Transcripts For CNBC Power Lunch 20160711 : vimarsana.com

CNBC Power Lunch July 11, 2016

Leading the rally today, tech, discretionary, industrials. Meanwhile safe havens are biggest laggards in the market. Dom chu looking at the stocks that got us back to alltime highs. Dom. Its an impressive run, but remember were just where we were a year ago. First of all know the s p 500 since that time up about 5 the last time we saw that record high may 20th intraday 2015. Since then the utility sector, defensive ones like you talked about gaining the most in the s p. Meanwhile energy up the least in that amount of time as well. Something to watch out for as we move from record levels to new ones today. Look at points stocks individually done really well. First of all ulta salon, up 67 just since the last time we hit a record high, beauty products, personal Care Products a big part of that story. Another one, second best performing stock since then, one that we all know about, its amazon. Com. Those shares up by about 78 since the last time we saw record highs. So amazon continues that big march higher. Again, a very, very large stock to watch here. One of the big leaders from last year. And then the biggest performer in the s p 500, current members, a Semiconductor Company known by a lot of investors as one who makes hardware for video game consoles, high powered graphics chips for computers, nvidia shares up by 145 since that last record high. So, tyler, just some names that have helped power gains in the s p 500. Back to you guys. That is how to double your money and then some. Dom, thank you. Meanwhile, earnings season kicks off today with none other than alcoa comes after the bell. After four straight quarters of declines in overall corporate profits, could this quarter be the turning point for those profits overall . Bob pisani live at the new york stock exchange. Hi, bob. We have a good chance at ending the earnings recession. Heres the problem, tyler, a lot has to go right for this to happen. First, look whats happening, again, the key point is whats happening in the q3 point of the earnings cycle, not q2. Only four of ten sectors in the s p 500 are expected to be positive in q2. But by q3 eight of ten are expected to be positive. So sectors like tech are supposed to be doing a lot better. Energy and telecom are the only two going to be negative in q3. So heres what matters right now. First, we obviously have to have some stability and improvement at least in the Global Economy. But look elsewhere. The dollar has behave. If dollar goes up, as it has gone up post brexit, multinationals are going to have a problem. Second is Interest Rates. Interest rates should rise gently to help the banks, but not so much as to hurt other sectors. Thats a pretty tall order. And finally, theres oil. Oil is very closely correlated to the price of Energy Stocks. And analysts are modeling in stable to higher oil and stability in production. Just look at what theyre expecting from Energy Stocks not only in q2 but q3 and q4, the numbers go up because theyre anticipating prices of increases in oil and stability in production. Well, that may happen, but thats a tall order. I guess my point here, tyler, is im not bearish. Im just saying oil has it to behave, Interest Rates have to behave, and the dollar have to behave on top of those Global Economy doing well. Maybe it will happen, but its a pretty tall order. Back to you. And bob pisani has to behave. Which well take care of. Nah. S p hitting new highs, hopes for earnings season. Are we on the verge of a market breakout . Are we in it . Joining us is scott clemens, chief investment strategist and matt roddy, gentlemen, welcome. Scott, let me begin by asking you. Bob just sort of outlined everything that has to go right in terms of earnings even though were at 21, what is it . 2130 something or 2140 on the s p 500. A lot of people are saying that kind of feels to them like the top for the year. What do you think . It does feel a little bit pricey. And it does for a lot of the reasons bob laid out. Theres no question that sentiment has turned for the better. A good jobs report, brexit wasnt the immediate catastrophe we thought it was. Et cetera, et cetera, those are things that fundamentally effect price, value is driven by earnings. I share bobs suspicion caution that Second Quarter earnings reports will be as good as topdown analyst estimates expect. What do you think about europe right now . I know you had some ideas maybe there were some bargains over there. Do you feel that way, or have those been eaten up . There are certainly opportunities there. We find them its selective, but more in the multinationals if you will unfairly punished by concerns surrounding brexit, whatever form that ultimately takes. Very much a bottomup top selection type firm. Fewer on the ground now than maybe three or five years ago, but theyre there. So, matt, youre of the view where we end 10 higher for the year equities. I assume your thesis is earnings comparisons will look better in the second half of the year and Interest Rates are quiet . Yeah, thats my take. I mean, were up about 5 , well say, so we have another 5 from there to go, over 10 . When you think about where we started the year down 11 , thats a pretty good recovery. I think when you look out and see commodity producing earnings, get better year over year and stop taking so much frft year over year earnings and the s p 500, youre going to see justification of that multiple. Which is a little rich. Its 16. 5 times the market times the earnings and market is typically 15 times earnings. But when you think about it where bond yields are so low, corporate debt getting great refinancing deals on that side, high yield spreads have come in so not worried about liquidity. I think the market looks reasonably priced. And as Earnings Growth comes on board, youre going to see the market carry higher. I saw a statistic before i came in when it takes s p a year to breakthrough alltime highs, 95 of the time one year out the market is significantly higher to the tune of almost 20 a year. So, matt, youre not afraid of the yields falling all over the world, which to some people signal something deflationary perhaps. Youre not worried about that . Or is that just another reason to buy stocks since you cant get any yield where you normally could . I think the domestic low yields are a little bit of a, you know, being caused by the low yields and the rest of the globe. The rest of the globe does have some problems and thats why their yields are where they are. Thats why the dollar is where it is. I think ours is a phenomenon where everyone is looking overseas to the United States saying i can buy high quality debt and high quality stocks and pushing both of those higher. Im not terribly worried about the domestic markets. And i actually see a lot of value in the International Markets as well. You know, scott, you say theres a lot of uncertainty between now and excuse me, and november 8th. Id push back on that. I think theres a certainty. Theres going to be a new president. Its going to be one of two people in all likelihood, trump or clinton. Right. And Interest Rates are no longer it would seem to me the uncertainty that they were. We know the certainty of the brexit now. A lot of things have come more into focus. Tyler, i think thats right. I think thats why you see the markets today trading heading towards an alltime high close. Ill only observe given the accommodations of some continuing challenges on earnings, and i hope those are put to rest during the Second Quarter earnings season, but time will tell, and valuations that are relatively elevated. That does not mean that the end of a market cycle is eminent, but it does imply that prices are likely to overreact to external stimulus. I think the volatility weve seen for the past several years now is likely to continue throughout the rest of this year as well. Politics just being part of the driver. Right. But other things could go bump in the night as well. Scott, thank you very much. Scott clemens with Brown Brothers rockland trust. Go to powerlunch. Cnbc. Com right now to see how scott is making money in what he describes as a narrowly led market. We were talking about low yields, news alert bond market 3year auctions up for auction. Dom chu. You got it. So, michelle, we have the results of that 24 billion worth of threeyear notes up for sale here. The yield there 0. 765. The bid to cover ratio 2. 69, meaning 2. 69 for every dollar of bond up for auction. The 10year auction average was closer to 2. 92, again, thats the smallest bid to cover or demand gauge weve seen since july of 2009. Direct bidders accounted for about 15. 8 of the total auction compared to recent average of 11. 9 , indirect bidders, which is a group that includes foreign Central Banks 44. 7 compared to the recent average of about 50. 3 . So an interesting here for 3year note yields in terms of this particular auction. Well see if it plays out differently with the later auctions this week, 10s and 30s, back to you. Yes, we will. Thanks, dom. Speaking of Interest Rates, there are so many fed speeches this week its going to be tough to keep track of all of them. Thats why we have steve liesman. What do we think of replacing santelli on the bond report. Rick is gone for a week and youre just ready no, i thought dom did a great job. Very capable of what they do. Exactly. Exactly. So this is a big week for fed speak. Let me start off with what the consensus is. The consensus is that its going to be kind of a cool summer, but perhaps a hot fall for the fed when it comes to what happens take july off pardon me, and they take and start to reconsider jobs, reconsider the data and Interest Rates in september, october. Lets look at all the speakers we get. The question is all these guys and gals, and women, stick to the same script here . We have essther george spoke today. She spoke rates are too low. That was a headline we got from her. She didnt dissent last meeting. Loretta speaks at 9 30 tonight eastern time in australia. Then we have dan speaking on shadow banking but then theres jim bullard whos a voter, hes speaking as well along with kashkari and mester again. Well see if they stick to the same script. The scene will be changing during the week because then theres Economic Data and key Economic Data coming out this week. On wednesday we have the beige book, thats going to be very big. Along with import prices and jobless claims. What are you pointing at . Im pointing at the screen, look at the screen rather than the wall. Thats great. Ive been trying to get around the cameras. Right. Friday is the big day. Retail sales and inflation, obviously the fed targeting 2 inflati inflation, not getting it. But the consumer has been running at this hot 4 clip. Yes. Can we bring back that other wall graph that shows all the speakers. Theres nonfarm payroll. Thats the threemonth average just so you know how economists are thinking about this variability, 11,000 in may and 287, theyre averaging it and come up with 147. They think smoothing it out. You learned that in economics at wesleyan. I dont know big liberal arts schools. The graphic like this raises a question, are they talking too much . Do they talk too much . This looks like confusion for the markets to me. Thats what i see in that whole thing. Im sorry, i have a slightly different take coming from your intro, this is full employment for me. Its hard for me to criticize it. It is important though, and you bring up a good point for the market to keep this in context, what were looking for is the committee consensus, a change in the consensus with a little more attention to voters. We watch centerists like williams, williams has been out there big on june. Guys like bullard and lockhard, if they say we need to move sooner rather than later, thats a change to the market where the center is going. When is the meeting . Its the week after. Then theres september. And then theres september. We have in between sdwl. And then theres one right before the election . We were just going over there, exactly, theres a couple chances. What was the aba, Three Chances to make two or Three Chances to make three. Only went up to a 23 chance of a hike fed funds. The market is way out there. Yeah. Again, two for two there, ms. Lee, because another interesting point, is the fed comfortable with the Market Pricing . Do they feel a need to bring back flexibility to act if they need to. Great point, melissa, and michelle. Thank you. I thought dom did a great job. He did a great job. He did. Of course. In the next 48 hours the United Kingdom will have a new Prime Minister, actually she already seems to have taken over. Didnt she come out and make her speech . Theresa may. Power lunch is back in two minutes. Welcome back to power lunch. Im Bertha Coombs at the nasdaq. The nasdaq composite slightly below 5,000 this year, but hitting the highs of the year today. 5,007 is the number to watch. Thats where the nasdaq closed out 2015. We have hit a new year high and powered by nearly 200 new highs on the nasdaq including chinese stock, chinese stocks today roaring back with a vengeance among the big leaders here on the nasdaq despite some negative headlines on baidu and some of its advertising. Nvidia one of the big movers today, nvidia, amazon, comcast among the stocks that have helped lead this movement up so far this year on the nasdaq. Big stocks hitting alltime highs. Back to you guys. Thank you, Bertha Coombs. Kimberly clark shutting down operations in venezuela due to a slumping economy which has created significant consumer inflation as well as good shortages in the country. Shares higher by just 2 . Mizuho with a buy rating, analyst citing valuation and dominant market share is the reason. Comcast Universal Pictures scoring a number one hit at the bok office this weekend with the release of the secret life of pets. Shares of comcast higher by 0. 4 , comcast is the parent of Nbc Universal as well as cnbc. Okay. So in just about 48 hours from now the uk will have a new Prime Minister. Wilfred frost taking a look at who exactly this person is. Wilfred, we heard from theresa may. Shes confirming she will be. The current uk Prime Minister, david cameron, has confirmed she will take over for him on wednesday evening. Of Course Development earlier today, andrea ledson, the orr account pulled out of the leadership battle. Heres what cameron had to say earlier. Im delighted that were not going to have a prolonged conservative leadership election campaign. I think Andrea Leadson has made absolutely the right decision to stand aside. Im also delighted theresa may will be the next Prime Minister. Shes strong, competent, more than able to provide the leadership our country will need in the years ahead and she will have my full support. So who is theresa may . She was born in october 1956. Shes the only child of an anglican viker and his wife. Educated Oxford University and worked for a while at the bank of england. Shes married to a banker, though the couple are unable to have children, she also has type 1 diabetes. Became a member of parliament in 1997 and became home secretary in 2010 when the conservatives returned to power under david cameron. She backed remain in the recent brexit referendum and always maintained a tough stance on immigration as home secretary. Thus, shes seen as someone who can unite both sides of the conservative party. Here she was speaking moments ago as it was confirmed she would be the next Prime Minister. My case has been based on three things. First, the need for strong, proven leadership. Two, steer us through what will be difficult and uncertain economic and political times. The need of course to negotiate the best deal for britain in leaving the eu and to forge a new role for ourselves in the world. Brexit means brexit. And were going to make a success of it. The focus now turns to who shell appoint in her cabinet and what timetable shell set for withdrawing from the european union. By the way she will be the uks next Prime Minister by wednesday evening. Guys. It seems odd, i think, from where i sit that the choice would be someone who voted to remain or who supported the remain side. Explain that one to me. Well, its a very fair point to make, tyler, but the important thing in a conservative leadership battle is to get down to the final two candidates you need to get the support of the members of parliament. And twothirds, roughly, of the conservative members of parliament did back remain. So the support was much greater amongst people in parliament for fheresa may and also seen someone who did not betray david cameron. I bring it back to the other point, shes always had a very tough bit of rhetoric towards immigration. And she wasnt v supporting remain. In the wall street journal advocating much lower taxes and try to make the uk even more competitive than it already is. How likely is she going to want to follow those policies hes outlined there and promising to wall street today while hes here . Well, very, very good question. Well have to see if she has the same policies if George Osborn maintains a seat in her cabinet. That remains to be seen. Certainly he was expecting that the next Prime Minister would not be in place until september. So very Quick Developments earlier today when Andrea Leadson pulled out and ultimately until theresa may is in place and appoints a new cabinet, what hes doing here today becomes far less important. All right. Wilfred. Im just am

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