tv Power Lunch CNBC January 31, 2018 1:00pm-3:00pm EST
this quarter, if present trends continue, they are only about $40 billion or so apart. that is my name. >> joe. >> nice boring continued appreciation in walmart. continues to move higher i see sully over my shoulder don't worry, i see that. there he is over there can't hide good stuff. >> thank you >> "power lunch" starts now. >> the state of the stock market is strong, america the short lived selloff didn't scare buyers off and that could mean good things forts year you could thank boeing and that soaring and the number one analyst tells us where it is likely to go from here but will an untested fed derail the entire thing the fed rate drop in one hour and janet yellen final meeting as chair i'm brian sullivan "power lunch" begins right now
good afternoon i'm tyler mathisen, thanks for joining us we begin with breaking news on the amtrak train crash involving gop lawmakers outside of charlottesville, virginia. we are from west virginia near the greenbrier to which these gop members were decamping for their annual summit. ylan >> tyler, one person has been confirmed dead in that accident. the train hit a dump truck the person who died was on the dump truck and another person on the truck was critically injured. the washington reports that jeff flake of arizona carried one of the injured into an ambulance with other lawmakers now we could also tell you that one member of congress has been taken to the hospital. we don't know who it is or what that person's current status is. other people who were on the train were treated for minor
injuries now as you mentioned, lawmakers are coming out here to west virginia in the allegany mountains for the winter policy retreat and a moment for them to reflect and try to turn the president's state of the union address into some sort of legislative reality but now clear clearly marked by tragedy. organizers do plan to go on for now. vice president mike pence is scheduled to arrive and speak to lawmakers tonight for dinner as far as we know, that is still ongoing but we are waiting to hear back from the vice president's office the white house is saying that it is in constant and regular contact with authorities and with amtrak. president donald trump was to come here tomorrow as well to address gop lawmakers. we'll keep you posted on how the plans might evolve back over to you. >> keep us up to date. i'm michelle caruso-cabrera. the stocks are having a come back the last trading day of january and the dow and s&p are on track to post the biggest one-month
gains since march of 2016. this would make it the tenth straight monthly gain. we haven't had a streak like that since 1959. brian highlighted boeing it is worth another look because it is making up almost all of the dow gain look at that huge jump of nearly 18 points. that is adding 130 points to the dow jones industrial average pit nybows and amazon at an all-time high. the brazil etf up 17% and the poultry producers, they are plunging the lawsuit by the two biggest food distribution and accused of price collusion. over to you. >> thank you very much. let's drill down now on this earnings fueled rally ahead by 55 minutes of the fed decision
bob pisani is on the floor of the new york stock exchange and joins us now. >> when you say earnings rally, it is really the boeing rally. i want to show you the dow and the s&p because the dow is up right now -- it is right now up rather noticeably. up about 0.23% and the s&p up .02% and the dow jones is up the important thing to see here is a noticeable outperformance you rarely see a 30 point basis move on the dow industrial over the s&p 500. now that is because of boeing. take a look at boeing and general electric and michelle is right, 130 points of the dow is due entirely to what boeing is doing. general electric, which is the worst performer, down 8% for the month is only $16 now. you notice the difference in price. highest and lowest price ge is 4% of boeing and there are a lot of people talking about the idea that general electric stays in the dow may be numbered with that kind of perform a--
performance over the year. nasdaq is leading and s&p up and russell turned negative. and that is underperforming recently as for the sectors, biotech made a huge comeback in the month of january and that is helping health care but all of the reflation trades, technology and industrial and materials that did well into december and the middle of january petered out and haven't been as strong and finally in about february, let's call it a coin toss. the stock trader almanac said it was the weakest link in the best six month strategy but in the last 15 years it is up -- ten times and down five times. that is a coin toss because the arth return.06% and so i think coin toss is the way to explain it. >> pretty incredible that ge may be out of the market
and we'll have more on that. thank you. less than an hour away on the fed's decision on rates and the last meeting for janet yellen as chair. we are live in washington with what is expected and what could surprise us, steve. >> thanks, brian the federal reserve will upgrade the assessment or the economy and signal further gradual rate hikes. incoming fed chair jerome powell is backed this approach. yellen leaves a solid economic record to build on 9.7 million jobs created during her tenure average monthly gains of 208,000 and unemployment falled by 1.4% and gp averaging 2.5% and inflation low as 1.2% and the main challenge for powell, how to get to the 2% goal and how much rate should rise if inflation is low should rates rise more because
of the stimulus from the tax cuts and the lofty market levels and they are wondering if powell will have more to do than his predecessor did. brian. >> key question. we'll ask later as we watch this meeting unfold so steve highlighted it. the threat of rising rates is a growing fear for this record-breaking rally. earnings ant the impact of tax cuts be enough to keep the fears at bay or maybe cause those fears to come about joining us are jackie allen and [ inaudible ]. and ever since the election, right after you came on, and said back up the truck, go aggressive in stocks this market will be very strong well 30%, 40% later, what do you do now do you agree with that. >> yes, i still think the stock market will rise but ayer ride
but -- bump ier ride and with global growth, i think the market will now be paying attention to both good news and bad news so earnings are strong and the economy is solid and interest rates are rising a bit that says be prepared for a bumpier ride and still a good one and put money in stocks. >> how high do you expect that interest rates will rise and how will they derail this market in a strong way. >> i think interest rates will rise some. of course the fed has said they're going to hike short-term rates three times this year and if inflation doesn't soar that is about right three or four times. longer term rates are likely to rise a little less than that so i think we'll continue to see the yield curve field flatten but that is okay for stocksoy don't think the market will respond unless there is soaring inflation because i still think that we're going to have is low interest rate environment and
just less low than it was. >> jack, why don't you react to what kate said about interest rates and what threat, if any, you see them posing to stock values >> yeah, they are a threat, certainly. the fact that interest rates are probably about 1.5 or maybe less than 1.5% too low. means that the bond market is fighting with one arm tied behind its back. it is not going to get the attention and the assets that it would normally get if it was trading at a fairer value relative to stokz. so as a result of that, equity prices have gone maybe 15% or so higher than they should be all other things being equal and if that ten year treasury is closer to 4% where it should be if you look at nominal gdp and looking at earnings yield and other things, that is likely to really pull that equity market back down to fair value and we're looking at probably a ten to 15% decline all other things
being equal. i don't know if we'll get to 4% that fast. but i was surprised that the 272 caused as much of a problem as it did yesterday. >> you said 4% i'm surprised. most people are saying 3% on the ten year and they start to get nervous but you are willing to give more room why. >> i think it is fair value. if you look before quantitative easing what you notice that the ten year treasury tended to track nominal gdp for years and years. and right now nominal gdp, if you look at real rate at around 2.5% and another inflation at 1.5%, it really coalesces around 4% another way to look at it, which is a completely different model but also tends to agree, is the ten-year triple b bond yield does correspond, has
historically corresponding to the earnings yield which is simply the reciprocal of the p.e. ratio and that diverged with the quantitative easing experiment in 2009 that also is trading at about 1.5% the earnings yield is at about 1.5% above the triple b. bond yield, confirming this notion that the difference between stock and bonds valuations is about that 1.5%. what that means is that -- if those two were back in parody, it should suggest that equity is, quote, unquote, fairly valued relative to earnings and dividends. right now stocks are about 15% too high relative to earnings and dividends on a historical basis. >> thank you for that deep dive. and kate, good to have you. >> it is the stock story of the day. and really in the dow for the past year perhaps. boeing soaring 5% on the back of
a stellar earnings beat. the stock now up nearly 120% over the past 12 months. so can boeing keep on going? joining us now on the news line is wall street number one airline and arrow defense analyst hunter keay with wolf search hunter, welcome and what is boeing doing right there was a time there not that long ago where people questioned the ability to do what it is doing now and deliver shareholder returns. what has turned around >> yeah, thanks for the kind intro. i'm not the number one analyst but i appreciate that. >> thank you for your modesty. >> of course so what it is doing now is bogue is really just kind of in control of the business. it is -- they are turning billions of dollars of prior cash investments if you want to call it that generously, into cash flow now. and they're turning what is
called 77 deferred production into cash flow and executing on a prudent ramp in narrow body production rate. 737 specifically they are gaining market share in the services side. they carve out growth in the new segment they've created called bgs or boeing global services. they are the second largest defense contractor and they pointed out in the call and still continuing to plug away and improving. and it is a lot of little things and it is mainly execution at boeing commercial. >> so it is basic blocking and tackling has gone their way. there are two things that have happened in recent days that i would like to get your reaction to one is the international trade commission ruling that did not go in a boeing favor, went in bombardier favor and number two is that airbus beat them in terms of orders received in 2017 do you see either of those things as material problems for
boeing >> no. not at all the itc ruling was a bit of a long shot. not technically done yet they could appeal it but we'll see if they do i doubt they do. but that was a complete long shot it may potentially accelerate boeing to do something with embree air which is the brazilian manufacturer and that timing is dependent on bombardier it doesn't matter. the ruling was a long shot for them any way and in terms of order activity, not at all that is just sort of like headline hype. it is a lot of function of timing and when the calendar turns but boeing executing discipline they booked 50 orders tomorrow if they wanted to it doesn't mean they are good for business. >> hunter, it sounds like you down played defense. it is 22% of the revenue and commercial planes are more at 61%. but considering what we heard from the president last night, 21% on a company with this size
revenue, that is still pretty meaningful how much more could defense be the cherry on top here >> boeing used to be about 50% of the revenue a few years ago about a decade ago so it is more marginalized in the portfolio which means bga is the growth driver for the stock. boeing is a bill payer in the prior ten years or so but we see the potential for that to turn they have some aircraft winding down like c-17, for example, but they are really well positions to win a program called gbsd and reference trump and talking about nuclear deterrent and the d. is for deterrent and boeing is will have this massive program awarded in the next couple of years. there is other programs like tx an mq 25 and defense is not moving the stock but i think that business is turning the corner as well. >> the self efacing hunter kea not the number one airline
analyst. [ laughter ] >> but number one to us, hunter. >> well that is nice but i do not say that. okay, thank you very much for the time >> we're telling you, you're number one. >> i am in airlines. >> good-bye. >> president trump wants to generate a trillion and a half dollars of infrastructure projects and that sounds good and how will it work and how will we pay for it and what about the deficit. one of the republican congressmen leading the charge on infrastructure. and we are 45 minutes away from the fed decision on rates. final fed meeting of janet lot en's tenure. a more to do and come. stick around welcome back
the big story this hour, a deadly rail accident involving a train carrying republican lawmakers to a retreat in west virginia the train they were riding on crashed into a garbage truck this all comes as the president is placing emphasis on the need to improve the nation's infrastructure hoping for $1.5 trillion in spending to improv improve. kayla is live with more on the topic. >> reporter: that happened in the truck that hit the train carrying the lawmakers all
members are said to be okay but one member brought to the hospital according to our correspondent on the ground. president trump calling last night on congress to procure $1.5 trillion in infrastructure and that is going to be a topic at this retreat. even if this schedule does get altered a bit because of this afternoon's accident and events. the white house is expecting to release its own package in the next two weeks it will have $200 billion in federal outlays that are accounted for by cutting costs at other federal agencies. about $100 billion of that is going to be rewarded for state and local communities for creating their own revenue streams for their own infrastructure projects. private sector funding i'm told is welcomed but it is not required president has even doubted the effectiveness of public and private partnerships about conversations with adviser and they acknowledged for certain rural projects that won't be an
attractive enough investment for the private sector. >> it will be a combination of federal dollars, and state dollars and private dollars. there are many infrastructure projects that are not going to be privately funded. >> legislatively, infrastructure is an extremely heavy lift especially compared to tax reform it will require democratic votes an it will also require involvement from up to nine committees on capitol hill and as many as seven cabinet agencies that will want to have some jurisdiction over infrastructure not to mention the municipal component and white house officials say they have to get this done if they are going to in the next five months because once they get to the mid-term election all eyes will be on them. >> and joining us, republican congressman kelly and he introduced a bill last year and congressman kelly joining us now. before we get to infrastructure, i need to ask you about that
tragic train wreck in virginia you have heard whether or not that gop retreat will indeed go forward? >> yes it is going to go forward. the people on the train, the members will go back to charlottesville and then go by bus to greenbrier. what i've been most impressed with, i was not able to go on the train because i had so much work left to do before i could leave the office my phone has been lighting up with friends from back home saying, are you on the train are you okay is everybody else okay and i think when things like this happen, we really start to think of ourselves not as republicans or democrats, or independent, but as americans. and when something tragic happens, we're concerned for the american people and anybody that is on the train. we pray for them and just hope that as time goes on, we're able to figure this out one of the people on the truck apparently was killed. but i think all our members are okay >> well said, sir. we appreciate that let's move on to why you are here which is infrastructure we have spoken extensively on topic in the past. and here is the thing, i don't
want to get into the weeds but it is important for the cnbc audience, your bill wants to create a new pab, public activity bond but many congressmen tried to kill p.a.b., have you been able to convince your colleagues on ways and means that p.a.b. are indeed the way to go? >> absolutely. and one of the bin e benefits was to work through the tax cuts and jobs bill and the conversation went back and forth between ways and means members we're looking to each person's talents in their background and let them weigh in on what their experience was because some people have never experienced that before. and this doesn't seem to make sense. i'm an automobile guy. and i'm in sales i always would point out features and benefits that add value and when you look at that bond, that is something that works in a lot of cases and something the american people can participate in and there is nothing like it that i've seen to date it is not a republican issue, it is not a democrat -- it is an
american issue we have got to rebuild our infrastructure >> a lot of the democrats believe that private bills and bonds should not be substitutes for federal funding. i don't know if you need any democrats on this at all there has been a few like john delanie who wants infrastructure done, but in a slightly different way. how do you convince anybody that private money is good and can be leveraged on >> well, you know what, the bill i'm doing sh the public buildings renewal act and we've been on the show with you, but it is understanding what we are trying to do there is no one size that fits all. in some cases the public -- the activity is a great feature but the president said clearly last night, federal and state funds and private activity, that is what we'll have to combine this is -- a big -- >> kayla reported that she's heard from the president's advisers that he doubts the effectiveness of public-private
partnerships have you heard that? and do you doubt their effectiveness? >> no. i have talked to the president about. this and i've been in situations where we talked, reed cornish, i talked with him privately. the president talks about things and said what is in the best interest of the american people. he wants to make sure if we're asking people to invest we're giving them a return the public renewals building act, that is 32,000 jobs that is $8 billion in real gdp now the big part of that and i keep telling people all of the time, if you are worried about social security, we have to get more people in the work force because we know that 6.2% by the employer and 6.2% by the associate, it is 12.4% revenue on the salary that goes into the social security fund so it is a win-win-win. it is a win for taxpayers, a win for people who use our roads an and rivers and runways an railways and it is a win across the board and more important
america wins. >> do they have the appetite to get a bill done? >> you know what, i think anybody has the appetite once you explain what is on the menu. and coming from the private sector, i would have people coming to me from the dealership and said we have to buy this and buy that and i said if it brings in more revenue and it increases our ability to stay competitive, and it will pay for the loan or the money that i have to spend, i'm all for it just bring me things that have a positive effect. this will have a positive effect on our economy, and again jobs, jobs, jobs and more jobs and i think the big thing is for me, i'm in sales, i have to sell all of the fetures and benefits that add value to every single mesh. >> i couldn't tell you were a salesman. >> cadillac in every driveway. >> thank you god bless. by the way, check this out we have a new cnbc infrastructure index it is down but up about 5% this
year it has some names in it like the road builders, steel companies, caterpillar, nucor and we'll show you it once in a while to give an idea of what the market is saying about the future of infrastructure rising rates it is having a big iact tmponhe housing. the details on that coming right up posure to energy infrastructure mlps? posure to energy think again. it's time to shake up your lineup. the alerian mlp etf can diversify your equity portfolio and add potential income. bring amlp into the game. before investing, consider the fund's investment objectives, risks, charges, and expenses. read the prospectus carefully at alpsfunds.com/amlp
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four the fbi pushing back against any public release of a controversial memo from the house intelligence committee that memo citing misconduct by fbi officials probleming russia involvement in the 2016 election the agency releasing a statement saying it had grave concerns about the accuracy and was given little time to review that memo. human rights organization amnesty international is condemning the president's decision to keep guantanamo bay in cuba open signing an executive order on tuesday that reverses the obama policy of trying to close that detention facility house democrats criticizing president trump's state of the union saying there is no hope of changing any dynamics in moving the country forward during a news conference this morning on capitol hill. >> our expectations for greatness and vision of the president are not high he's stooped to a new low in terms of how he dealt with issues for example, the immigration issue and what it has meant to
our country and how he characterized it >> you are up to date. that is the news update at this hour ty, back to you. >> thank you very much. talking about a rising interest rate. they are starting to impact the housing market it is looking less attractive to buy and certainly less attractive to refinance right now. and those home equity lines, diana, they are getting more expensive. so that makes it tougher to add on hi, di. >> hi, ty. you are right. we're looking at headwinds that already have some buyers backing away pending home sales which measure signed contracts up barely half a percent in december for the month and up barely half a percent from a year ago. the realtors blame record low supply even during a slow demand month. now red fin reported a big jump in the number of home tours requested but a sharp drop in offers a more recent indicator, this week's mortgage applications down for both home buyers and refinanciers because of those higher interest rates. they started climbing at the
start of the year and really shot up in the last few days the 30 year fixed is now at the highest level in four years and that means a big redrop in refinancing meaning less business for the banks what the market needs most is new supply on the bright side, d.r. horton, the largest home builder did report better than expected earnings of the all big, they have the focus on entry level product. we do need the cheaper stuff this is a real test of the market, red hot demand up against higher prices and higher interest rates and record low supply back to you. >> thanks. so we're less than 30 minutes away from the final fed decision in janet yellen's fed chair, speaking of interest rates. what will they say about rate d w llt f e arrest othye anhowi iaffect your money. a fed day of "power lunch" continues right after this found in jellyfish,lly prevagen is the number one selling brain-health supplement
record the tenth straight month of gains in history and it says that we rise more than 4% in january, the market goes up 100% of the time and my math tells me that is all of the percent let's take a look at bond market this is the big story for the year so far. two, five and ten-year wields all on the rise. >> and our next guest, dick goss ovich. we want to talk about the president's speech but first talking about interest rates and how they are rising. 10 year, 2% and it is much higher than it has been. it spooked the market over the last few days. what do you think is going on with interest rates? >> i'm surprised interest rates haven't risen more earlier it has been manipulated by the fed for far too long and historically a -- a low rate and when you have a booming economy and the rate is below
where it should be, it is going to go up and so we're just seeing what the -- what you would expect given what is going on economically. >> really good for banks, isn't it >> it is >> i was expecting you to elaborate a little bit more. when you see the ten-year rising like it is, tell me what that does for the bottom line of a bank and did that mean people should be investing in financials >> the reason -- the reason it is beneficial is that their assets increase faster than their cost of the deposits and so the banks' interest rate maerm margins have been historically low for eight years and 50% lower than would be normal and so as interest rates rise we get back to normal in the interest margins and that will increase profits and will be helpful. >> so i wonder, though, dick, wells fargo is the or if the number two in issuing mortgages
in the united states does a potential slowdown in people's willingness to take on loans as rates creep up a little bit, does that hurt or do you just kind of step right over it? >> well the major difference is when you have interest rates abnormally low not because of the market, but because of the manipulation. it does reduce refis but historically, these are low rates. it should not have -- a great impact on purchase mortgages and particularly if you have a strong economy with low unemployment. >> should the stock market be afraid of rising interest rates putting aside the financials because of the margin expansion, but what about the rest of the market, should it be frightened of a rising 10 year yield. >> if you have lower interest rates, asset prices go up more than they should and we're seeing that in the market. the market is highly valued and so is commercial real estate and other things
so the risk when you manipulate the rates and all of a sudden they go back to normal, where they should be, you could burst the bubble, if will you. and i don't think we have a big bubble here. but we certainly have elevated asset prices because of manipulation of the interest rates. it is also -- >> go ahead, please. >> this is a very important point. when mortgage rates are lower than they should be, mortgage prices are higher than they should be. because it is a monthly payment that people are buying and also when prices are high, people don't put their homes up for sale so you will see prices not increasing at 4% and 5% a year which should never high pressure wi -- never happen with homes and prices will decrease in the future if interest rates go up so that is a mitigating factor for the mortgage business. >> diana pointed out that -- to us yesterday thanks so much it is good to have you on.
former ceo of wells fargo. >> thank you. and facebook getting ready ll report earnings after the be everything you need to know ahead of those important results, next. well jd power did just rank them highest in investor satisfaction with full service brokerage firms... again. and online equity trades are only $4.95... i mean you can't have low cost and be full service. it's impossible. it's like having your cake and eating it too. ask your broker if they offer award-winning full service and low costs. how am i going to explain this? if you don't like their answer, ask again at schwab. schwab, a modern approach to wealth management.
facebook up 44% over the last year. which brings us to today's earnings the company set to report earnings after the bell but the numbers may take a backseat to issues julia boorstin joins us with a look at that. >> facebook is expected to keep growing fast but investors are looking to understand the next leg of growth and the rising cost first they are watching how changes to facebook's new speed impact the bottom line mark zuckerberg warned the time spent on facebook will go down which would impact ad revenue. investors are looking to understand just how big that impact will be second, how are newer parts of the business, including
facebook's watch and video tap and instagram ads contributing to growth. and third, after last quarter, zuckerberg warned they are in vesting so much in security it will impact profitability will be listening for updates on the capital expenditure and facebook could give the first look at the impact of tax reform and any changes in the works back over to you. >> julia, thank you. while sticking with t technology with a scary story of your privacy a new study by princeton finds that 60% of website contain hidden trackers and they know more about you than your own brother. what you buy and where you live and the information you kmum -- consume on a daily basis and that is problematic according to our next guest creating flip board, the news aggregator of more than a hundred million yuz users and the nicest guy in all of silicon
valley mike mccune. and rated number one undeniable this big tech is fair to say is under attack and then you have the things that come out like i just gave that -- they know that google is tracking -- do you think google and maybe facebook need to be bro broken up. >> i don't think they need to be broken up. but i do think that what is important is that technology leaders, technologists and engineers need to get in touch with the soft side and understand the humanity and the intended and unintended consequences of technology that is a journey of discovery that the whole silicon valley is on right now >> what does that mean i finished a book a few months ago called everybody lies and every time we do a poll on nbc, i think about that book which says that everybody lies, even in anonymous polls but they are honest with google because they need to know -- i've got a chest pain and so they put that into their google
when they tell their family they feel fine. we know google spies on us, but do we know the extent to which they are doing it? >> well, you know, it is a -- i don't think anybody really knows the answer to that question. i think you should assume that everything you do is being tracked. i think that is just the reality of the situation and there are ways that you could opt out of that. i think that the -- that the big question here is how do companies like google and facebook think about applying the technology and the incredible power and the fact that technology is now justin ga -- justin grained responsibility and there is responsibility and these companies feed to figure out how to take that responsibility and take action for the benefit of people and core values and otherwise the governments around the world will regulate that. >> what do you track of your
users and how do you use it? and do your users know what you are doing with it? >> yes well flip board is very much about you tell flip board what you love topics that you want to follow and topics that you want to be smarter about. so you are telling flip board what you want and then you can control how the content comes to you. you could say, i like this and less like that and what we try to do is create an environment that is very sophisticated from a machine learning and algorithmic point of view but the engineers at flip board work closely with the journalists, the editors to really think through how do we apply journalistic principles and values to the technology algorithms and how the content is -- which content -- how true is it. how balanced is it how fair and accurate is it. those kind of journalistic principles are paired with what we do with technology. >> how do the user's tastes
changed in the last two years. >> well, you know, that is an interesting question obviously politics is a hot topic. we saw huge spike in traffic as the election approached. after that there was a -- a remarkable shift away from political news and political coverage people were just tired we're starting to see that pick back up again. we're also seeing people really focusing on things like parenting and mindfulness and really investing in themselves i think that -- the younger generation right now talk a lot about investing in themself. tuning out from all of the noise and instead -- extolling through other people's lives and that is something flip board is trying to be for them >> thank you mcmccue, the ceo of flip board. shares of drug stocks and biotech are moving lower after the president wants ato address the rising drug costs.
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price of prescription drugs. directed my administration to make fixing the injustice of high drug prices one of my top priorities for the year. prices will come down substantially. watch. >> that was president trump taking square aim at soaring drug prices during his state of the union address. his words resonating in the market today, as you see right there. the pharma and health care names taking big hits. health care sector down more than 1%. meg terrell is here with more. there was nothing new really in what he said he said similar things before, but the setting and the emphasis did feel different. >> certainly big emphasis last night. a lot of names are down significa significantly. you can see eli lilly getting hit hard there other names under pressure incollidii including gillead and amgen.
it's not the first time trump slammed the drug industry for prices from saying the industry is, quoting getting away with murder last january to attacking merck for pricing after ceo ken frazier stepped down from a presidential council over the summer in august many folks i have been talking with including last night during the speech thought trump's rhetoric started to lose effect since he's been calling wolf all year saying he'd bring down drug prices but not doing anything about it today warnings about complacency saying it ranks too high to be forgotten. we believe both dems and republicans will keep the issue alive in 2018. he expects another set of hearings on drug pricing to happen before the summer alex azar said he doesn't favor medicare, negotiating drug prices directly. of course he was just confirmed a couple of days ago now he's dealing with a scan dam of losing his cdc director after this tobacco stock issue.
>> apart from the fact it was a rare moment last night where both democrats and republicans applauded together, that's number one number two was the idea -- and it is a really resonant point that americans are angered that the same drug in france, spain or whatever costs a lot less. >> this is michelle's favorite issue. >> to that point last night he discusses that and pivots to trade. this is intimately related to trade. we should be using it to force these countries to pay so we are -- >> we are not subsidizing them we have to leave it there. thank you very much. appreciate it. >> higher interest rates are quickly becoming the money story of the year. coming up, what the fed has to say about them and whether or not they are going even higher janet yellen's final meeting as fed air mi uchcongp in six and a half minutes
we have bill gross and scott minor coming up in a few minutes to tell you if they are going to go higher and look at the u.s. dollar u.s. dollar, by the way, set for biggest monthly decline since march of 2016. tyler? >> we are moments away -- supposed to be specific about two moments away from the fed interest rate announcement let's get to scott minor and michael farr, cnbc contributor and danielle booth, president of money strong, a former dallas fed adviser. wonderful to have you all here none of you expect any interest rate hikes at this session three box nod? nobody expects -- okay let's forget about that. michael, what you seem worried about is a flattening yield curve. how worried are you? we know what it means, what it often presiges
>> it's been getting very flat when you look at the 10 to 30s it's 12 or 1, 14 basis points. >> talked about it yesterday. >> yeah. so this for an old or older hand who's been at this for more than a few decades, that's a warning signal we know what happened in the 30s, right the fed saw the market recover after the crash of '29 they got aggressive and put us into one of the worst recessions our country has endured. the fed has a delicate gain and i think jay powell may have one of the toughest jobs in washington starting now and going ahead. >> scott, quickly, you see four rate hikes in 2018 set aside what it might do to bonds. what will it do to stocks? >> i think as time goes on, tyler, the market is starting to acknowledge that the fed is actually going to deliver on three. in time i think they are going to start saying, wait a minute maybe the fed needs to do four because the economy will be so
strong i think that will put further pressure on flattening the yield curve for the near term. not bad for stocks it shows the economy is doing well but ultimately going into 2019 it will probably become a problem. >> danielle, you've got a minute to fill here it's often not what the fed doesn't do it's what they say or don't say. >> exactly. >> what do you want to hear? >> we want to hear them say a lot of nothing they've got to pay attention to what happened in the bond market the past few days. it looks likely the ten-year will hit 3% before the 30-year does so they are cognizant of what's going on what we'd like to start hearing more about with fed speak is quantitative tightening and that balance sheet. it's going to start mattering more as we approach 3% in the 10-year and as the size of monthly reduction decreases. >> in theory that's the effect that eventually if they are not buying long into the curve the 30 year rates should rise. we don't have an inverted yoke
curve in theory. >> in practice the fed will feel ham strung. >> new fed coming up jay powell, a bunch of new people we don't know what they want >> if you look at the 2012 transcripts powell was way over making sure the exit happened. >> we are going now to steve liesman with the fed decision. >> no change in the fed fruunds rate it's 1.25 to 1.5%. unanimous decision by the nine current voting members of the federal market committee powell was unanimously elected as the chair of the federal market committee beginning on february 3 powell will be sworn in as chair of the board of governors or chairman of the board of governors on february 5. the federal reserve repeated that it expects the economy to evolve in a way that will warrant further raises in the federal funds rate or gradual rate hikes it upgraded the economy a bit. more confident in the inflation
outlook as well. it said gains in employment, household spending, and business investment have been solid that's an upgrade for two of those measures labor market continues to strengthen economic activity is rising at a solid rate unemployment stayed low. on the issue of inflation a little bit more confident in the outlook. saying that it expects inflation to evolve in a way that it begins to rise in the next 12 months expected to move up this year and stabilize around 2% over the medium term. risks are roughly balanced and the stance of monetary policy remains accommodative and the fed funds are likely to remain for some time below levels expected to prevail in the longer run so the economy continuing to maintain gradual rate hikes in the months ahead and putting the fed chairman jerome powell who will be sworn in february 5th to the board of governors.
>> you can't see it on the charts on the two, three, ten year the yields are falling but not a lot when you consider the spread but still -- >> as i have indicated before, there is a sense that the fed might do four this year. but there is no particular hurry to get there before four comes one, two, three. it's got to do the first rate hike then the second rate hike. then it's going to do the third and maybe it will do a fourth. there is no indication of any particular hurry in here >> okay. >> it's a little bit more confident on the inflation outlook, i will say. >> let's get the panel in here, steve. danielle, more hawkish, more do dovish or right? >> they saw the consumption picked up, capital investment picked up and the only thing to drag the number down was inventories. it's feasible that the atlanta fed 4%, 4.2% figure in q-1
gets -- comes to pass. you've got this massive inventory rebuild going on in q-1 and the fed knows well that's going to generate -- look, you had $306 billion in insurance losses tied to all the natural disasters. that's $306 billion that was not planned to pump right back into the economy. >> scott, i was going to refer to the bond vigilantes and i remembered you are one you're part of the group moving the market the fed statement pretty much the same here's a weird question on fed day. do we care that much about the fed? i only say it because it appears the bond market -- you and your ilk -- are doing the job of the fed. >> well, brian, it's nice to have full-time employment. but i think the point that danielle made and i'm going to officially coin it as q.t., quantitative tightening, is going to continue to put a lot of pressure on the front end of the yield curve. just as we have to digest all
this paper that's coming out as the fed is not rolling over its balance sheet, just as we were going to have to now finance the trump tax cuts, the supply is, think, going to overwhelm the front end of the curve and it's going to continue to push two-year rates, five-year, ten-year rates toward the 3% zone which is kind of where i have always thought the cycle will end i think danielle's observation is correct i don't see a lot of upward pressure on the long bond. >> on that note and as you say, the drop in yields lasted all of a nanosecond most have bounced back michael farr, did you hear a more hawkish tone, dovish or goldilocks, just right. >> clearly it's slightly more hawkish. modestly, but it's exactly the right tone it is what they needed to say which they basically made enough room to go ahead and continue raising rates. look, they are at a very
precario precarious, fragile point with markets and monetary policy. we have seen a stock market that's thrived on low rates and cheap money for a long time. they have to late rates go higher and see if we can continue the bull market and economic growth as they tighten rates. this is a very difficult balance. if you looked at steve liesman's review of janet yellen's tenure, the only thing she failed on was inflation, right 1.3, 1.4% over her tenure. i don't find a big problem with that but, you know, that lack of inflation being driven by demand meaning we haven't had higher wages. we haven't had the consumer with much more money to go out and spend. think they could stall this growth they know it they could put us back in recession. it was the right tone, but we are still at a very delicate point in markets and in the economy. >> it's interesting. i hope jay powell pays attention to it. he understands the markets
he really understands the automobile industry. he was the founder of the industrial group when he was at carlisle i hope he has seen that the automobile sector looks like it's going to fall the automobile sector was in a year over year recession in september before harvey made landfall it looks like it's going back there. fresh data from j.d. power shows the 33rd consecutive month of increasing incentives. the consumer is running out of steam. the fed has to look through whether or not this is a temporary spurt in the first half of the year or whether it's sustainable that they can go for the four rate hikes. >> steve, tie it all together for us >> a little hard when i don't understand what danielle is talking about when it comes to the consumer consumer spending has been doing pretty good. people about to get raises. >> talking about car sales. >> steve, a lot of it's debt -- >> car sales have been solid at $17.3 million. it's down a little bit from 17.5. >> they have been disappointing as the year has gotten under
way. >> it's a solid clip at 17.5 million. i don't know how many cars you want to sell everything from salary levels and compensation levels have been decent. if there is an issue when it comes to the economy i'm not looking at the consumer here we are in a good spot here i think we are trying to find issues that maybe relate to the fed. i think powell's got issues to deal with if inflation remains low and the trajectory of rates ought to be higher i don't see those hit him in the face. >> michael farr is shaking his head, steve. what are you shaking your head at >> well, steve shakes his head at me most of the time, too. this is familiar territory >> my head's bigger. in a lot of ways. >> i'm with danielle the consumer spending was fuelled by credit card bills and debt i think we have yet to see the real wage gains develop. i'm hoping we do think we should. it's critical, i think, for gdp growth to continue and for us to
see wage gains i'm praying for wage gains. >> scott, final word. >> don't you see wages growing at 4% by the end of the year given the effect of the tax cuts and minimum wage increases and everything else -- bonuses it seems to me steve is on the right path. >> i see the potential -- >> really strong consumption. >> and a tax cut about to hit with $150 billion of stimulus about to hit the economy i might be worried about a recession but maybe when the sugar high of the tax cuts run out in 2019 i'll think about that i'm not thinking of it now. >> hopefully the tax cuts won't be eaten by higher rates on credit cards and variable rate loans. >> we want an update on the markets. >> it looks good on paper. >> hold on, michael. >> all right we have a lot of people talking. >> stay with us. let's get reaction on the equity and bond markets bob pisani at the new york stock
exchange, rick santelli. one at a time. bob, you're first. >> the important thing is about what we were expecting down here they only cared about one sentence -- that was inflation. market-based measures of inflation compensation have increased in recent months but remain low they added the phrase "have increased in recent" but kept in "but remain low. there doesn't seem to be a hurry to get to four rate hikes a year as opposed to three. s&p up 8 points going into the meeting. we are up 6.5. that's not a significant move. look at interest rate sensitive sectors. utilities are up fractionally as rates went down a little bit bank stocks, the kbe is essentially unchanged now. you look at other measures essentially unchanged. reits are unchanged. look at the volatility index, 13.68. bottom line, unchanged the president claimed credit for a lot of the rally
how about janet yellen she's been there four years and we are up 58% on the s&p 500 58% on bank stocks since then. a little bit of a round of applause for her maybe back to you. >> maybe she'll get one soon, bob. rick, you're actually in the place where bonds are traded how is it reacting >> you know, not a lot of reaction usually i start out with the dollar index the dollar index was down six. it's now unchanged not a big move 215 is still 215 in twos the ten-year was 297ish -- i'm sorry. 296. still at 296 but what's fascinating and this goes to exactly the conversation you have been having the yield curve is flat. when you look at europe's yield curve, italy's yield curve, france's, they are all dramatically steeper than ours i think the fed is going to have a problem with four tightenings and not inverting the curve. i don't care what kind of
modeling they do it barely worked before the crisis throw in all the manipulation, there is no way that's going to take them to the promised land to that end, look at 30s minus 10s. this is what you have been talking about. it's trading at 22 basis points right now. the flattest since october of 2008 even though twos to tens flattened -- steepened five base points for 2018 so far it's 30s to 10s that will give you a more accurate picture of inflation and the fact the fed will have a hard time pushing the curve that hard from the front and not doing some damage. >> nothing going on in october of 2008 if you remember. it was a quiet time. scott, rick raises an interesting question are they going to raise interest rates to the point they invert the curve? >> i absolutely think they are going there. i think it is interesting what rick picked up on which is the shape of the curve at the long
end. this is something only bond geeks get. that is that at the end of the cycle the ten-year note always ends up yielding more than the 30-year bond it is an important part of the curve to keep your eye on. when you see tens get higher than 30s you are probably getting to the point you know you are starting to get close to the end of the tightening cycle. >> before we let you go, scott, totally unrelated. everybody is saying the fed didn't do anything you wrote something interesting from davos you said the moon was so good that has you worried, that you find davos to be a contraindicator. is everybody giddy lighting $100 cigars with $20s >> it's the place where billionaires go to tell millionaires everything is okay. you know, the euphoria was nothing like i had ever seen at davos. two years ago when i was there,
they were completely focused on the decline in oil prices, the decline in equities, widening in credit spreads and we were on the verge of recession we all know that was a great time to buy. now everybody's talking about economic optimism, how wonderful everything is and, you know, at the end of the day, every time people get to the point that they are on one side or the other i get nervous. interestingly enough isi just published their bullish/bearish sentiment number over the weekend. 100% of the participants surveyed were bullish. so, you know, i'm starting to get concerned here it makes me want to be even more conservative i think, you know, this is a good time to lighten up. if you want to keep playing the game with the ball so low on stocks it's a great time to buy options. >> okay. >> if we are going into a mania, which we might, you can still capture the upside. >> thank you so much good discussion today. scott, michael, danielle and
steve. >> thank you. here's what's coming up. more reaction to the fed's interest rate decision from bill gross of janus henderson and the president touts his tax plan in the state of the union we'll talk to the ceo of a company that was highlighted in the speech about how that tax plan has affected his business another analyst downgrading apple today slashing price targets. he'll tell us what's got him worried. that andore mon a very busy edition of "power lunch.
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now you can get it, too. welcome to the party. let's get reaction to the federal reserve and the bond market from bill gross, portfolio manager. bill, want to focus more on rates than the fed if we can you said a couple of weeks ago you thought the 30-year bull market and bonds was over. it appears that you were right at least the action the last couple of weeks would suggest that's the case. so i will ask you if we ended a generational bull market do you think we are entering a generational bear market in treasuries >> well, notto the same extent as we have seen a bull market. you know, the bull market for 30 years basically was one in which interest rates declined from 15%
to lower than 2. so to suggest that we are going back up there i certainly wouldn't do that i would say though that since the bull market is over and i would continue to maintain that, that perhaps a mild bear market is in place. to me that means in terms of the ten-year which is now around 2.7%, something around 3% over the next year. what will bond holders get if the ten-year goes to 3%? well, they'll get 2.7% in income and they'll lose about three points in terms of price so they'll get nothing to me, that's a mild bear market >> is it plausible that in the next business cycle, because nothing lasts forever, that we'll return to lows at least temporarily in yields? >> well, that's possible only if we get another lehman catastrophe or something
unexpected on a global basis, perhaps in china where credit is growing far too fast i don't see that i see central banks basically maintaining the easing posture and to think that we would go back to 1.6% on the ten-year, i think is a little unreasonable at this point. nominal gdp in the u.s. for the moment at least is growing close to 5%. since lehman and the great recession the ten-year has averaged about 150 basis points less than nominal gdp. to me, that means 3% on a 10-year at some point over the next 12 months, but very gradually, not significantly higher >> as we watch the charts of the yields we are seeing them -- spike is too strong a year when talking about a couple of basis points suddenly they are moving higher. is the yield curve going to invert and, if so, when?
>> i don't think so. i think that what we have seen in terms of inversion and scott just talked about the potential for the 10-year yielding more than the 30-year, i don't think that will be the case. what i see this time and over the next 12 months is a significant increase in treasury issuance, probably in the two to five-year area but also in the 10s and 30s. the treasury just announced that last night so the treasury will need to garner $500 billion more in terms of assets meaning they have to sell $500 billion more in terms of treasuries over the next 12 months relative to what they have been doing the fed is reducing the balance sheet by perhaps 200 billion the question becomes who is going to buy these -- >> that was my next question >> yes in the past central banks have bought them. they have bought them to the tune of a trillion to two trillion dollars a year. now the ecb is pulling back.
we know the fed is pulling back. the doj will buy their bonds forever, i suppose who will buy 500 billion or 700 billion more in terms of u.s. treasuries i think the public must be induced to buy them if interest rates go higher. that's why i'm mildly bearish on treasury rates. >> i want to do something risky and channel my inner president trump and say what about china would they be buyers or are these threats we have heard lately that they would stop buying if you believe them >> well, they are diversifying i think at some point china wants to halt the strength of its own currency and perhaps that leads to the purchase of treasuries but 700 billion is a lot of treasuries as we know they have flattened out their purchases. over the past 12 months they are diversifying their portfolio it becomes a question to my way of thinking of the private as
opposed to the public market in terms of buying u.s. treasuries. >> bill gross, always a pleasure to get your views. thank you very much. we'll see you soon take care. >> thanks you guys. >> president trump's first state of the union behind him. now he's going on an all out push to sell the new tax law what it means for manufacturers and small businesses. plus, bruised apple. one analyst is downgrading the stock and cutting the price target by nearly $30
fox sports has reached a deal with the nfl for thursday nights julia? >> fox and nfl striking a five-year rights agreement to broadcast 11 thursday night games each season starting this fall the deal is worth $ 3 billion. that's 30% more per game than nbc and cbs paid when they split the games last year. the games will be produced by fox and will air on fox, the nfl network and in spanish on fox deportes beginning this fall the deal gives fox sports and the nfl broader digital rights including giving fox subscribers access to the thursday and
sunday games on mobile devices peter rice, president of 21st century fox saying football continues to be the most valuable commodity for media ratings in the regular season declined for the second year, down about 10% but nfl games are still among the highest rated programming on tv now the nfl and fox are working together to name the digital partner for thursday night games. nfl commissioner roger goodell saying they have a, quote, tremendous amount of interest and are seeing unprecedented competition for the digital rights back to you. >> all right you know, it's funny this is a product, thursday night football, that often didn't have the prime games. i wonder if there is any part here where fox worked out something where they are going to get better products especially late in the year. >> well, no word on that, tyler. it's definitely a concern of many in the industry that maybe there is too much football out there. >> yeah. >> this is a question i have asked a range of ceos from les
moonves down to bob eiger. there is a question of with so much football out there is that a reason we are seeing ratings decline? everybody seems to be saying and this speaks to the fact that there is so much competition for our attention that something like football which people want to watch live has unusual value. >> thank you appreciate it. last night the president gave a shoutout to one mr. steven staub, owner of staub manufacturing solutions in ohio. straight up we'll ask him about manufacturing in america and what tax reform really means to him and his business
this year in west virginia government prosecutors deciding not to retry new jersey democratic senator bob me mnendz on corruption charges. in a statement menendez said he never wavered in his innocence trey gowdy says he will not run for e-election he's a former prosecutor and will be returning to the justice system he's the latest high profile republican to retire from congress. two prominent russian journalists got into a brawl during a live radio show it was a discussion on joseph stalin's role in russian history. the pro kremlin conservative called the other a demagogue there you see it the more liberal journalist called his opponent a jerk and basically just hit him in the face that's the news update this hour michelle, i'll send it back to you. >> we never act like that here. >> never >> thanks, sue let's get a check on the markets
after the fed leaves interest rates unchanged. the major index is off the highs. the s&p is higher by just nearly a point and the nasdaq higher by 11 the russell 2000 is now negative by five points let's look at treasury we did see yields move higher following the decision let's look at the 10-year. 2.74 now the yield on the 30 year 2.96. we see some selling -- i mean buying still within the curve. brian? >> markets set to close for the day. let's see how it will do that. jackie d >> good afternoon to you crude oil bounced around all over the place today looks like we have a settle of $64.73 that was higher on the session the eia inventory report sent prices down. another weekly rise in u.s. production now 9.9 million barrels a day. on a monthly basis they reported 10 million barrels
the figures can take time to come in line it tells you either way more u.s. oil is on line. exports are on the rise as well. at the same time a rebound in stocks today and a weaker dollar, those factors support crude. so is the concern about the situation deteriorating in venezuela. barclay's making the case for further production declines in that country competing factors, supportive ones won >> thank you so much a train carrying gop lawmakers to a retreat in west virginia collided with a garbage truck. elan has the latest on what happened >> reporter: one member of congress was taken to the hospital that was representative jason lewis of minnesota an aide tells me he was being treated for a concussion in a statement the congressman said he's fine compared to, tragically, the truck drivers. he's thankful for the prompt action of doctor and first responders his thoughts are with the family
of the driver who passed away. there was one fatality in the accident one other person in the truck that was struck by the train was also critically injured. house speaker paul ryan who was on the train but is okay called it a terrible tragedy over twitter. he also thanked first responders and said his prayers are with the victims. now lawmakers are boarding buses to finish their trip to come out to the mountains of west virginia they were supposed to hold their annual winter policy retreat they are going to be talking about tax reform, defense spending and ironically infrastructure that's still scheduled to happen vice president mike pence does plan to come to have dinner with lawmakers here in west virginia. president trump is scheduled to come tomorrow to address lawmakers over lunch there is one major change to the schedule that's a moment of prayer for the victims of those involved in the accident back to you. >> thank you very much ylan is in the green briar in
west virginia. in his first state of the union president trump touted the economy and tax reform highlighting our next guest's small manufacturing business in ohio steve staub is president and cofounder of staub manufacturing solutions. he's been able to expand and hand out raises after the best year in his company's 20-year history. steve, welcome and congratulations on a great year. what was it like last night? how excited were you to be part of mrs. trump's coterie at the state of the union >> it was exciting to be there representing the manufacturing industry and small businesses across america really honored it was an exciting time. >> you give a lot of credit for your business's success to president trump and his more business-friendly posture towards the economy. what else kicked in last year? >> the biggest thing is optimism many of our customers, many of
our suppliers are seeing it, too. we have customers launching new products because the tax reform was passed increasing business for us and their other suppliers. the optimism is at an all-time high there was a study by the national association of manufacturers that had 95% positive rating on the future, highest in the 20-some years of the survey we are seeing it everywhere. >> your company is basically metal fabricating and you have added people, 14 people. you have handed out raises and/or bonuses do you expect that you'll be doing the same in subsequent years in part because of the tax benefits that your business would get? in other words, were those raises and bonuses a one-off or do you expect, this is good, i can do this more >> we expect it to continue. we see -- we were able to increase the size of the business from 23 to 37 people.
like you said with the bonuses we have done raises and we continue to see that we don't expect it to change we just purchased the building next door three weeks ago because of the optimism we have for the future we are hearing it from customers. long-term projects will be around for two, three, four years from now we don't expect it to slow down any time soon. >> can you give us a specific example? you don't have to name the customer, but your long-time customer was going to do, expand, do what where? >> one customer in particular, they have a product they manufacture for the restaurant industry in conversations with them they have had a new product design and wanting to move forward with it they told us over the summer that if and when the tax reform passes they are going to launch the new product. that will, in turn, add business for us and many other suppliers like us that they use and all the subsequent downstream suppliers from us, materials
suppliers and things like that. >> apart from tax reform, sum up what donald trump has meant to you and your company >> i think what he's meant for us and really all small manufacturers and manufacturers in general around the country is optimism we are seeing a more business-friendly climate. that's what i heard last night the president has worked hard on cutting regulations on working on the tax reform and really saying i'm a friend of business. when president trump, then candidate trump was at our facility visited during the campaign in september of '16 he came out and asked me, what do you need to have your industry be successful? i told him we need regulatory reform, tax reform, health care reform once you get that, workforce development. >> have there been specific regulations rolled back or taken off the books that helped you? can you name a couple? >> i can't name a couple specific ones. what i'm seeing in the regulatory side is we have one
customer we make components for. they put those components together and they send them to mexico to have other processes done to them the cost of having those processes done in the u.s. was inhibited because of the regulatory -- >> regime? >> yeah. the regulations that were here at the time. so the process is done in mexico then the parts come back here, put together and they go to a major heavy truck manufacturer in the end >> are you saying now that regulation has been rolled back so they are not sending that product to mexico? >> at this time they still are that regulation is still in place and they are sending the parts down there. >> steve, it's interesting i was in dayton before the election i turned to my producer and i said, you know, donald trump will be the next president of the united states. you saw the attitude in dayton it's kind of funny have you noticed any change in sentiment from any pro trump people you hear this theme that pro trumpers are becoming less pro
trump, getting frustrated with the president. have you noticed any drop-off anecdotally in the president's popularity in dayton >> i have not. i hear from a lot of people -- >> i haven't either. >> -- because they know the trump -- president trump visited our facility and i have been here now and i hear from people saying i'm a supporter sure, there are things everybody disagrees with no matter who is in office. overall they are happy all i can speak to is the business end of it they are happy with what they are seeing on a pro business policy. >> steve staub, have you ever had the killer brownies at dorothy lane on markets? >> i have. those are fantastic. >> are they the best they are the best foods in america. >> they go great with a cup of hot chocolate. >> you may not know this, but michelle was born in dayton. >> really? >> my wife is a graduate of oakwood high school. homecoming queen 1990. >> i didn't know that. >> it's an ohio lovefest.
>> kourtney reagan is from dayton, too. >> continued luck to you. >> thank you very much i sure appreciate your time. >> you bet >> not so long ago an apple bear, the rarest animal on wall street we have a few sightings over the past week. we'll speak with one of the latest next. check out this market. we are now near session lows s&p has turned negative. the dow was up 261 points at the high of the day. now up only 60 f e move could be a result o yields moving higher now obvious. sometimes, they just drop in. cme group can help you navigate risks and capture opportunities.
finding an apple bear used to be tough. over the past few weeks however the stock has taken some hits. now apple getting hit with another downgrade. this time from dmo from going to market perform from outperform and slashing the price target to $162 from $199 joining us now is tim long, the senior analyst at bmo capital markets. tim, in every analyst report you can go towards the back page and
see how long you have rated the stock whatever you rated it. there is a history there i can't tell when is the last time you haven't rated apple an outperform this downgrade is years -- it's been years since it's been this way, right >> yeah. thank you for having me. we had turnover on the coverage of apple side. personally covered it for a little over two years. i have had an outperform rating on it until last night so, yeah, for me it's been a little while we see things changing in the business here. >> like what >> well, of course you have seen a lot of focus many the press in the near term about production cuts and lack of traction for the iphone x which is, of course, disappointing and leading to some of the lower numbers that we put in our model and others are putting in theirs and will likely see from guidance tomorrow night. more importantly we are looking at the secular change here
the iphone x was another attempt by apple to continue to push higher price products into the market and the initial reaction seems positive but ultimately it seems to be stalling somewhat. we think we are hitting that point where the prices for iphones are starting to plateau like it's done with other even tors which makes it more difficult for the revenue and profit outlook >> one of the things we have heard in the last couple of days is okay, the x isn't selling as well as hoped. however the price is so high the svrj selling price will be good and the margins are going to be good is that not good enough? >> i think in the december quarter and probably into the march quarter that will ring true you know, going forward, i think the expectation was that those prices would continue to rise
and, you know, more likely it's going to flatline from these levels on top of that the phone was supposed to be a new age and usher in a new -- you know, new design set if that really isn't working we are more concerned what investors will think about what is the next cycle going to look like what features will be in the phones come the september launches that will get people excited about upgrading their devices? >> so in terms of short-term trading the stock has been falling into the earnings report is it possible that everything you said and other recent critics of apple that it's all priced in or could we see the stock react more poorly depending on what they say tomorrow >> yeah. deciding or figuring out what's in the stock is difficult. we do think the numbers will come down meaningfully people expect that there will be offsets obviously with the tax reform. we could see a lower tax rate.
they reappreciate ra appreciatpa we could see a capital return. it could go either way on the reaction to the numbers. what we looked at was when we are between cycles and it is not too much to get excited about you are more likely to see, you know, a 6 or 12-month period where the stock trades sideways. that's what we are a little bit more concerned about with the stock here >> got it, tim thank you very much. tim long, just downgraded apple. >> thank you. speaking of apple, the countdown is on. on monday we'll crown the winner of the "power lunch" 2017-18 stock draft. all the way back to april. two stocks to hold to the friday before the super bowl. no trading, swapping and, by the way, dividends didn't count. i'm sorry, kevin o'leary the aforementioned mr. wonderful is at the number one spot. his only holdings, apple and boeing on his heels, todd gordon, the
beardstown ladies with facebook and amazon what about tim seymour he made a valiant effort but no playing around. mattel has been treating him like a little baby treats a diaper that's dirty did you make a poopy, tim? the next hours are crucial earnings from facebook, apple and amazon who will walk away the champion? we'll move from diapers to pull-ups find out on monday i have a 3-year-old. i know from which i speak. >> oh, boy. >> it's been a hot january in the stock market but not for general electric straight ahead, we speak to an analyst who thinks ge may not be on the dow much longer speaking of the dow look at the markets. s&p, nasdaq, negative.
dow over the past year down 46% in 12 months, and now our analyst, could ge be kicked out of dow jones industrial average? he joins us now. we have todd gordon too with something in his eye we'll get to them in a second. i understand ge's pain but it's bigger than seven companies in the dow, a market cap three times more than the smallest company in the dow, which is travelers, how much a real chance do you think ge has of getting booted >> i think it's almost a fore gone conclusion. the fact is the dow, perhaps surprising to many, is not managed on a market cap basis. it's on a share price basis, and the way the dow's committee works is they really don't want ge, which is a $16 below price component of the dow to be more than ten times smaller than the largest pricing component, which is boeing, and after boeing's
numbers today they are in excess 20 times it's a a fore gone conclusion. the stock withered for a long time it's a matter of when. >> how much of an outlier is ge? >> what do you mean? >> outliers in terms of performance because you talked about that, you talked about stock price, you talked about performance. we know ge the stats down 46% in 12 months, and boeing did well, but compared to the others, there's not a lot of analysis. i'm sure you have. so ge has not been a great stoc since 2001 it used to be 4% of the s&p 500. today, it has a smaller market cap than boeing, a smaller market cap than 3m, and the company had a couple decent years, but its challenges are several fold, and it had a bad year last year, and, you know, it could continue to, i think, wither on the vine
there's a lot of pressure. the company's earnings and cash flows have been cut in half, dividends cut in half. probably, we think, faces another dividend cut in the future, and it's trying to shrink to stabilize. that's not a quick fix >> a $60 stock in october of year 2000, and now a $16 stock thank you. todd gordon, anything in the charts to indicate hope ahead for the stock? if it keeps going down, there's a point. >> that's right. he does. it's been a massic under chronic performance since 2000 when the down trend began in november 2013 before the last winter olympics, we got to attempt at a breakthrough this down trend resistance. that downturn resistance slipped, now serving as a support, a 90 meter jump the support level is $15, the backside is the support, plus a pair of lows from '11 and' 12,
so that area, 14-15 is the do or die level for goring, the gateway, i think, to be a single digit stock again. you will see momentum stock loss going. >> by far, the oldest company in the dow too. that would be a giant move and story. a sell rating on ge. thank you. for more "trading nation" go to tradin tradingnation.cnbc.com the dow about turned negative. it's lost a lot in the last hour we were strong, but reversal of that kind could portend interesting things for the market more about that. stick around and now the latest from tradingnation.cnbc.com when markets are volatile, resist the urge to use too much leverage leverage is a double-edged sword, and when markets are calm, it's easy to forget the
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mvo: we had support from the synagogue, the churches. ♪ when disaster strikes to one, we all get together and support each other. that's the nature of humanity. ♪ i'll stand by you. ♪ i'll stand by you. ♪ and i'll never desert you. ♪ i'll stand by you. the market has fallen since release of the fed's statement earlier, the dow industrial average went negative after rallying in the open why? here's a look at why one possibility. in the statement, fed says that some measures of inflation compensation have increased. that could suggest that maybe the fed's going to be more
hawkish than people had thought. maybe that's why we are seeing the tenure yield at the highs of the session. >> i think it is the market story so far this year >> yes and the possibility of exceeding long rate, the curve, something we talked about in the 2:00 panel. very interesting >> thank you for watching "power lunch," everybody. >> "closing bell" starts right now. ♪ >> before we start here, can we take a minute to wish a very happy birthday to francis griffeth bill is there with his mom and family celebrating, i mean - >> i could not agree more. >> i wish we were there. >> huge congratulations. i wish i was there huge congratulations, i agree, 100. >> looks great >> bill needed the whole week off to celebrate >> absolutely right, too, what an absolute amazin