And welcome to power lunch. Im melissa lee. A winning month with a losing day. The major averages lower across the board here. We did hit record highs with the nasdaq and dow jones utility average before the markets went lower. Crude oil, meantime, hitting threemonth lows. Traders are worried the opec led cuts to reduce global inventories are being undermined by those outside of the deal. Financials, big hit here. Regional banks on pace for the third consecutive day of losses. Im michelle carusocabrera. Here is what else is happening this hour. New york times offering buyouts. The move aimed at cutting the number of editors in its newsroom. Contracts to buy previously owned homes are falling for a second straight month amid a supply squeeze. Jetblue launching its first of its kind selfboarding Program Using facial recognition software. More on that intriguing story ahead. Brian . Michelle, welcome back. Well, if you are just a casual market observer, you probably know the stock markets having a good run, its in the headlines these days. Did you know especially just how Good Technology stocks have been and may come as a big surprise to even the most cynical investors among all of you, and i see you out there, check out the staggering stats for the month of may. If the nasdaq 100 closes higher today, itll mark the 19th positive trading day of the 22 weve had this month. Heck, even if we fall today, still 18 out of 22. That aint bad. If we finish higher today, that would make it an 86 win streak and, folks, that would make it tied for the third most positive breadth month and the magical may of 1979. Plus, unless the nasdaq crashes by 9 over the next couple of hours, we doubt it will, itll be the seventh consecutive positive month for the nasdaq and that, my friends, would make it the third longest win streak since 1986 and 1995. If you think this means the run may be done, think again. Longterm win streaks like the one were on usually are signs of longer term strength instead of weakness. Some pretty spectacular market stats for the month of may. So the question is, is the nasdaq and tech the place to still be in in the months ahead . With us the Vice President and portfolio manager, aaron kessler, senior vp at raymond james. He covers internet names like facebook, twitter and alibaba. Good it to are have yto have yo. The xlk is the tech etf. 5. 27 million closed yesterday. The largest oneday redemption since january 31st. Are you concerned that everybody loved this trade and when the trade is over, who is going to be left with the chair when the music stops . Well, lets see. I think where does an etf investor put their money . Thats the big question. Is it back into a market etf . If so youre buying those stocks right back. Think about that. Arent they the big six. I dont think thats a big indicator. I do think people are probably taking profits but theyre probably piling it back no the market and this has been a leading secotor as the i cant remember his name brian, as brian was outlining. So its a winner. Brians a little upset that you cant remember his name weve only been interviewing each other for a decade, kim. Its okay. The penguins make the nhl playoffs and this is what we get. I know. You cover some of those stocks, aaron, but theres a whole world outside of faang and theyve gone gangbusters. Does it concern you in terms of the pace made so far in relationship to your price targets . Im not sure what youre forecasting for a lot of names in your coverage universe but i would imagine you are like many other analysts on the street where they point out the price target and, wow, youre getting there faster than you thought. Yeah, some have gotten close to our price target. We tried to be more disciplined with amazon. The stock has been up a lot in our space, internet names. They are secular growth winners and most are trading at reasonable valuations, look at google and facebook. Were at 20 . We dont think valuations are stretched on large cap. We did get cautious on amazon at 100 times earnings. Profits havent mattered so far but we do think valuations are getting stretched there. Kim, you mentioned etf investing and that has been a big trend, the trend, the rise of passive investing, do you think those dollars are stickier . Do you think if youre an investor and put your money into, say, the xlk, youre more likely to keep the money and, therefore, the gains made in this particular sector might hold better because that money stays there or is it the flip side where we see what we saw with the biotech e uy etf, ther a lot of knowledge and when we got that tweet the bottom fell out pretty quickly. Yeah, i think thats my biggest fear and why were not necessarily investing in the top five names. We like things further down the chain because the Retail Investor does kind of go from whats hot now to whats hot now and whats hot now. So that money does move along. So thats why we like semiconductors and maybe next years tech stocks as opposed to this years tech stocks. Aaron, were out of time but whats the topic within your universe . Right now alibaba growing about 40 plus revenue growth, trading around 16 times earnings, we think one of the best valuations in our space currently. All right, kim, aaron, thanks a lot. Thank you. Code conference under way in rancho palace verdes,c california. A lot of big names on the stage including alphabet and google ceo. Shell be speaking live during power lunch. Well bring that to you when she begins. Lets go to Carl Quintanilla who is there with some of the highlights so far. Carl . Reporter good morning, michelle. Reid hastings on stage talking about the companys longterm strategic play trying to play at the high end of the socalled movie budget spectrum, the low end of the spectrum, the median part of the spectrum, talking about their play in china which she says now is off the table for the next couple of years. But as with most ceos at this conference it always comes down to how theyre relatinging and competing with amazon. Here is Reid Hastings talking about amazon and how he says theyre trying to rewrite the rules of american business. If we try to out Amazon Amazon then thats a losing battle. So he what we have to do is be the specialty play. Were trying to be starbucks, theyre trying to be walmart. We have to have brand love and focus. What they do is incredible. So we wouldnt focus on those things. We would focus on how do we be really the embodiment of entertainment and joys and tv shows. Reporter of course netflix is working on europe, asia and south america. China has been a hard part as they are try to break into that blocked off market. This is hastings talking about whether china is a near term play for them now. Weve done awfully well in latin america and in europe and of course in north america so weve learned some things but we have a lot of room to grow in asia and a lot to figure out still. What about china . Are you still trying to launch there or is that off the table . He think thats off the table for the next couple of years. Reporter finally, guys, one of the highlights is always Kleiner Perkins running through literally hundreds of slides in a deck presentation that covers everything from the u. S. Economy to e sports to media to china to india. This is her talking about the number of retail score closings weve seen in the past year even at a time when amazon is opening stores. Retail store closings may break a 20year record while amazon is opening retail stores, Digital Stores are going off line. The Worlds Largest off line retailer, walmart, is getting aggressive and showing good results. Amazon has become a leading private label supplier of baby wipes and batteries. Reporter fascinating work from meeker. All that have is available on Kleiner Perkins website. Were off to the races after balmer and andriesen last night. Looking forward to hillary clinton. Sherry redstone. Recode brings the headlines in a hurry. We want to warn people if they look for that presentation online its 355 different slides in the power point. Youll be there a long time if you want to look at the whole thing. Reporter its almost i dont want to say its a parody of itself but there are slides going by so fast theres no way you could possibly consume them. Even mary says go online if you want to delve into some of these things. If you have a color printer, dont do that. We made that mistake earlier. Everybody is hollering. Its just another hour. Reporter toner is low. Every 30 minutes. Youve been going out there for years and years. Who is the star every year theres a breakout star. Who has been the star or maybe the shock so far this year . Reporter i think in absentia it it remains its jeff bezos. The one thing that every ceo here has asked about and has to comment on is the degree to which amazon is disrupting not only their business but retail and cloud and logistics and even when hes not in person. Hes not here this year, you cant not talk about what amazon has done. Its a big part of meekers pre preng. I thought thats been striking. Hillary clintons going to speak in a couple of minutes. I think she will be a highlight through the prism of how Technology Companies are taking responsibility for the free flow of information and alternative facts, so to speak. Lyclinton will talk about that d as Carrie Swisher said its up to tech to take responsibility for what they brought. All right, carl, thanks a lot. Carl quintanilla from the code conference. Sticking with technology, alphabet shares flirting with the 1,000 level. Ruth porat set to teenage the stage. Red flags in the auto industry. Are we back to our precrisis ways with subprime loans. The man on the frontline of that issue next. I joined the army in july of 98. I did active duty 11 years. And two in the reserves. Our 18 year old was in an accident. When i call usaa it was that voice asking me, is your daughter ok . Thats where i felt relief. It actually helped to know that somebody else cared and wanted make sure that i was okay. That was really great. Were the rivera family, and we will be with usaa for life. Usaa. We know what it means to serve. Call today to talk about your insurance needs. For years, centurylink has been promising fast internet to Small Businesses. But for many businesses, its out of reach. Why promise something you cant deliver . Comcast business is different. We deliver superfast internet with speeds of 250 megabits per second across our entire network, to more companies, in more locations, than centurylink. We do business where you do business. Welcome back. There is a growing concern that another subprime loan crisis is beginning to bubble up. This time were talking auto loans. Given this is a 1 trillion Global Market investors, phil lebeau, are right to stick up and take note. Phil . Reporter brian, its worth paying attention to but we should point out that everybody weve talked with has said this is nowhere close to being a level of concern that we saw back before the auto crisis or the recession and the big auto problems back in 07 and 08 leading into 09. Basically what youre seeing right now is that there is greater emphasis on whether or not people are able to make their loan payments. Subprime make up onefourth of the auto loans written. Yesterday fed governor brainard said theres evidence the subprime borrowers might be struggling with payments which raises the question how many people are actually in default, delinquent on their loans. The most recent data from the Fourth Quarter just 2. 44 of the loans are in 30 days delinquency and 60 days is less than 1 of all auto loans and, again, those are below the historical averages. The may sales rate coming in estimated at 16. 8 million. Well find out the official number tomorrow when all of the automakers report. One thing to point out is that automakers and lenders, and weve talked with a number of them, have all said theyre being much more selective when it comes to writing auto loans. This is not a case theyre saying, hey, you have bad credit, thats fine. Well put you in the car regardless of what your credit is. In fact ubs out with a note today saying that 33 of the dealers that they is yosurveyed may reported tighter credit standards meaning theyre being much more selective who theyre writing loans for. Take a look at the auto dealer stocks under pressure basically over the last year. And that has to do with a number of factors not just because of what the concern is regarding the subprime market. You hear a lot of people say, oh, theres a subprime bubble out there. Almost everybody weve talked with, and weve been talking with a lot of people the last couple of months, they all say the same thing. This is nowhere close to what it was back in 2008 and 2009. Phil, thats mainly because of the dollar size of the auto loan pool. In terms of the impact on the automakers, the fords, the gms of the world, this is a double whammy for them. Falling prices hurts new vehicle prices and then the lending standards tightening. We did see that for the First Quarter. The median credit score went to 706 from 695. So youre getting lending standards which limits the number of people who will actually buy a car. Reporter right. And for the automakers, they realize this is a concern which is why they are trying to adjust as much as possible. One area where people are going to be focusing their attention is the percentage of buyers out there who are upsidedown, in other words theyve taken out a seven, eightyear loan on a vehicle and they need to trade it in for whatever reason or they decide to trade in. Well, its not worth the amount of money that they owe on it and theyre upsidedown on their loan. That has been increasing slightly over the last year or so. Thats what people will be focusing on. Thats a phrase we all got familiar with during the housing crisis when people owed more on their homes rather than they were actually worth. Thanks, phil. You bet. Lets bring in scott adams, president of Adams Automotive Group in missouri. Scott, you just heard phils report. Phil is still there as well. Are you seeing people pay their car payments to you later . Do you feel were sort of at the beginning . I dont want to call it a crisis but of a concern . I dont think were at the beginning of a concern really at all. Theres always been a subprime market. Theres always been people who pay their payments a little slow, but were at historical lows on that. Losses in the car paper business are below 1 . Banks i see their figures on are below half a percent. So, yeah, i think theres a little more maybe tightening or looking or less maybe ought mat ek approvals on some people but in general i think the bigger problem is that people are not wanting to buy actual cars, that people are willing to buy sport utilities and trucks which cost more money. What does that have to do with debt, though . The issue, scott, you have ostensibly over a trillion dollars in auto loans. A percentage of those are subprime and a percentage of those are beginning to be paid back later and later if not being paid back at all. True. But when somebody cant finance the car theyre in and maybe they want to trade in, they cant go buy an even more expensive vehicle than they have now. They would want to trade down or, like phil said, with the upsidedown try to put that in their new loan. There is some of that. But theres also new lending regulations coming out to banks and Financial Institutions about how they have to handle the loans as they put them on the books. So it is a little bit of difference and will probably come down from 17 million in sales. I think think were in a healthy market. Speaking of regulations when it comes to banks, who is extending these loans . Who buying them . Who is holding the bag if there is an increase in the rate of failure with these loans . Thats what drove the systemic problem with banks in america when it came to the housing crisis. And the minute we hear subprime, everybody goes back to 2009 and wonders if thats whats going on. So who has all these loans that are at risk . Well, some of them are going to be at your captive finance companies, toyota financial, gmac, ford motor credit. One good thing about a car thats a little different than a building or a house is you can take that car to an auction and get some amount of money on it in a hurry. So its not like youre going to be seeing cars 18, two years, three years before theyre sold if a lender gets them back. They can get their money back or a vast majority of their money back within 30 days. So youre not going to see a huge amount of cars sitting around unsold with losses at these lenders. Michelle, id like to add one thing. Ive talked with Rick Santelli about this and weve been doing some research on this. The percentage of these bad loans or the subprime loans that people cannot pay and then go bad in Asset Backed Securities is so small and theyre usually packaged in a larger Asset Backed Securities so that even if they go bad its not bringing down the entire portfolio. In fact, rick and itch been looking specifically at this issue and rick made a great point. Its a really small slice within the larger pie. And, yes, i agree with all of that. That was also true of the housing market, right . Bingo. It was very, very tiny and yet all the insti ttutions wereo leveraged. Reporter nowhere close to where it was with housing. Great. Thank you, guys. The tale of two retailers, one up double digits. A closer look at the latest retail earnings next. And i know a thing or two about trading. So i trade with e trade, where true traders trade on a trademarked trade platform that has all the. Get off the computer traitor i wont. cannon sound mobility is very important to me. 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