breaking Economic News at this hour the latest snapshot on the state of the eurozone with Second Quarter flash gdp. Our london newsroom has the numbers. Good morning good morning, frank yes, so the numbers have just been hitting the wire now. This is the second estimate for the Second Quarter gdp coming in at 0. 3 quarter on quarter, in line with the initial estimates. No real surprise there annualized basis, were looking at 0. 6 year on year this tells you the eurozone economy did actually show slight improvement in the Second Quarter versus where we were in the first quarter. If you look at the subcomponents of the individual Company Level at the leadership that is coming from france, we saw 0. 5 for the preliminary reading out of the French Economy spain also at 0. 4 but germany, the number one economy that were watching in the eurozone did actually record a flat reading for the quarter, coming in at 0 . Looking ahead as we get early signs of how the economy is going to shape up in the third quarter, so far the news hasnt been very promising. We are beginning to see a slump in some of the manufacturing numbers and in addition to the business certaisentiment. Elsewhere in the uk today, were watching the pound very closely. Sterling is ticking higher after july inflation data painted a mixed picture for the uk economy. Now, headline inflation came in at 6. 8 on the year, in line with expectations. Both the core and the services cpi figures came in slightly hotter than expected on the back of that, the market is dialing up their expectations for what the bank may do at the next meeting 25 basis point hike is priced in terminal rate of 6 is not priced into the Interest Rate curve and thats having an impact on the Interest Rate sensitive sectors in the uk economy. Frank . Joumanna with the latest numbers on slash gdp for the eurozone and uk inflation. Back to this side of the atlantic, well take a check of u. S. Stock futures as you can see in the green across the board at this hour. It looks like the dow would open up 70 points higher. Well look at the action on the futures after the flash gdp for the eurozone the actions on the futures in the u. S. After the major av averages closed down more than 1 yesterday they were weighed down by decline in the banks and worries about chinas stalling recovery. Youre seeing the s p Market Action right here. The s p closing below its 50day moving average the line youre looking at right here for the First Time Since the end of march we also saw the dow transports one of the big gainers in the second half of the year, the biggest laggard among the major indices yesterday, down 1. 75 . It is the worst day in two and a half months. Yields kind of just hit yesterday. 4. 274, highest level since october. This morning, seeing the benchmark ten year declining a bit here, 4. 18 we see the inverted yield curve here we continue to watch jeelds overall. The tenyear hitting the highest level since october. We want to look at the asian markets, falling today on the back of wall streets losses japan, hong kong and south korea, all down across the board right now. The nikkei hardest hit, down 1. 5 hang seng down almost 1. 5 after the kospi in south korea down 1. 75 , the hardest hit, but in the red across the board the Energy Market this morning, oil in particular is always wti crude, just above 81 bucks a barrel, basically flat brent crude about 10 cents below 85 bucks a barrel, also flat a little more movement in the naturalgas market. More insight into what we have seen in the markets so far this week. Anna catrion, thank you for being here good morning. First, i want to get your reaction to the flash read of gdp for the eurozone and the mixed Inflation Report out of the uk how do you see that impacting the International Markets and potentially the u. S. Market . Well, lets start with the mixed Inflation Report, the most important thing to focus on is core inflation the world has a core inflation problem. And it is stickier than we would have hoped and thats again what you see in the uk, which had the biggest problemin the all of europe core inflation is still sticky and it is sort of three times what the bank of england has it is structurally higher inflationary environment that were in, but yet another proof point. Thats the main thing there. Europe, you can look at it on to sides. One side to say, in october of last year, had we known we would end up with a gdp at this level in europe, we would all be extremely happy. We were talking about a deep, deep, deep dark recession for europe then. On the other side of the table, it is the issue we have complacency that the economy is slowing down, but you dont see it in markets and equity markets. Thats a really great point were looking at the european markets. Not seeing a deep impact either way from that gdp read but we are seeing the asian markets kind of having a negative impact from what we saw in the u. S do you see this interconnectivity and cyclical situation continuing going forward. And are u. S. Markets, are they looking for some reason to pull back well talk more about that later in the show. After such a big runup, is that investors looking for a reason to pull back yeah, we have been using words like markets climbing the wall of worry for years already, right . The only thing we need to be extremely careful about is lets remember those acronyms, tin alternative, trina, there really is no alternative and if you can get a 4 yield risk free, 5 by adding very limited risk, it is always extremely tempting to move from equities to bonds, and thats why the movement from one side to the other can be much sharper, much more aggressive, and more volatile than we have seen in the last ten years were spending a lot of time talking about the International Markets. One thing i want to talk to you about is china and the gdp forecasting. They believe theyll be below the 5 gdp growth target and we have a downgrade of u. S. Banks including possibly jpmorgan and other Big Money Center banks were talking about International Things and big mac row things which one of those two do you believe will have the biggest impact on the u. S. Market today . I think that the talk about banks, we have to zoom out the Banking System in the u. S. Is healthy and yes there are areas within regional banks we need to watch more carefully and could be consolidation there. But the larger banks in the system are healthy looking at any ratio you want to look at. What is more important is the china story. Why . Because all eyes are on whether or not the central bank there is really going to start stimulus engine and thus far it just hasnt happened we have seen a property crisis i think that potentially is more interesting. More interesting or more impactful when talking about the u. S. Market . Probably more impactful, indeed could be, depending what decisions are made, of course. Anneka, thank you for being here thanks. Lets check with this mornings top stories, Silvana Henao has those. Good morning. Good morning to you all right, intel is terminating its 5. 4 billion deal to buy israeli chipmaker power semiconductor. Intel struck the agreement in february of last year, but failed to secure approval from chinese regulators, which was required under the contract with tower. Intel will instead pay a 353 million breakup fee to exit the deal Apollo Global is reportedly selling a 500 million loan to yellow and halting plans to help finance the companys bankruptcy the Financial Times reporting the loan has been sold to a fund owned by citadel last week, an attorney for yellow said the group will not seek corporate approval to borrow more than 140 million from apollo. It is exploring alternative options. Tesla is cutting prices on the model s and x in china by nearly 7 as it looks to reduce its existing inventory this follows a similar price cut for some models in the u. S. This week the move comes after sales of teslas china made vehicles fell 31 in july from june, first monthly decline since december as the automaker halted some production to prepare for a launch of the revamped model 3, frank. I think these price cuts are good for consumers the stock is a different story ev drivers looking forward to the price cuts bsolutely price is a little more competitive. Yeah. Silvana, see you later on on the show. More to come on Worldwide Exchange, including one word investors have to note today and buying the dip, but not that dip. Shares of cava jumping after the fast casual restaurant chain reports its first set of results since going public that is just one of your big money movers this morning. And the worlds biggest iphonemaker is diversifying its production and supply chain further away from its home base in china where foxconn has just cut the ribbon on a new factory. And consumers continue to spend. It may not show up in the results from target. We have a very busy hour still ahead on Worldwide Exchange. Stay with us welcome back to Worldwide Exchange. Futures trading pretty close to their highs of the morning with the exception of the dow, the dow is down a few points in general, green across the board. All right, looking now at commercial real estate sector. Wall street may be looking to capitalize on the sluggish sector creating new funds to acquire Office Buildings, apartments and other properties at heavily discounted prices Regulatory Filings showing Goldman Sachs and bgo are among the names rising prices for distressed properties. Values for commercial real estate have declined in recent years due to spiking Interest Rates, higher borrowing costs and a slow pace of workers returning to the office. Now as the u. S. And some of the biggest banks assess the possibility of Credit Rating downgrades from fitch and moodys, could there be even more pain for this sector lets ask assam naji, president and ceo of marcus realchat good morning thank you for being here great to be with you. Thank you for having me on. Give us a sense of the state of the industry. Youre coming off earnings your most recent call, you said the Media Coverage of the stress of the commercial real estate sector has been overblown. You say were doing too much when it comes to us. Give us a sense what is the state of the sector right now compared to how it was prepandemic . Lets start with the fundamentals occupancies, rents, and theyre as healthy as they have ever been theyre a reflection of a strong economy. Were at full employment, had many years of solid employment growth and that is reflected in demand for all kinds of office space. Im sorry, commercial real estate space except for office because of the effect of the pandemic even Retail Shopping centers made a big comeback, apartment buildings are very well occupied, and selfstorage, hotels, even to a very large extent industrial warehouses, which have been the darling of the industry and had some building are still performing very, very well. The fundamentals are very healthy. It is really the Interest Rate and valuation part of the industry that is broken because of the 525 basis point increase at such a rapid pace and thats whats causing all the trepidation. The reason i say it is overblown is because of the fact that if you look at a Banking System, 24 of total outstanding loans are in commercial real estate and 15 in Office Buildings. The vast majority of properties that are within those loan portfolios are performing really well, including most of the Office Buildings. 15 of all the commercial loans are Office Buildings. Correct. The thing were overblowing is the Office Building situation. Were accurate when it comes to just the Office Building it is certainly hard to get some workers back to work were seeing in the office, i should say, were seeing a lot of companies entice, force workers to go back in. Longterm, what does that mean for your business . What it means is that the Office Sector certainly is going to experience more pain than any other sector in the next two to four years no question about it but multifamily and all the other property types are less likely to have this notion of huge distress sales and huge fire sale discounts. In fact, you were talking about the funds being raised for distressed buying, we saw it in 2008, 2009, and they were extremely frustrated because the fire sale never came okay. I have to ask you, though, when it comes to commercial real estate, Office Buildings, apartments, anything else youre talk about, leverage is important. You mention the huge basis point hike, 5. 25 on Interest Rates. Isnt that a longterm headwind that is going to really hurt this sector . Because leverage is so important. It is absolutely important. It is the reason why transaction velocity is down about 50 to 60 across the industry. We have it right. We have it right in the sense that the industry is slowing down because of this but the notion of widespread distress leading to fire sales is whats overblown. Lets get to other reporting. You touched on it. Wall street firms reportedly are raising new funds to buy commercial real estate at lower prices some funds are even looking to raise funds so they can lend to commercial Real Estate Property owners, presumably at higher rates. Overall, what does that mean for this industry and this sector . There is a credit crunch were facing in the industry now. Banks pulled back for all the obvious reasons. Though i will say another thing that is overblown, the Banking System that is so much better capitalized today than it was in 08, 09 to magnitudes of significant improvement in liquidity and therefore my assessment has always been the overall u. S. Banking system is much, much healthier than you would expect. But besides that, what i think is going to happen with these funds is that theyre going to see some opportunities and funds are stepping in to fill the void where banks have basically stepped out of the market. Thats loaning, though. If you look at residential real estate, which was red hot, youre seeing people start to slash those prices. Prices are adjusting. And to go back to your question what is going to get us through this and the outlook for the industry, prices have to adjust in a higher Interest Rate environment. The fed said Interest Rates arent coming back down anytime soon and the reality of the higher Interest Rates, which, by the way, longterm basis are normal Interest Rates i dont think anybody wants to hear that i dont think your clients want to hear that i dont think you want to hear that. It is an adjustment from where we were. It sounds like youre saying the funds that are raising money, theyre going to buy some of the properties at lower prices if you give an estimate, what would it be . Were seeing a 15 to 20 discount from the march 2022 high it is what is taking to get multiple offers. By the way, a wall of capital waiting to come into the industry when youre seeing the 15 to 25 discount from the peak there is multiple offers and theyre overcoming the lack of financing availability by putting in more equity that seems to be the number. It is going to go higher for some 10 to 15 . Office is more like 40 to 60 . I think we have to leave the conversation there you have other meetings to get to a busy time for you. Thank you so much for coming in. Great to have you here hessam nadji, thank you very much. A rich session, Global Wealth declining for First Time Since the financial crisis we look at where the rich are becoming less rich in todays top trending stories power e trades easytouse tools, like dynamic charting and riskreward analysis help make trading feel effortless. And its customizable scans with social sentiment help you find and unlock opportunities in the market. E trade from Morgan Stanley. With powerful, easytouse tools, power e trade makes complex trading easier. React to fastmoving markets with dynamic charting and a futures ladder that lets you place, flatten, or reverse orders so you wont miss an opportunity. E trade from Morgan Stanley please dont go by harry casey, Richard Raymond finch ping please dont go please dont go please dont go please dont go dont goooooo dont go away please dont go my cpa told me i wouldnt qualify for the erc tax refund, so i called innovation refunds. Their team of independent tax attorneys will work with your cpa to determine if your company is eligible. [whip sound] take the first step to see if your Small Business qualifies. All right, welcome back. Time for your big money movers, three stock stories in the morning. We begin with h r block, those shares rising after the companies topped earnings forecast, offered upbeat guidance and hiked the Quarterly Dividend by 10 . The company citing its do it yourself strategy, Pricing Power and positive Customer Satisfaction metrics for the strong results looking at shares of h r block up 6. 5 . Agilent technologies moving in the opposite direction, cutting the only profit and Sales Forecast for a second straight quarter, due to soft demand in china. The company reporting a 17 decline in revenue in the third quarter. And expects similar challenges in q4 due to chinas faltering economic recovery. Those shares down more than 2 and shares of cava group are popping as the Quarterly Earnings and revenue Beat Estimates as consumers continue to spend on dining experiences, despite higher prices and recessionary worries the mediterranean restaurant chain reporting its first set of results since its ipo in june. It opened 16 new locations this quarter and says it plans to have a thousand restaurants in the next decade. Those shares up more than 12 . Dont miss a first on cnbc interview with brett shchulman t 10 00 a. M. Eastern on cnbc this mornings headlines with Frances Rivera in new york with the very latest good morning frank, good morning to you. We start with the devastating confirmations that are now reaching desperate families in hawaii officials have begun identifying the many lives lost in mauis wildfires, naming two victims in their 70s. The death toll and the tragedy has climbed to 106 the governor warned that teams could find as many as 20 bodies a day as they search damaged structures President Biden has announced 700 payments to every displaced family for immediate needs. Former President Trump is on the defensive, following the sweeping indictment over alleged attempts to overturn the 2020 election in georgia. Trump, who maintained his innocence, is now calling for his crowded schedule of trials to be pushed until after the 2024 election, alleging interference former white house chief of staff mark meadows is one of the 19 defendants in the georgia case he filed his own move to move charges in federal court, which could result in a more favorable jury pool for defendants. For the first time, north koreas state media commented on u. S. Soldier travis king who was in their custody their report said king decided to go north to north korea because he faced Racial Discrimination in the u. S. Army. The Defense Department could not verify the claims and says their priority is bringing king back home frank, those are your headlines. Back to you. Frances rivera live in new york, thank you very much. Well, there is a lot more to come on Worldwide Exchange, including why the money men behind the Box Office Phenomenon avatar the way of the water are taking disney to court and if you havent already, follow our podcast if you missed Worldwide Exchange, check us out on apple, spotify or other podcast apps much more Worldwide Exchange coming up right after this wow, you get to watch all your favorite stuff. Its to die for. And its all right here. Streaming was never this easy, you know. This is the way. You really went all out didnt you . Um, its called commitment. Could you turn down the volume . Here, you can try. Get way more into what your into when you stream on the xfinity 10g network. Every business thats why comcast business de is launching theal. Mobile made free event. With our business internet, new and existing customers can get one year of unlimited mobile for free. Its our best internet. Powered by the next generation 10g network and with 99. 9 reliability. Plus one line of free mobile for an entire year. Its the mobile made free eventhappening now. Get started for just 49. 99 a month. Plus, ask how to get one free line of unlimited mobile. Comcast business, powering possibilities. It is right around 5 30 a. M in the new york city area. The dog days are here. Markets and investors seem to be experiencing the summer doldrums we look at what if any catalyst can light a fire under stocks. And consumers, they continue to be resilient as we saw yesterday from the retail numbers. But will that trend show up in targets results today a top analyst gives us his thoughts. And when it comes to identifying other opportunities for your portfolio, why our next guest says it is a good idea to think small. It is wednesday, august 16th youre watching Worldwide Exchange right here on cnbc welcome back to Worldwide Exchange. Im frank holland. Lets get you ready to start your day we pick up with a check on u. S. Stock futures, taking a look, seeing futures take a bit of a downturn from earlier today. The dow would open up 30 points higher when we started the show that was about 70 points higher. Were also looking at the bond market we start with the benchmark tenyear, seeing it come in at 4. 18, just down a few basis points from yesterday when it hit its highest level since october. As always, continue to see that inverted yield curve were also looking at the Energy Markets, specifically oil. As always we start with wti, seeing wti just t10 cents below 21 bucks a barrel, down fractionally before it was up fractionally and brent crude down at 84. 78, also taking a downturn from earlier, down fractionally as well natural gas moving up just slightly since we last checked all right, turning now to strong Economic Data and the markets. That strong Economic Data recently, at least, could be shaking investor hopes of a soft landing and sending the major indices lower. Is the recent selloff a sign of a bear market . Cnbcs senior markets correspondent bob pisani takes a look inside the numbers. The s p 500 is down nine of 11 days but still only 3. 2 off its recent highs still, why are we hitting this string of down days . There is a hiccup in the soft landing story. Rates have been rising recently, causing some to worry that the fed will be forced to keep rates higher for longer or even hike rates more than expected, tenyear treasury yields hovering near their highest levels since october of last year now, thats causing a hiccup for stocks still, the prices may be off, there is no panic out there, trading volumes remain seasonally light, indicating the problem is a lack of buying interest it is not sellers looking to get out. And the volatility is very muted. The vix has been below its historic average of 20 since the end of march it is 16 now and despite poor Economic News out of china, the macro environment in the u. S. Remains strong and it is still supportive of a soft landing the problem is the timing isnt very good. Earnings season is over. We dont have that to talk about. August to october is a seasonally weak period for stocks and the market is very richly valued the lack of issues to focus on means the federal reserves bank of kansas city annual gathering in jackson hole next week will be the primary shortterm focus for traders. This is going to inevitably lead to more over analysis about all this yield problem were having. Still, keep it in focus. Were in much better shape than last years jackson hole conference back to you, frank that was bob pisani with a look at the markets. Turning to retail, shares of target on the rise today as the retailer prepares a report q2 earnings this morning top of mind for investors the companys ability to bounce back from a disappointing year with profits hit hard by excess inventory, higher markdowns and weaker demand for discretionary items. Target telling investors that may sales trends weakened and expects a low single digit increase in same store sales in the most recent quarter. Lets get more insight with bradley thomas, managing director and consumer and retail Key Bank Capital markets, grad, g brad, good morning, thank you for being here. Good morphining. What is your expectation for the quarter, especially with target sales mix being considerably more discretionary than its rival of walmart . Thats exactly right. Right now we rate the company at sector rate. We did downgrade the stock in june our near term concerns really are around some of the pressure on the discretionary side of the business were seeing. We think some of the categories like home and apparel may be down low double digits when they report this morning. And we know that in 2q there were acute problems, also from customers boycotting the brand and then, of course, unfortunate ly shrink in stores may be an issue and has gotten worse here. As we talk about the near term setup, i think it is baked in. Stock is a big underperformer over the past two or three months wouldnt surprise me if you got a relief rally here today as they clear the deck and talk about some of these challenges what keeps us on the sidelines as we look to the back half of the year, our continued challenges in some of these areas, but also the incremental headwind that were expecting from Student Loans that we think could hit target more than other retailers. I want to talk to you about Student Loans in a minute. I want to talk to you about Something Else you tell me, big deals, small deal, so last quarter, target saw a slight decline in the percentage of sales originating online so, from just over 18 , down to 17. 5 . Is that meaningful the understanding of retail is the idea you want to push more and more to omni channel selling. Thats exactly right. Thats another area of disappointment for investors target was a big beneficiary during the pandemic. Not only of growth in stores, but online, and hasnt really been able to drive incremental ecommerce growth over the last few quarters this in comparison to walmart that is really hitting stride on investments in advertising, fulfillment and marketplace that have been driving ecommerce growth in the 20 range over there. So, you know, we really like to see that going in the right direction at target before getting more positive. You touched on Student Loans. I want to get to it. I look online, i see estimates between 200 bucks on average of a student loan payment how big of a deal is this for target with the Consumer Discretionary sales mix being so high it is a great question. I think, first and foremost, it is important to remember that it is really hard for us to tell how big of an impact this is going to be on retail. When Student Loans were paused, there were so many other changes happening to the consumer, it is impossible to go back and measure who got the best benefits from this as we look forward, of course, the Biden Administration is doing everything in their power to delay the need for borrowers to make their payments. A hit to the top line is what youre saying basically . Exactly but as it stands here today, our math is that there are 25 million americans that are in forbearance that should be coming out of forbearance and we look at our credit card data, the payment was 400 a month, that will be 10 billion a month if everybody ends up paying. I dont think people are going to cut back on eating, but might not go to target and buy a tshirt, bath items, whatever else it is bradley thomas, it is great to have you here. Thank you so much. Thank you, frank. Time for a check of some of this mornings top corporate stories. Silvana henao is back with those. Im back. Well, House Speaker Kevin Mccarthy reportedly in support of a months long fund package that would extend federal funding operations into december and allow more time to work on annual spending bills. The package known as continuing resolution would need approval by a majority of Republican Leaders to be passed Senate Majority leader Chuck Schumer says he and mccarthy have already discussed the option in order to prevent a Government Shutdown next month tsg entertainment is suing disney for breach of contract alleging the movie studio intentionally withheld profits and cut sweetheart deals in order to boost its hulu and disney plus streaming platforms as well as its own stock price tsg, which helped cofinance movies look avatar and dead pool for 20th century fox says it spent over 3 billion in the last decade and has been deprived of hundreds of millions of dollars by disney and shares of vietnamese evmaker vin fast lower in the premarket, down almost 10 now, after this after big moves in the stock, in the market debut yesterday, vinfast, which went public via a spac, sits at a valuation higher than rivian, lucid and nikola combined as it looks to compete in the increasingly crowded electric vehicle space, frank. Big dip right now but big jump this week wow. Up 125 . Great to see you as always thank you. Coming up on Worldwide Exchange, more iphone 15s reportedly hitting the Assembly Line were going to tell you where. First, as we head to break, some of your top trending stories is it time to dish the remote completely traditional tv usage fell during july for first time on record as consumers continue to flock to streaming sites despite password crackdowns. The rich, not so much rich anymore. Global wealth is declining for the First Time Since all the way back in 2008 due to volatile currencies with approximately 1. 7 million americans no longer identified as millionaires and nearly 20,000 more dropping out of the ultra High Net Worth category. It may be time to rethink your next vacation the number of u. S. Travelers flying to nccaun falling from last year, citing destination fatigue as more turn their attention to destinations in europe, japan and other parts of the caribbean. Much more Worldwide Exchange coming up after this stay with us why is aaron happy . Well, just days ago, his old wheels gave out, but he knew carvana had his back. Thats because carvana had thousands of cars under twenty thousand dollars. And with the new cosigner option, aarons folks were able to help him out with a new ride. no way. yes way. With thousands of cars under 20,000 and our cosigner option well drive you happy, at carvana. Welcome back to Worldwide Exchange. Time for your morning call sheet. Ubs upgrading keurig dr. Pepper from buy to neutral with a price target going from 37 to 42 ubs says shares of the soft drink and coffeemaker are trading below averages and at a deep discount to peers, the firm believes in earnings Inflection Point is just beginning to take shape and sees sustainable organic Revenue Growth driven by growth for the Coffee Business shares up more than 1. 5 . It reported deliveriies doubled in july. Nio charging infrastructure will boost its shares volume. Shares are down more than 4 in the premarket. And Deutsche Bank is weighing in on nvidia ahead of the earnings next week the firm says it is maintaining its hold rating with a price target of 4. 40 a share. Deutsche says it expects another stunning Earnings Report from nvidia, the most important metric will be the magnitude and slope of future growth shares of nvidia up almost 1 . And time now for your global briefing new this morning, eurozone flash gdp seeing a 0. 3 quarterly rise in a 0. 6 year over year increase european markets are mixed on the back of that report. Uk headline inflation cooling just a bit in july, despite core cpi remaining unchanged, putting potential pressure on the bank of englands next Monetary Policy decision. And apples iphone 15 reportedly beginning production in india as the Company Looks to close the gap between its India Operations and primary manufacturing hub in china. Bloomberg says a foxconn plant in india is preparing to deliver the devices weeks after they start shipping from chinese factories amid ongoing efforts to derisk the supply chain from tensions between washington and beijing. Looking at shares of apple this morning, up fractionally foxconn shares down more than 1 ahead on Worldwide Exchange, the one word that every investor needs to know today, plus what our next guest says it is time to move past large cap stocks and where hes looking now. If you havent already, follow our podcast, check us out on apple, spotify, or the podcast apps much more Worldwide Exchange coming up right after this your company is eligible. [whip sound] take the first step to see if your Small Business qualifies. What if buildings could tell you how they could be more efficient . Im listening. Well, with ibm, you can use software to help you connect and analyze data from hvacs to elevators to lights. What if we use aidriven insights to pinpoint inefficiency . 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Intel is terminating its deal to buy Tower Semiconductor after failing to secure approval from chinese regulators intel will pay 353 million breakup fee to exit that deal. Shares of intel up fractionally right now. Tesla is cutting prices on the model s and x in china by nearly 7 following a similar price cut for some models in the u. S. This week as it looks to reduce its existing inventory. Tesla shares down more than 1. 5 this morning Apollo Global is selling a loan at issue to Trucking Firm yellow and is halting its plans to help with the bankruptcy. The loan has been sold to a fund owned by citadel. Shares of cava group are popping after beating earnings and revenue expectations and reporting 16 new restaurant openings as consumer demand for dining experiences continues to remain resilient shares of cava up 12 in the premarket. And tencent posting earnings this morning, a surge in profit for q2 but misses expectations among cost cutting efforts and rising sales in its core gaming business, cloud and fintech units. Shares down more than 1 heres what to watch today july Housing Starts and Building Permits at 8 30 a. M. Eastern time, followed by Industrial Production at 9 15 a. M. And at 2 00, look for minutes from last months feds meeting. We get results from target and tjx, the parent of tjmax and marshalls and home goods and Cisco Systems after the close. Futures now, muted after yesterdays selloff, a mixed picture. Seeing the s p 500 go fractionally lower the dow off its highs. The nasdaq just fractionally higher at this hour. My next guest says opportunities lie not within the big market names leading the market, but in the small caps. Joining me now, simeon hyman at pro shares adviser great to have you here. Thank you for having me. Youre talking small caps we have to put you in a higher chair. Im short anyway. Doesnt matter. Great to have you here. Lets get serious for a second youre about small caps. Im looking at the numbers russell down 1. 8 , underperforming the other industries these stocks are seen as the most Interest Rate sensitive why small caps now so, first, it is a valuation story. Look, you can be cynical about it if you dont have performance, we have evaluation it has been over a decade of underperformance the russell 2 is trading at 50 cents on the dollar to large cap stocks your concerns are warranted. Because when you go down into small caps, quality degrades, leverage goes up, Interest Rate sensitivity. For us the solution and you know im a guy who comes with applications of Dividend Growth to places you might not expect it, you can apply that Dividend Growth screen to small cap stocks and resolve some of the quality issues, but access that discount. Youre leading us in a direction, i have to ask you, what is your wex word of the day . Small cap dividends i sneak in two words thats a phrase. Almost a phrase almost a phrase. But the hyphen makes it only two words. When you go to small cap stocks and you screen for Dividend Growth like we do in our in smdv pro shares, you resolve many of those issues and if you want to see a stark place to see that, look to earnings season. To your point, the russell 2000 writ large this rshrank earning 26 year over year but the dividend grewers grew earnings last season 21. You should be able to get some price action because of that Earnings Growth all right your pick for us today you mentioned it ticker smdv, a small cap dividend fund. Give us a sense of the holdings in there, the top holdings and what youre buying when you buy this etf is this a move you would just do today . A couple of pieces, one, there are no top holdings. It is an equally weighted strategy, a really important way to think about it, particularly in this environment where were worried about top heaviness or even a portfolio that is skewed. An equally weighted strategy for many folks who probably have kind of ignored small caps for a long time, and they were right on that trade, it belongs in a well diversified asset allocation. Were looking at the chart here, down half a percent year to date, closed lower yesterday. So, if this is a smart play, why are investors running to this yesterday . Why did it close down 1. 5 . The issue is that top driven market folks have not been looking at it and it paid off in the era of free money so, with those Technology Names starting to pull back a little bit, the breadth beginning to expand in the market, our suggestion is dont stop looking for that breadth just at the other 493 namesin the s p 500, look beyond large caps. All right i know youre focused on yields. How do you see yields impacting the market today highest level since october. We got to remember we saw a big selloff in october and november and december last year. Super important stuff here. We had strong retail sales this week and that is coming on the back of lots of better news for the economy than folks would have expected but, cpi, ppi looked good. What you see in the yield curve is an appropriate reaction to that and that is, yes, a little bit of rise in shortterm yields, maybe the fed will stay higher for longer but a steepening or a less of an inversion because the tenyear has gone up a lot more than the twoyear we think thats getting to a stable place, were about 2 real yields on the tenyear, dont expect any further increases in rates or decreases. We think were at the longterm eve equilibrium. It has got to come from earnings. You believe we hit the peak when it comes to the tenyear . Stability in other words, the longterm average of the tenyear yield is 2 real and 2 inflation so maybe we have 2. 5 to 3 inflation, maybe to 4. 5 or so on the tenyear. But that should be a pretty comfortable place. Even this is important, even as the fed cuts because when the fed cuts, dont expect the tenyear to rally. Very important. Understood. I want to shift you beyond the u. S. Markets to global we got that read on eurozone gdp. A mixed reaction from europe what do you think that means what does that say about the Global Economy for eurozone gdp to show. 6 growth year over year were back to the cynical but truthful story those things that havent been performed are inexpensive. We know that europe, similar to small caps in the u. S. , are trading at roughly 50 cents on the dollar to the s p 500. Now, you cant get that excited about it because the longterm average is the 30 discount. 50 is better than 30 , but dont think that it is so dirt cheap. But, if i had to make a choice, i would rather bet on the small caps at 50 cents on the dollar than europe at 50 cents on the dollar for a little while longer. So youre not feeling that great about the International Markets right now, youre saying does it go beyond the eurozone, just the u. S. Markets in your mind are the place to be we have a lot of guests saying there is a lot of opportunity in International Markets that have either underperformed or actually outperformed but have more room to run. You have a little more time sadly the war in ukraine is not over the weakness in china that we have all been talking about this week may have a little bit more of an impact on europe than it does on the u. S. I think you have a little bit more time to access that discount that is clearly there even in developed International Markets. Youre leading me to my next question china saying they believe theyre going to miss their 5 growth target for gdp for the year does that impact any parts of the u. S. Market specifically maybe industrials, maybe tech. Is there an impact you expect to see play out today and throughout this week i think it is not going to be a big deal historically there hasnt been a huge impact. China is bigger than it was 10 or 15 or 20 years ago. We cant ignore weakness there we have never really seen weakness in the u. S. Be precipitated by weakness in frankly any other country around the world. I want to come full circle. Your pick, the smdv etf, small cap dividend fund, focused on dividends, equal weighted, hearing more about equal weighted in general, right now, is this the time to go in and buy the dip on dividend stocks and dividend funds that have been underperforming . Started to perform again, so, but indeed, look, this is an all weather strategy thats the important part. You see so many people taking the valuation of the s p 500 and say, well, it is 20 times, 5 yield, and the treasury is at 5 oh, my god, thats bad well, yeah, if the stocks arent growing their earnings and dividends thats bad but the whole point is to seek out growth so, rather than flip all the way to deep value that might not grow, if you buy a stock that is not growing, might as well be a bond we think the dividend growers are a real important place to be because of that growth. Simeon, got to leave it there. Thank you for taking us all around one quick look at the futures right now. Green across the board right now. We did see the s p dip into negative territory a minute ago. However, the dow well off of its highs, up 70 points at one point in the premarket when we started the show we want to look at bonds this morning right now. Taking a look as always we focus on the benchmark ten year, still where it was earlier today, 4. 18 , slightly off its highs yesterday when it pulled back from its highest level since october. Again, the benchmark tenyear, 4. 18 . Other parts of the market before we let you go and send you over to squawk box, taking a look right now at intel intel walking away from more vato a takeover of smaller chip ril wer semi tower semi down more than 10 . Thats where we leave it thank you for watching squawk box coming up next. Have a good day. Some people think you can only have one favorite team. Well i beg to differ. Thats why i got xfinity. So, i can catch all my favorite teams outofmarket sunday afternoon games. And for the first time ever, no dish needed. In a word its fitzcredible. No. I got it, fitzsational. I should trademark that. Eligible xfinity rewards members can get up to 100 off nfl sunday ticket from youtube. Sign up for xfinity rewards now. Morning stock futures relatively flat after a tough session yesterday. The s p closing below its 50day moving average dragged down by Falling Bank Stocks retail earnings on the way home depot yesterday, target and tjx before the opening bell. And didnt think i would be reading this, treasury secretary janet yellen opening up about her recent china trip, in quotation marks, she said she accidentally ate hallucinogenic mushrooms as part of a Group Dinner Im just reading details straight ahead it is wednesday, august 16th, 2023 squawk box begins right now. Far out. Good morning welcome to squawk box right here on cnbc were live at the Nasdaq Market site in times square im Andrew Ross Sorkin with joe kernen and melissa lee back in action this is how many youve been doing your time, your work, i should say. My time your time. Becky is off today u. S. Equity futures looking finally in the green lets see if it stays that way 15 points higher o