The Exchange : CNBC : August 19, 2024 1:00pm-2:00pm EDT : Free Borrow & Streaming : Internet Archive (2024)

points of upside. >> okay. thank you. kevin simpson? >> american express. 12 straight quarters of revenue growth. they cater to the high-end consumer and they posted a 56.9 record of 56.9 million, excuse me. >> i haven't spoken about this stock in over a year, eqt and no onon social media wants to buy it. >> okay. let us know. thank you. see you on the bell. ♪ ♪ all right. thanks very much, scott. welcome to "the exchange." i'm dominic chu in for kelly, vans. here's what's on the show. the fed goes out west and three central bankers speak out ahead of the federal reserve in jackson hole, wyoming and all seemingly open to a september rate cut and while san francisco's mary daly quelled recession concerns by calling to a prudent approach. our strategist still sees three cuts this year. he's going to make his case. the democratic national convention kicks off today with

just 77 days until the election. we'll go live to chicago for a what's at stake report and what a harris presidency might mean for your money. plus, this homebuilder reports tomorrow. those shares are down 8% so far in the month of august, but ubs is seeing 15% upside from here. what could things do to turn things around for housing and this stock, but we begin with today's market action. let's get out to bob pisani at the new york stock exchange with an update on these mark, bob? >> dom, good to see you. we are at the highs of the day. three to one advancing at the new york stock exchange, breadth has been stupendous and great since the august 5th bottom and let's take a look at the major indexes and s&p 500 up 227 points and health care like amgen and united health are strong, as well. the nasdaq, good, lagging a little bit here as tech is not necessarily the leader today. the s&p 500 up eight days in a row along with the nasdaq, as well. look at the sector leaders here.

energy, consumer discretionary, utilities, real estate and health care. these are generally with the exception of consumer discretionary and more defensive-type names and even cyclicals in the case of energy here and -- big-cap tech is on the mixed side today. semis were notably weak earlier and they recovered in the middle of the day and overall the tech rally appears to have stalled out with the biggest cap tech stocks that you have out there. a lot of consumer stocks that are leading the way. i mentioned mcdonald's earlier has had a great run recently and clorox, mohawk, for example, and homebuilders like lennar and outto utilities like edison as well as yield plays. i mentioned the s&p 500 up eight straight sessions and that's very unusual and this is the longest win streak we've had since november and the strongest eight-day win streak since the 12% rally in march of 2023. the s&p is up more than 7% in

the latest eight-day win streak and that's the best overall since march 2003 in terms of percentage gain. where are we with the s&p 500? folks, we're 1.5% from the old highs and that was july 16th and we closed at 5657. look where we are, dom, 83 points or so from the historic closing high, dom. >> not much in terms of ways to go in terms of the record highs again. thank you very much, bob. >> okay. fed speak over the weekend seeming to strengthen the case for a rate cut that's coming just in september. on cbs' "face the nation" chick's fed austin gools said everything is still on the table and there's a possibility of a recession. it's time to consider adjusting rates gradually and minneapolis fed president neel kashkari telling "the wall street

journal" he's open to lowering interest rates as the job market weakens. our next guest says that's key and it's time for the fed to move away from the narrative and he expects a quarter-point cut at the three remaining meetings for the balance of the year. joining me now is brian weinstein at morgan stanley investment management. there's been a lot of fed speak and the narrative has definitely shifted. it's gone from inflation to growth concerns, but how pervasive are the growth concerns versus the decades-high inflation that we saw over the past 18 months to two years? >> i think it's amazing to think where we came from. if we'd been on here two and a half weeks ago, intermeeting cuts and the market got ahead of itself and why. because we know the inflation story is old, right? the fed had inflation up at 8 or 9 and they were behind the curve and they got the story back. we don't want to wait for a full-blown recession to start to ease. all the fed needs to do is

remind people that they have have 4.75 and it's still high enough to be restrictive to fight inflation and give a nod that growth is also slowing. maybe at jackson hole, but at some time in the next few weeks. >> so the narrative is set right now because the market -- i shouldn't say that. the financial markets and traders who dabble in interest rate futures have set the narrative being that it's 100%+ and it's a certainty of a rate cut coming up next month and we could see a campaign rate cuts through the balance of next year. it's a trend, perhaps. that's what the market is pricing in. do you think the fed has to do anything different with its story at jackson hole to either change that or temper expectations? >> i get the feeling that they like to temper expectation because what the market is saying is this is the beginning of a year-long easing cycle. i'm not sure that's right and this is a calibration and the bond market has a different

message, and the bond markets are says no and it's higher than the ten-year note at 385 and i wouldn't get it, and i wouldn't buy it there, so the fed will continue to push back because every time the door opens for easing the market takes it too far. >> okay. so the bond market and the stock market are differing in terms of the way they're interpreting the overall macro narrative. somebody's got it right and someone doesn't have as much right and on the equity side, we talk about the bonds on the equity side and what does it look like and what does it bode well for? are we all going into the mega-cap? >> the resiliency is amazing and i wouldn't have predicted us being so close to the highs again, but you're seeing different leadership and not everywhere, but there's no doubt there's weakness in the low-end consumer and you're seeing in the prices and you're seeing energy and some commodity markets move and we've seen the move in utilities and banks have done well and it's harder and harder to find cheap things and

it's not just the mag 7. resilliency and leadership shifting around is a good sign for the fed calibrating and the economy actually doing better as opposed to a full-blown recession. >> since the market lows that we saw during the washout a couple weeks ago plus now on that monday, it has been an interesting leadership role that certain parts of the market have played. utilities one of them. i don't know if many traders view that as a positive thing and when people flock, the utilities as leadership it doesn't necessarily scream hey, it's a bull market. >> no. we saw it months ago and everyone thought it was the sign of the top and we continue to do well. again, the markets are changing and they're adjusting and they like yield. they like stability and you have to find somewhere to go that the index is being driven by only a few stocks. another reason i like commodities is because they're

such a small part of the indices. so investors don't own them and if you're going to do growth, yes, i think utilities would fall in the group and it would be a prediction and they've done well and oil specifically and it's not reacting the way we thought it would given the geo, and is energy a value trade that is attractive given the underperformance that we've seen with the stocks. >> i think if the fed does its thing that this is a mid-cycle slowdown, do we think inflation is going from a 1% to 2% range? i certainly don't. i think there's plenty of global growth to go around and that bodes well for energy stocks as time goes on, so i do continue to like the energy play.

>> from a base case scenario you can't construct a one size fits all portfolio especially not at morgan stanley, but if you had a base case scenario how exactly does the allocation look? >> i think you have to have a significant allocation to equity and if you'll own the indices and you have growth in there naturally, you have to think about international and emerging market equity with years and dec decades of struggle and will you get a little bit of love there and then the bond market, i think what you want is you want to own shorter duration things that carry. how recently has credit been? i think the credit story is amazing and it might be boring because we're tired of it and i will continue to own credit over government bonds and i will continue to fade from duration and i would get my duration from the equity market and i will cash those from the bond market. i think that's how you're allocated and if the fed does the right thing they'll push back on it, still, but they'll ease three times is my call and

the market, i think, will react positively to it for a little while longer. >> all right. brian weinstein, thank you very much. great conversation. don't forget, cnbc will be live from the fed summit in jackson hole this week. our coverage kicks off on thursday ahead of chair jay powell speaking on friday morning. an interview that you won't want to miss for sure. meantime, the democratic national convention is kicking off in chicago later today and eamon javers is there with a look at what to expect and the emergence of economic populism in this year's election. eamon, please take us through what economic populism is through the lens of both the democr democrats and the republicans. >> it's something we're seeing on both sides. speaking of which, take a live look at our camera in philadelphia where senator j.d. vance, the republican vice presidential nominee is talking to an audience there trying to rally support in the crucial state of pennsylvania.

we've seen economic populist proposals from both sides during the course of this campaign, particularly from j.d. vance who himself has embraced a right-wing populism on the economic side that we haven't seen before in the republican party. we've also seen it here at the democratic party, as well. kamala harris basically co*kopyi cop copying a no-trump plan. that's the big similarity we're seeing is that both parties converge on the populism economically. the big difference, though, dom, between the two parties. take a look here at the list of the prominent democrats that will be speaking at this convention this week. this is a party with a new face with kamala harris at the top of the ticket, hillary clinton, barack obama, bill clinton, all of these establishment figures from the democratic party are here and are given prominent speaking roles and this is a

party with the democrats in chicago with a new face at the top of the ticket, but a very establishment core. really, there's a lot of continuity with the platform that biden had and the platform that harris is going to have, as well and that's standing in complete contrast with what we saw in milwaukee with the republicans where you did not see any of the former presidents and the former vice president and the former nominees of the party speaking at that convention for the republicans. all of those people urteither a uninvited and you have a convention with a familiar face at the top with donald trump and an effort to reinvent the republican party. there is no effort here to reinvent the democratic party. we're seeing established democrats taking the staple and we'll see joe biden tonight, and that will be the moment of drama that everyone is watching this evening. the awkwardness of joe biden handing off, really, the torch of the presidential nomination to kamala harris.

that's something as we all know he did not want to do and was forced to do by hisparty and we'll see how he handles that tonight. >> eamon, let's talk about another important establishment in the outcome of this coming election and that is the establishment of labor and unions in this particular moment. w what, exactly, is the role of the union in america going to be in this election cycle? >> well, we're going to see the uaw president sean fein speaking to the democrats tonight here in chicago. we saw the head of the teamsters speaking at the republican national convention in milwaukee that highlights the fact that both these parties are reaching out to union voters and both want the support of rank and file supporters. both have done well with union leadership and maybe not as well with rank and file, and they'll double down on the populism we've been talking about to reach that audience in this convention through the course of

this week, john. >> eamon javers, thank you very much. with president biden passing the torch to kamala harris, our next guest expects her to move away from the very aggressive economic platform she ran on 2020. joining me now is libby cantrell over at pimco. this is an interesting development with regard to the last few months and kamala harris' rise to the top of the ticket. can you take us through how the election dynamic has changed in your mind given this particular development and how it plans to play out over the next two months? >> dom, nice to be with you. we've been talking a lot with our clients understandably about the last five weeks which have been incredibly dramatic. however, sort of the irony is is that despite all of the events, basically the race is where the race was this spring when biden was still at the top of the tick

meaning it's gone back to being a coin toss and the polling for harris has improved over the last few weeks and again, going back to where it was in the spring is sort of a toss-up. what we were trying to focus our clients on, dom is because of the relevance to fiscal policy, both spending and taxes is the composition of congress and that has changed even more significantly over the last few weeks. >> five weeks ago we were looking at what looked like a likely trump precedesidency wite republicans taking over the house and you were actually looking at probably a higher chance of divided government on the senate, maybe flipping from democrat-control to republican control and the house is having a good chance of also flipping. all of this matters because when

you're hearing kamala harris over the next few months talking about her economic policy, when you're hearing donald trump or j.d. vance talking about what their economic priorities are going to be, that is all going to be beholden to a cooperative congress. so they don't actually have again a united control that a lot of these things are really going to just stay in the rhetorical area, not actually, you know, be with the real policy. >> that seeps, libby, to be the conversation being had in many asset management circles with regard to projecting the outcomes. let's also bring in cnbc.com political finance reporter brian schwartz who is also out at the democratic national convention in chicago. we just spoke about the rise of economic populism. this idea that we may see divided government is also one that's becoming almost consensus now with regard to a certain

part of wall street. ? hugh how the economic agenda will look for democrats in particular. >> that's being discussed in chicago reit now, delegates, donors, thou how do they expect -- how is it going to be paid for? there isn't a clear answer given me and there are conversations about raising the corporate tax rate and that will need congressional approval, as well. there is talk about raising taxes on wealthier people and cutting the tax loopholes. some of these things will need clear, congressional approval and in a divided congress in the next term, i don't know how exactly they're going to go about paying for some of these harris-based plans. >> libby, what exactly is the

best-case scenario. when you talk to your clients what is the projection you guys have and then is divided government the best course of action for the economy to continue growing or do we need to see movement on things like an inflation reduction act or a c.h.i.p.s act or other fiscal stimulus to get things moving in the right direction? >> dom, so what we're telling our clients is it's still early even though it's the longest general election cycle in all of our lifetimes and we still are more than two months out. as you know, a lot can change and you'll focus on the key swing states. pennsylvania in particular probably the most important state and georgia also very important both for trump and for harris and of course, with wisconsin, michigan, nevada and arizona, but really, pennsylvania is in many ways the keystone state, pardon the pun here. in term of the outlook, though, for policy and divided government, what we are telling our clients is that the biggest

loser here regardless of who wins in november is truly the u.s. deficit and that is because in all of this economic discussion on both the left and the right no one's really talking about deficits to what brian was just saying. no one's talking really substantively about pay fors and no one seems to be concerned about the fact that we are past the debt to gdp level and it may take over the pentagon spending so we really do think that would be the biggest loser and to your point, divided government probably means more gridlock and less deficit spending, so the market actually likes that more. they also like more certainty, if you've looked at the s&p performance back to 1933. the market usually performs better when there is divided government and it sort of corroborates that. >> brian, we'll give the last word to you. the stimulus side of things since the pandemic maybe just put a lot of americans in the mode for just expecting what

they expect regardless of what deficit pictures look like. we just don't even talk about them as much or understand them anymore even if you wanted to focus on deficits as republicans or democrats, how much does that resonate with the american public? it doesn't seem to have since the great financial crisis. >> i think that's a great question, and i think you're spot on. i'm not entirely sure that deficit and economic-type discussions. >> i want to make something clear, when they're raising it 28% to 21%. again, i have asked that point-blank to lawmakers here in chicago if they are, fortable with that. not everyone is saying yes. that's -- i don't think every democrat particularly in the senate, and clearly, it may be some people, but it won't be

everybody. it's something to keep an eye on on how exactly democrats hope to pay for these programs that they're proposing. >> all right. thank you both. libby cantrill, thank you both, we'll see you soon. by the way, for the latest reporting on the dnc, head over to cnbc.com and the reporting is up online for us there. coming up on the show today mark the 20th anniversary believe it or not of google's public debut. after the break we'll look at what the next 20 years could look like as it faces off against federal regulators as alphabet. amd is building on last week's 10% gain announcing a $5 billion deal to build and buy a server. we'll look at how that fits into amd's portfolio and what it means for the bottom line and the industry. "the exchange" is back after this. this is "the exchange" on bc. !

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welcome back to "the exchange." today marks the 20th anniversary google's ipo and what started out as a search engine product has become, as you know, much, much more at this point. deidre bosa is here on today's tech check on the big 20th anniversary. >> dom, much, much more of of that is certainly an understatement. what went public as a $23

billion company is now worth over $2 trillion in the public markets. its universe has greatly expanded and work space, maps, android, chrome, gemini and that is just what has built orego organically. double click which expaended google's reach into digital advertising and there was motorola which was sold at a loss and helped google's hardware ambitions and perhaps its most important deal for the modern era and will help determine the next 20 years will be 2014 that helped solidify google's position as a leader in generative ai. dom, the biggest question going forward is if and how google can maintain that lead, its dominance in the face of increasing regulatory scrutiny. as we know, it lost that lawsuit to the department of justice, and we are waiting on a remedy

that could even be a breakout. whether that's even possible and whether that happens and also what happens with its second lawsuit with the doj that's going to be kicking off within the next month. that is all going to be important to google's future. >> deirdre, i might suspect that there are investors out there that are looking at this current state with regard to the ftc and doj against alphabet much like what is happening with those same entities and microsoft back in the day and look at where microsoft is now, right, compared to what it was like during those years of antitrust scrutiny. what is then the future if that is the template, if you will? >> right. microsoft is doing great now, but the late '90s and the early 2000s when it was under the antitrust scrutiny that didn't break up the company and essentially amounted to a distraction and that's known as the lost decade where the stock went nowhere. that is possible that it could happen with google in the ten years with all of the scrutiny

and a lot of folks think that's unlikely and if you look at the mega-caps from a valuation perspective on a p-e basis. alphabet is the cheapest. so that is presenting a bit of an overhang. everything is on the table, though, dom especially in the age of generative ai so far and google has been able to meet that challenge and be first in a lot of ways and that it will be tough for us as the industry develops. >> it's one of the most stored success profiles of any entity in human history at this point and we'll see what happens in the next 20 years. thank you very much. we'll see you later on. coming up on the show, the world health organization is declaring m mpox, a global health amics d 'lloerananwel ok at the latest vaccine efforts. "the exchange" is back after this.

♪ ♪ welcome back to "the exchange." i'm pippa stevens with your cnbc news update. manhattan prosecutors say they won't take a position on former president trump's bid to delay his hush money trial sentencing until after the november

election. district attorney alvin bragg's prosecutors said they would defer to trial judge juan merchan who is weighing in on presidential immunity. trejan white is arrested for bribery charges. he agreed to accept $156,000 in cash payments in exchange for using his position to pressure government employees to extend contracts in the district. he has yet to enter a plea. and waymo revealing details about the newest generation of robotaxis. it is developing a roomier robo taxi that will handle a wider array of weather conditions without needing as many costly cameras and sensors onboard. it comes as waymo works to scale up in the u.s. with a $5 billion investment from alphabet. dom, back to you. thank you very much, pippa stevens with the news update. now the philippines just

reported its first case of mpox since december. this is all after the world health organization declared mpox a global public health emergency, the highest form of alert. angelica peoples is here with a particular move in world health. this is nowhere near what the response was like during the covid, early days of covid, but it is still very important. what is the context with this particular move by the w.h.o.? >> right nawaow africa remains epicenter. more than 14,000 cases and mainly in the democratic republic of the congo. think of it as as variant is driving the surge and a lot of cases are in children which suggests it is spreading more easily through casual contact. >> this strain potentially is more contagious through casual contact. it's not airborne.

it's spreading through contact, but the question is it spreading more easily through contact? a lot of the cases are probable we children in the drc are household contact spread in institutions and hospitals and health institutions that are overcrowded and you worry if it got into an institutional setting, would it spread more easily? >> the good news is we have vaccines and getting where they need to go. >> it can make 2 million by the end of this year and 10 million by the end of 2025. they're looking to increase the capacity even more. >> now this is one of those situations where capacity is always going to be an issue. is there a projection that this rises to the point where you would need to see a massive ramp up in production, the likes of which we saw in the efforts to produce, mass produce the covid vaccine? >> at this point it doesn't seem like that's going to be the

case, so far, again, everything we're seeing is concentrated in africa, even these cases. there was one in sweden last week. that was someone who was in africa, and the case in the philippines that you mentioned at the top here that still hasn't actually been verified that it's part of this latest o outbreak. at this point it seems like it's a concentrated problem and we'll keep an eye on if it rises to the left of a mass production level. >> with the latest from mpox, thank you very much for that. coming up in the show, the a.r. arms race is announcing a $5 billion deal to beef up its data center business. it will be enough to de-throne nvidia? e aooathaafr tt te thbreak. ♪ ♪

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♪ ♪ welcome back to "the exchange." amd plans to buy server maker zt systems for nearly $5 billion and the combo of cash and stock to expand its artificial intelligence portfolio. amd shares are up 2% just so far today, but will it be enough to take a meaningful share from rival nvidia? joining us now to discuss this is chris rowland, senior

semiconductor analyst at susquehanna. this is a big deal. it's a $5 billion deal and nvidia has such a massive lead with regard to perception, sentiment? balance sheet versus amd. is a $5 billion deal going to be enough to put them in the same conversation? >> this is not going to be enough, but this is a step in the right direction and it's a recognition by amd that we're really moving from chips to systems and they're woefully behind nvidia systems development like dgx like we see there. this is a step in the right direction and a catch-up play from amd. >> is this going to be enough of a catch-up play where amd can get close to the same kinds of returns that we've seen medium to longer term than nvidia. i guess, in other words, i would just ask, could nvidia be the amd story or the amd and the

nvidia story of the next five to ten years? >> amd could be, but nvidia has such a lead here, particularly in the software and in kuda that it's unlikely, but amd can have a piece of the pie here overall. we think they could ultimately have ten or 15, perhaps even 20% of this market, but in order to do so they need a rack scale system design. really think about it this way. we're not talking about chips anymore. we're talking about mini super computers and in pack, even la large clusters of super computers in the future and that's what amd is doing here. it's basically buying designers, a thousand of them, in order to compete with the system design that you see out of nvidia. >> they're trying to hyperscale themselves to be able to meet demand for hyperscaler customers themselves. now the question becomes is this

the paradigm shift with regard to semiconductor and systems? are we going to see other manufacturers of server systems and computers become targets based upon what we've seen with ct? >> that is a good question. we think it is less about the system manufacturing and more about the designers. what amd really did here was buy this company for 1,000 designers of these systems and then they're going to jettison or sell the rest of the business where we think the real value in the company is. it shows how hard it is to acquire these designers and this expertise. so there may be a race here for the systems design, but there are not enough designers to go around. >> okay. so if that's the case, if you look at your coverage universe with regard to semiconductors

and circuit makers and everybody else. is nvidia still the top of the heap and does it maintain the best position in your mind or do we think as though there are nvidia-like returns elsewhere in semiconductors? >> i do believe they are the top dog, and they really threw down the gauntlet with their gb-2 hun offering and their racks of 72 and 36 gpus in a holistic system and now everyone is trying to catch them and that design, and i would expect this holistic system approach to only continue and/or accelerate in the future on nvidia's offerings. so they are the top dog and every that everyone is trying to catch. >> nvidia earnings are out next week and what can we expect from them? i would say the volatility that we've seen in the stock has been

reporting, not confirming, but reporting with regard to their next-generation chips. >> yeah. i think we've seen pretty much at this point a 1.5, 2 billion beaten rays every single quarter, and i think we should dial that in for this quarter. anything else would be a surprise. as we're looking forward, we really need to understand more about the complexities of these delays that we continue to hear about for gb-200, for these new systems overall and what's really going on with them and how quickly can they respin a chip and a system and the impact on revenue and how much of a push out and so that will probably be the number one topic in this upcoming earnings announcement. >> chris rowland at susquehanna, thank you very much. we'll see you again soon.

>> thanks, dom. >> by the way, don't miss an exclusive interview with amd chair and ceo lisa su talking about the $5 billion deal later today at closing bell overtime at 4:00 p.m. eastern time. coming up on this show estee lauder is shares on disappoint pointing guidance and its ceo will retire at the end of the year and the board is in the process of naming a successor. we'll get a check on the day's biggest movers coming up next. it's all the things that keep this world turning. it's the go-tos that keep us going. the places we cheer. trust. hang out. and check in. they all choose the advanced network solutions and round the clock partnership from comcast business. powering more businesses than anyone.

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17,748. the russell 2000 small cap index is advancing further up about.75 to almost a pull per sent and the ten-year yield at 3.8%. it's also the strongest eight-day rally for the s&p 500 going all of the way back to 2003. it was up 7% in that timeframe. you can kind of see the moves that we're talking about here in the nasdaq up nearly 10%. historically, the s&p 500 performs very well generally in years that see an eight-day winning streak. the analyst at oppenheimer crunched some sft numbers and here's how some of the last four years turn out when we saw that gain. in 2021, we saw a 27% gain. in 2019, a 29% gain. in 2017, a 19% gain, and a 30% gain in 2013. again, the last four times where we've seen an eight-day winning

streak in the s&p 500. now past performance no indicator of future performance, but a lot of traders are looking at whether or not there could be a rhyming aspect to what's happening this year. elsewhere, we're seeing a reversal in the restaurant side of things and piper sandler saying the risk reward for several names in the sectors are becoming more balanced at this stage. some of the best performing names are seeing weakness today including the likes of sweet green, domino's pizza, shake shack and cava and shake shack has been downgraded to a more neutral rating. on the flip side the worst performers of 2024 are in the green today. look at names like mcdonald's, brinker, darden, b.j.'s and cracker barrel and you can see some of those ones there up 1.5 to 3% overall and an interesting reversal in some of these names. for more on today's midday movers, just head over to cnbc.com where you'll see the full story on some of these big,

midday trades. coming up on the show, homebuilders have been able to shake off slowing sales and negative sentiment. ubs is writing back in mid-july that they expect demand to remain resilient. the etf is up 11% since that call and we'll dig into that trade next. by the way, an all-new cnbc original podcast series is out now. it's called the crimes of putin's trader. it's a real-life spy thriller hosted by our own eamon javers a young russian oligarch who is a part of this historic prisoner swap and scan the qr code on your screen to follow and listen onwhev you get your podcasts. "the exchange" is back after this.the la but the choice won't be easy with exceptional offers on the e-class sedan, c-class sedan,

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nate jones... lines things up...

checks his fidelity app... looks to outside analysts to get a second opinion. nate likes what he sees... and he places the trade... talk about easier investing. welcome back to the exchange. toll brothers is set to report results after the closing bell tomorrow. those shares are up more than 70% over the past year. our next guest sees 16% more upside ahead. and what he calls the foundations for a home builder rally. despite all the recent negative data on the economic front and elsewhere. joining me is yawn luvallo, this

is a scenario developing where we're going to get real world case study type material on how the real estate market and housing market and home builders respond to a possible lowering of interest rates even with valuations for homes really sky high from where they were pre-pandemic. what are the expectations for the people who actually build the homes versus the ones who are selling their existing ones? >> thanks for having me. i think it's a really interesting question, and equally as interesting time in the home building industry where the public builders continue to outperform the market. existing home sales have been slow. new home sales have been flattish, but the new home builders, the public builders continue to outper form significantly because of their efficiencies, their size and scale and ability to offer financing to buyers which helps with that affordability challenge. so if they can get rates into that 5 to 6% range, there's a

tremendous amount of demand out there. in fact, i would tell you our recent survey housing intention survey suggests that 33% of buyers or potential buyers are thinking of buying within the next 12 months. that's above the historical average of 30 back to 2014 and above the pre-covid average of 25%. there's a lot of demand out there. >> no question that there's demand out there. we know it. any survey you can find out there among potential home buyers shows there's latent demand out there. the issue becomes what unlocks that demand. you either have to put a lot of supply on market or put a situation out there where a lot of existing home buyers want to put their houses on the market. what dwo you think is going to happen if interest rates drop to that level you were talking about? >> what i would tell you is while rates have been high, it's sort of been goldilocks for the public builders because of their ability to buy down into the sweet spot where the existing

home market cannot do that, and the other private builders can't do it either. they don't have the balance sheets and the ability to do it. i think that where we are today is very good for the builders. now, i'll tell you that lower rates will take that all day long. i think that the more supply coming back to the market now and the existing home market is not a death mill. at the other end of an existing home sale there's usually a home purchase and in many times that's a new home purchase. i think that lower rates any die of the week are better for housing in general and that will begin the turnover cycle we need and will be very fruitful for builders. >> what exactly is toll doing right? what are they doing correctly to deserve a buy rating and a target price that implies 16% upside even after a great run it's already had? >> yeah, that's a great question. look, i would tell you the public builders in general, and toll specifically, have shown this very, very significant ability to adjust to a changing market.

what toll has done, they're the premier luxury build to order builder. they have shifted their portfolio a little more toward spec building, what you see with some of the lower first-time entry level builders where you're starting construction on a home before there's a buyer in place. that increases efficiencies. about 50% of their deliveries in the back half are on homes started on a spec basis. about 44% of their portfolio last quarter was to what they call affordable luxury. again, kind of targeting that first-time entry level buyer. when you think about it, 30% of their buyers are in that first-time category. what they have done is figured out a way to very profitably move downstream and address that part of the market. >> do you feel as though based upon your research and your channel checks that there is still appetite to want to own homes for those home buyers? there's been all of this talk about institutional buyers, people coming in to crowd out actual home buyers themselves,

individuals. is that dynamic going to change any time soon? >> you know, look, the institutional buyer is certainly becoming a bigger piece of the market, but still reasonably small. frankly, i think it's overwhelmed by, and this may sound corny, but by the american dream. people want to own homes. there was this concern that the millennial generation was going to turn out to be very different and want to rent and just use uber and not own cars or houses. that's proven to be incorrect. that american dream of home ownership is very much in place. >> john, thank you very much for the conversation on real estate. we'll see what happens with toll. >> thank you. that does it for power lunch or the exchange, rather. "power lunch" is coming up on the other side of the break. we'll talk a lot more about the markets and the nice rally we're 'lseyotorr. wel e u moow.

daughter: hey, dad. dad: hey, sweetheart. daughter: what are you doing? dad: i'm gonna clean the fence. daughter: it's a lot of fence. dad: you wanna help me? dad: aim at the wall, but get closer. daughter: (gasps) what the?!

daughter: alright. dad: side to side. when you work with someone who knows a lot and cares even more... you can do this. ...you're unstoppable. (♪♪) wow... are you kidding me? you can do this. at truist, we believe the same is true for banking. welcome to "power lunch." alongside seema modi, i'm jon fortt. stocks are starting higher across the board after the best week of the year. they're continuing the comeback from the big losses a couple weeks ago, and for the dow and s&p 500 both indices are a little more than 1% away from their record highs. >> incredible comeback, leading the dow right now at this hour is mcdonald's following a bullish note

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