10-Year Posts Highest Close in 15 Years, and Is the CVS Business Model Broken? 8/17/23

0:01Right now and fast, the climb. Treasury yields keep rising with the 10-year closing at levels not seen since the financial crisis. Stocks feeling the pain, too. The S &P now down for over 4.5 % this month. So where do we go from here? We'll debate that. Plus, prescription problems. Shares of CBS crushed as Blue Shield of California partners with Amazon and a venture by Mark Cuban to save on the cost of drugs. The ripple effects across the insurance landscape straight ahead. And later, Walmart's fade despite an earnings-beaten guidance boost. Wall Street's new interest in Pinterest and exploring ways to profit in the energy patch.

0:35I'm Melissa Lee. This is Fast Money. We're live at the Nasdaq MarketSite on the desk tonight. Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. We start off with the great rate rally. The yield on the 10-year Treasury is rising as high as 4.33 % during the session and posting its highest close since June of 2008. The move taking a toll on stocks, which saw another sell-off into the close. The Dow down 290 points, the latest index to finish below its 50-day moving average. It is the first time it's done that since June 1st. So is there any end in sight to this move higher in rates? and does that keep the pressure on the equity markets?

1:08I thought actually equity markets did okay, considering the huge climb. Ish. It's interesting. You know, I happen to know for a fact that Miley Cyrus is a huge Fast Money fan, and one of her hits is, in fact, The Climb, which is a beautiful song. But this is not a good climb. This is not what you want to see. Rates are not going higher for the right reasons, in my opinion. This is now a confluence of events going on globally. We're at levels we haven't seen in quite some time. I think, and I've looked at it, I think we're about to break through a 40-year downtrend in yields. And rates going higher in this environment, to me, is going to be very negative for equities.

1:45You're right. The stock market sort of hung in there, sold off late. We're at levels in the S &P that we topped out at in August of last year, the sort of 43-50 level there should be support. But if yields continue to move like they're moving, there's going to be some ramifications for global equity markets. I think they top out next week. I think we see into Jackson Hole. I think everyone's got on one side of this trade here, and everyone's convinced that we're going to break out of this range that we've been in now in the 10-year, you know, for the last, call it six months or so. I have to give Savita Sumer-Mani, and she was on the desk for the whole hour.

2:17Remember that in late June? And she just, you know, got up on my grill and said, no, no, rates are going higher. I think they were at like 375 or something like that in the 10-year, and that was a really good call. But going back to just kind of sentiment and the way everyone's positioned, It just seems like that this is a foregone conclusion. What do we know about markets and being on this desk and making these hot takes all the time? We know that when something seems like a foregone conclusion, it usually goes the other way. And so I don't know. I just kind of want to think about taking the other side of this.

2:46I did have a bullish position in the TLT. I started a few weeks ago. That did not go well. That was in my face here a little bit. But I think the timing was just a little bit early. So I think it could set up pretty decently right now. The last thing I'll just say about equities, because that's what you asked about it, I mean, I think it is having an effect on equities. And if you go back and you think about when the market really got their arms around what the Fed was going to do to battle inflation in late 2021, the highest valuation stuff started to sell off. That's kind of what's happening right now over the last few weeks with the S &P down 5 percent.

3:16So I think there's a chance that it could start to snowball a little bit. And this 5 percent downdraft in the S &P could easily turn into a 10 percent. I mean, it's definitely keeping the pressure on the big cap technology stocks, which already started the month under pressure themselves. I guess I was just surprised the S &P broadly closed with less than a percent decline. I would have thought this, you know, very important move higher would have had a little bit more of a toll on sort of the equal weight. I mean, there are some things that everything, well, everything I own pretty much was down except for anything that was a hedge position.

3:47But there's a few things going on. And I think one of them is as this idea of maybe no recession, right, soft landing or no recession at all sort of gets more traction. There's sort of the idea of, wow, that if if if bonds were down because of a looming recession and that's not the case anymore. So now we see bond rates rise. And then, you know, we always talk about what you know, it's just math. What's the discount rate when you have a much higher risk free rate? So and the higher your multiple is, the more pain to the multiple when it comes down. So there's some of that. I think that ever. I mean, today was just an awful day for me.

4:26But I think that some of the stuff that is a low P.E., I do feel comfortable with. Retail was a little better than I thought. So there are pockets where things are going well. I just think that that run up in the Nasdaq was unsustainable. Yeah. Yeah, these guys mentioned positioning, Tim, and obviously next week is a very big week for a couple of different reasons. Jerome Powell speaks in the 25th. That's going to be key, obviously. We've also got NVIDIA on the 23rd. So these are two sort of different events, and they're going to have a big impact on the markets individually. Well, let's reference the Miley Climb.

5:04And if you look at what semis were doing, and I would argue, you know, Apple's taken the Miley Climb, even though it's been steep. But it seems like it's kind of taken the elevator down. And we've seen that with a bunch of other stocks. And in terms of semiconductors, NVIDIA has actually outperformed the group on the way down, which are down over 10 percent now. And if you look at that NVIDIA gap up, it feels like the SMH wants to trade down to 135. In terms of where people are on yields, I think people were not necessarily positioning for higher yields. And that's where equities are now really starting to take a tumble.

5:39And if you look back, I know we just quoted we are at 15 year highs on the 10 year. And if you look back even just two years, we've moved up 300 basis points in terms of the 10 year. That's your discount rate. What equities, what are they worth with a discount rate that's 300 basis points higher than they were two years ago? By the way, when markets were at their at least the high multiple stocks were effectively at their all time highs and the market was close to make an all time high. So if you look at the market today, clearly interest rate sensitives are the ones getting whacked. Look at the homebuilders.

6:11Look at the XHB down 3.7 percent. That one is really turned and it's turned quickly, even though that we've had great earnings out of the homebuilders. We've heard about their ability to kind of fill the financing gap and where the multiples aren't stretched. Look at emerging markets, which look like they're about to break out and have now really been been pasted. And I would say the high multiple tech trade, everything that that, you know, could be ARK or some portfolio of companies that were trading in multiples that never made sense. They made a lot of sense for most of this year. And those things have turned quickly, too.

6:43So I still think that the paint trade is higher on rates. I don't know. I mean, Dan, you may be right on that in terms of positioning. Is everybody pushing for that now? I get the sense that most people were of the view that rates couldn't go higher. and some of these things that have hit the radar screen over the last few days, including China, Fitch, JGB's refunding schedule, these are things that really were not in the calculus. And you think about what Jerome Powell could want to message to the markets. He wants to put to bed this notion that there's going to be rate cuts just around the corner.

7:14He wants to probably put out the message that rates will, in fact, be higher for longer, and that's not just till February of next year when they start to cut, because that should be dispelled. So you have that potential message coming out of Jackson Hole. And then you also have NVIDIA. And what if they actually do beat the raised guidance that they have? Then all of a sudden you have this choice. Are things really that good because that's what NVIDIA is telling you? Or is the higher for longer narrative? Does that take over? Listen, NVIDIA is its own animal without question. There's a chance that they beat again in the stock.

7:47I mean, somebody put an$800 price target, I think, on NVIDIA today or yesterday. So So obviously, let's be clear, and I don't think you're saying this, NVIDIA is not the market. And one of the reasons yields are going higher is people say, you know what, you want us to buy your debt? That's fine. But we're no longer going to do it at stupid low interest rates. You've got to pay up. You're going to have to pay us to take that risk. And that's going on now globally. And listen, the Japanese, I believe, are still the largest owners of our debt. Guess what's happening there? They're sort of that bond market is sort of blowing up in slow motion right before our very eyes.

8:18And that has this sort of this loop effect where that continues to disintegrate and it follows into our market. So, yes, I think rates can go higher, but rates going higher does not suggest that things are better here in the United States. Yeah, I guess my question really was, you know, if there is what multiple are you so willing to pay for growth if rates go higher, even if a company delivers, you know, and then you really have a choice. Right. But if you look at the S &P 500, we've had lots of guests kind of talk about this over the last kind of six to nine months or so since the bottom of the S &P 500.

8:48I mean, parts of the market, large parts of the market, cyclicals and stuff, they were priced at low teens multiples. It was this kind of two dozen or so or less than that stocks that were trading at way above market multiples that give the S &P what looks like an 18 and a half or 19 times multiple. So lots of parts of the stock market are already pricing in at least a soft landing, maybe something a bit worse. If you just think about where you would expect these groups to trough right now. So a lot of work has to be done to a few turns in some of the highest valuation names. And I had a conversation with Dan Niles from Saturi Fund, who's on the network a lot.

9:26He's a legendary tech investor. In my book, and this was just yesterday, we were talking about it. He goes, what if they do beat? This is NVIDIA. They do beat, and they do raise, and the stock doesn't go higher. Think about what that might say for some of these tech stocks that have already turned lower. The S &P is down 5%, yet Microsoft and Apple are down more than 10%. And if we have a snowball effect of some of those big participants, you know what I mean, in the index, we could be in for a problem here. I mean, that's my two cents on that. Well, how are bond traders reacting to the sharp rise in yields?

9:58Let's get to CNBC's Rick Santelli in Chicago. Rick, what's your take? We go much higher from here. Well, let me kind of start at the beginning here, and I'll get to that. I think I'm more in agreement with Tim, actually. If you look at a short intraday chart of tens, a couple things should jump out at you. that most of the selling action was early, and for the most part, we settled pretty much at the low yields, even though it was higher on the session, but only by a couple of basis points. So yesterday was the first time we closed above our October 24th high yield close of four and a quarter, and not by much.

10:32Now we're only a couple basis points above it. And if you look at the next chart, whether it's 10s and 30s on the same chart, I could have thrown 20-year on it, All long maturities today closed at the sixth consecutive higher yield in each session. And I think that's important. But I agree with Tim that there's a big defensive feeling to this. The fact of the matter is that I believe in breakouts. And if you look at the wave pattern that developed on that historic August 4, 2020 close at 51 basis points, the all-time low yield close, a perfect five-wave pattern, and then it extended too far out.

11:10Normally, these things end up breaching but not moving far. So if I had to approach this, the way I'd approach it is that I don't think we're going back down much into the 3.5 to 3.80 zone, which I think is significant. But I also think that there's a ceiling on rates. I think they're going to move a bit higher. And the key here is it's so little push through technically that tomorrow's weekly close needs to be above four and a quarter. Actually, it needs to be above today's yield of 427. And if it is, I would say the next major resistance level is 461. And it's going to churn a lot of time to get up there.

11:48And, Guy, you're exactly right. Sometimes yields go up for good reasons. Sometimes they go up because gas and diesel prices are going higher. and people notice the relationship. And when you throw in UAW and UPS, there's a lot of moving parts here that aren't necessarily good. Throw in the supply side issue. People can blame the Fed in the minutes, but I think there's a whole lot more going on here than the Fed. Rick, thanks. It's always great to get your take. Rick Santelli joining us from Chicago tonight. Those are interesting points that Rick brought, you know, in terms of the whole sort of pastiche.

12:24Pastiche. Mosaic. Yes. Now, Rick, listen, I mean, he's forgotten more about the bond market than I'll ever know. I mean, clearly he does an outstanding job. I'm with him. There's a lot of moving parts here. But quite frankly, I don't think any of them particularly good for the equity markets. Yields going higher here is not going to be supportive of valuations and yields going to go lower for the wrong reasons. As a matter of fact, the reason why bonds probably rallied late in the day, if you look at the TLT, it had a little spike is because the equity market was selling off. So there's this perverse flight to perceived quality in the form of bonds.

12:58So you can make an argument that if yields are going lower and it because something good is happening, because the market is probably selling off and if yields continue to go higher, it's not supportive of equities. For more on rates, let's bring in Damped Spring Advisor CEO Andy Constant. Andy, great to see you again. How are you trading this? So, you know, since I was last on on August 1st, the 10 year is up 35 basis points. The 30 is up 40 basis points. The S &P has fallen over 5 percent and the Nasdaq over 6 percent. Some of the high multiplier ETFs like IGV are up significantly. Those are pretty big moves.

13:37And I think the principal reason, there are lots of catalysts, but the principal reason was the surprise issuance from the Treasury. They just issued significantly more than even I expected last time we spoke. So how are you positioned? I mean, do you think the equity markets should go much lower from where we are right now? Do you think rates are going much higher? How are you positioned? Yes. Yeah. So equities have really actually performed fairly well given the amount of increase in yields. I think they should have to catch down to the fall in bond prices. They may have been held up by strong economic numbers.

14:18I think equities will fall between 4 % and 5 % before the bond market levels and the equity market levels get into line. But bonds are going to continue to be under pressure. They don't go down in a straight line. And I have to say I've covered some of my bond shorts. But I'm still bearish bonds and stocks because the driver of Treasury issuance was just announced. It hasn't really come to market yet. When it does, and if banks have to issue long-term corporate debt or the Chinese or Japanese currency markets have to be supported by the official sector, they'll have bonds for sale, too. And so that combination of things should impact long-term rates to 25 to 50 basis points before supply comes back into balance.

15:09And that should take over the next six months. Andy, it's Karen. Thanks for being on. Excellent call. Ten days here, whenever it was. Seems like a long time ago now. So they made this announcement, and I would wonder, doesn't the market, all right, the market knows how much there is to be issued, when it's going to be issued. So it's sort of a little bit surprising to me that you think the actual issuance itself would be the catalyst, when isn't it this sort of knowledge about the issue and how much paper there is to go that I would think would be how the market would price it now. Right. I think that's right.

15:45And you have to think about the amount of money that can front run something like this. In certain circumstances, like a small rebalance, you don't need much money to front run all the move out of the market and price it in. But we're talking about, you know, approximately$200 billion of surprise coming in the fourth quarter and more in this quarter in bond issuance. And there's just not$200 billion of money that can be front-running bond markets. So I think we're going to have a situation where the front-running will do some, maybe half, I don't know. And then the actual supply will affect the market on an ongoing basis.

16:30Annie, I want to go back to the interesting point that you brought up in terms of other selling pressures around the world, you know, such as from Japan. Did you say 25 to 50 basis points of impact? Yeah. So I think the overall impact of both the potential catalysts out of Asia for currency defense and the large supply is worth about 25 or 50 basis points on 10 years. So we could go to four and a half is what you're saying. That's totally within a straight line, but sure. Right. All right. Andy, always good to speak with you. Thank you. Thanks, Melissa. Andy Constant. Four and a half is quite a different picture from what Rick Santelli was talking about.

17:17Just a little bit more ahead, Tim. Do you see that in the cards? And is that just is that necessarily terrible for equity markets? It sounds terrible. I'm going to take the pastiche and weave in a little bit of Guy, a little bit of Rick, a little bit of Andy. The fact of the matter is that I don't think we know where yields can go. And I think it's really difficult to hazard a guess in terms of the up move because of the break of four decades lower in rates, because of the sheer size of the supply that we've never seen, because of where the JGB market is breaking out now to eight year highs. But really, was that much more artificially kept out?

17:55I mean, that's what we call, you know, yield curve targeting. And so I feel as if investors just aren't ready for this. And remember, most people thought that the economy, like we can close the book on the people that thought the economy was going to be in recession or in a deep recession by now because it hasn't happened. I'm not saying it won't happen. In fact, it likely can happen. But look at those jobless claims this morning. There's no sign of the equity, excuse me, of the labor market weakening significantly since March. I think it will weaken more. But but the point is, I think we've we've got a dynamic here where the Fed can't really do a whole lot.

18:28And I think that's a case where yields can continue to drift higher with all these other forces at work. And most people who are positioned for the 10 year to go to three percent, not four and a half. I just want to say Guy and Tim are music savants and you get neither of you came up with Wrecking Ball for Miley. I know you're not a giant. Come on. Come on. We talked about Miley. Being a music savant and a Miley fan. A music savant and a Miley fan are mutually exclusive. Thank you. Sorry, Miley. She is watching the show. She is watching the guy. She's fantastic. She's a big fan. Sorry. Coming up.

19:02Some after-hours action at Applied Materials. Shares higher after the company's latest results. We'll bring you the numbers next. And CVS, see you later. Shares tumbling as a major insurer goes in search of lower pharmacy costs. And a Shark Tank investors company is one of the new partners. The details when Fast Money returns.

19:29welcome back to fast money earnings alert on applied materials shares of the chip maker chip equipment maker popping after reporting a beat on the top and the bottom lines guidance for the current quarter also coming in higher than street estimates christina parts nebulis has the latest from the conference call christina well applied materials joining the likes of kla and lamb research with a stronger than expected earnings report. CEO Gary Dickerson attributing the continued strength to AI chips, of course, Applied makes machines for high bandwidth memory chips, as well as AI chip packaging or advanced packaging.

19:57He also pointed out that regionalization of semiconductor supply chains like the Chips Act here in the United States is actually helping their business since companies are snapping up equipment when they're building on American soil. And then on the call, they were asked about China. The CFO said in Q3, quote, There was a small amount of shipments to China, but Q4 will be larger, and that they're paying close attention to any pull forward orders. There are a lot of concern about whether there's a lot of buying that's happening right now from China before any additional export restrictions, hence the pull forward part of it, which would mean less revenue several months from now.

20:33One last interesting point that was just discussed before coming on set right now on the call. The CFO said on the depressed memory chip market, he said their indicators show continued negativity. Quote, we haven't seen a turn at this point. So maybe not a good sign for memory maker Micron. Christina, just for my own edification, if there are export restrictions later on and China pulls forward the orders, that's revenue that's pulled forward, but revenue that otherwise would not have been made in the future, correct? Well, no, wouldn't it have been more spread out? Because this is a major concern with NVIDIA, too, that all of the orders are being pulled forward at the expense of further quarters from now.

21:14And so when you keep raising the bar, it's going to set this extremely high bar for seven months from now. And then you would see a negative reaction in the stock. So to your point, I would assume that no, they were supposed to be coming out as seven months from now, but now they're just going to do it two months from now. Okay. All right. Christina, thanks. Christina Parts Nevelis. What do you think of AMET? I would just say that the fear of not being able to order them in the future might cause you to order more than you would right now. But in sheer point, I get it. I guess I'm saying I wonder if the revenue would even come in the future, but you are setting up for a difficult comp.

21:46Yes. Quarter on quarter in a year. But that revenue might not come if restrictions are really tough and enacted. Yeah. So we heard a lot about a month ago from some of the OEMs, and Taiwan Semi is a big customer, obviously, and they said that despite what they're seeing in certain end markets that were weak, the demand for high-end graphics chips was not outweighing the weakness they were seeing in some of the other areas. But they did say that CapEx, like the CapEx that they got it to, was not bad. So this is already in the AMAT stock. When you think about the beat that they had, high single digits on the EPS front for the quarter just reported, and then nearly a 10 percent revenue beat for the current quarter.

22:26And the stock's only up, I don't know, two, two and a half percent or something like that. That tells me that there's already a lot of enthusiasm. A lot of people were expecting this sort of thing. So it goes back to the comment that I made about Dan Niles and NVIDIA. When we get to NVIDIA next week, it's going to have to be a monster beat and raise. And let me tell you something. The whisper number on the buy side has been moving up. Analysts on the sell side have been tripping over each other to raise targets and raise their estimates, you know, for the current quarters, you know, the next few quarters, that sort of thing.

22:53So I just think there's a lot of enthusiasm baked into the whole sector right now. That fourth quarter, to Dan's point, the fourth quarter guide, the lowest, the lower end of their guide was the highest end of the street expectation. So they guided$1.82 to$2.18 for the fourth quarter. Valuation's reasonable. Margins hung in there. Stocks should be much higher than it is right now. So maybe there is this dampening effect. I mean, you can make a decent argument on valuation. It should be higher. The fact that it isn't is a little concerning for sure. All right. There's a lot more Fast Money to come.