10-year yield tops 4%, Markets sink on war fears 10/7/24

0:01Live from CNBC Global Headquarters, this is Fast Money. Here's what's on tap tonight. Right. Rates on the rise. The 10 year back above 4 percent. And it's been on the climb since the Fed cut rates last month. The two year moving in the same direction as well. What's the bond market signaling and do stock investors need to pay attention? We'll debate that. Plus, prepping for Milton. A massive Cat 5 storm is bearing down on the west coast of Florida as the area is still cleaning up from Hurricane Helene. A live report on the path and the preps coming up. And later, breaking down a rare downgrade of Amazon inside the brewing activist fight at Pfizer and a resource stock.

0:33One of our traders is calling a juicy long. Oh, boy. I'm Melissa Lee here in studio at Dusty NBC on the desk tonight. Tim Seymour, Guy Dami, Dan Nathan, and Carter Worth. And we start off with two big factors weighing on the markets. First, the rapid rise in rates that brought the 10-year Treasury yield back above 4 % for the first time since early August. The benchmark bond has risen more than 30 basis points in just the last four sessions. Two-year yields also jumping today, while the spread between the 10 and the 2 hit its lowest level in nearly a month. All this as we await Thursday's CPI report for September.

1:08Meantime, stock indices tumbling late in the day as tensions escalate in the Middle East. The Israeli military is saying it will soon launch operations on Lebanon's southern coast. So does today's action mark an end to the record rally that we have seen in equities? Are we going to stay above 4 %? Guy, what do you think? Well, first of all, I mean, we're hearing these things. Which is unusual. This is historic, but yet this is where we started. So it's sort of like sort of round trip. Well, it feels natural. It feels natural. Although we're closer than ever right now, and I'm not sure how natural that is.

1:39Well, but what doesn't feel natural is this bond move. And listen, usually I say our crack staff back in E.C. Well, they're here in E.C. Pull up a TLT chart, and you'll see that where we topped out on September 16th is exactly where we topped out back in December, which means that's where rates sort of bottomed and been going up ever since. now. I think the optimist will say, you know what, Guy, rates are going higher because the economy is on solid footing. The unemployment rate is stable here. Things are good. I think the pessimist, which I'm one of them, will say, you know what, a lot of bond issuance is coming up.

2:09The reason why rates are going higher is not necessarily a good thing. So that's what I'm absolutely laser focused on. So Guy, the reason rates are going higher is because the economy is on pretty good footing. And this is a dynamic that is, no. Look, the question is, was the volatility that was also up 10 % today and is up 25 % in the last few days on a day when, yeah, the S &P was down, but certain parts of the market that I would have thought that gave investors a little bit of comfort would, you know, whether it's NVIDIA or semiconductors, I think leadership there is actually very important, is maybe back for the short term.

2:38But the volatility is interesting, given that it's not as if we have the moments. Now, the geopolitics, maybe that's enough. The question is, is the volatility more of a function of the short end of the curve or the long end? Because we haven't talked to the two year as well, which to me is more indicative of where people think the Fed's going to be. Yeah. Dan, what do you think? The volatility closed. That was interesting. The highest close since August 8th. Yeah, I think folks are getting hedged up here a little bit. I think that's what the VIX is telling you at 22 or so. But when I think about the rate move, I think about the move in the dollar, actually, which has kind of moved in lockstep with interest rates over the last week, week and a half or so.

3:14And I think about the CPI that's coming out. I say to myself, OK, where's the leadership in the stock market. We have an S &P that's down one and a quarter percent from its all-time highs. But interestingly, if you look at the MAG-7, I know we're going to hit a few of those names in a second, five of the seven are underperforming the S &P 500. Microsoft has just lost all of its mojo despite Tesla having this big move off the lows, a huge move off the lows. It's still down on the year. So I find it kind of interesting. So this is where I want to put it together. If rates are going to be higher, if the dollar is going to be higher, is that a headwind to the rest of the 493, which have done a lot of the heavy lifting over the last couple of months or so?

3:57And especially when you consider about the Mag 7, maybe not Tesla, pretty immune to rate moves one way or another. So I think that's the thing that's going to play itself out. Maybe you see this hedging up in front of the CPI. Maybe it's in front of bank earnings and some of the rest of the earnings that we're going to get over the next few weeks. But it definitely feels like we're about to have a bout of volatility in the stock market because we've had it in yields. We've had it in crude and other commodities. We just haven't seen it in the stock market yet. Yeah, not to mention the elections.

4:29Throw that in there in terms of juicing volatility. Carter, what do you make of the moves today? What do you make of the move in particular in rates? Right. So obviously the volatility is the key. If you think about it, we close the month of July exactly where we are now. And so 4.02, we get a low of 367, we're back to 4.02. The real thing that has to be noodled and considered is how sort of non-predictive the street is. And there was higher for longer, and all of a sudden now they're going to cut forever, and now they're not going to cut at all. It's nonsense. What we know is that rates got down quite a bit.

5:06Now they've popped quite a bit. But at the end of the day, rates are at 4, 4.25, 4.5, 3.7. It probably, and maybe the market believes this, has been Goldilocks in terms of the cost of capital on a 10-year basis. I'm not in the camp that we're going to 5 and 6. It wasn't when it was popular then. I'm not now. They're probably where they belong, but with a bias to lower rates over time. As to the VIX spike, yes, we've come a long way. And it's a precarious moment to be adding exposure to the risk asset class of equities. Carter really has a way of putting everything into a new asset. Noodled, by the way.

5:46We haven't heard that in a while, but he's right. But isn't it true? It almost doesn't matter. As long as rates stay within a channel and doesn't, you know, pop above, let's say, four and a half, four and three quarters or go much below very quickly. And it's the speed at which this is happening, which is sort of orderly. I mean, the stock market's done well seemingly in every environment in terms of interest rates. Higher rates, market's fine. Lower rates, obviously, the market's enjoyed that. I look at it and say, what is it trying to tell the market participants, its latest move? And I think it comes from a sort of a negative place, not necessarily a positive place.

6:18But I'm glad Tim brought up the volatility because I do think that is a story that people are going to start to talk about. We had Katie Stockton on, I believe, in August. I think Tara was hosting a show that night when the VIX was 14. and she thought we were in for a period of volatility that typically lasts six to nine months. And, you know, by August 5th, we saw the VIX trade up to 60. And I think we're sort of round two on the volatility index. Now, I don't know if it's going back to 60, but I think a low 30s is feasible. And historically, that's meant the market sort of sells off. Fair. And again, all those things that we've said could be dynamics to take, you know, what are the tail risks for the market?

6:54It's certainly with the geopolitics and geopolitics don't seem to be getting better. I would get back, though, to market dynamics, which I think are very important. And we came into Monday with Goldman raising their S &P target to 6 ,300 with Mike Wilson and Morgan Stanley, who has been constructive on the market, but he's gotten even more constructive. So the backdrop of the strategist world is that the market's going higher. If you look at NVIDIA today, if you look at semiconductors, so from that high on June 16th, June 17th, it was a 21 percent pullback in the semis. We're now up almost 10 percent since the lows on September 6th.

7:26And that's also with higher rates. And I would just say if you look at a chart at NVIDIA or the semis, you can see that ultimately they did bounce off the bottom end of that uptrend. And so and I'm sure Carter's got a view on this. I just get back to the leadership that the markets have looked for on the index level is something that's come from semiconductors. And that's then led the Nasdaq, which has then led the S &P. Yeah, I mean, not too long ago, Dan, you know, one would have argued perhaps that the Fed's 50 basis point cut would have reengaged, reignited inflation. Here we are with a stronger, if you believe the jobs report at face value, a stronger jobs market as well.

8:00And so the danger potentially could be that the economy is too hot and that the Fed moves the other way very quickly. I mean, all this to say that, you know, we're trying to read the tea leaves. We don't exactly know what the message is at this point. Yeah, again, so if we don't know what the message is and all the things that we just laid out, that potential headwinds. You know, Tim just mentioned that September 6th bottom we had, I think from the highs, we were down four and a half percent or so. When you look at what's going on here, we have a VIX that's at the same levels on September 6th.

8:28We have yields much higher. We have a dollar higher. So it's about as clear as mud what's going on. When I think about this CPI report, though, I suspect it's very benign, right? So you have the backdrop of these really stronger-than-expected jobs numbers in September. You have the revisions higher. So maybe it's just wages. Maybe it's just the jobs market. Maybe it's seasonal. Who knows? But at the end of the day, I think Carter's point about yields, I think the market overshot to the downside with expectations of further cuts. And here we are at a place where maybe November doesn't happen. If you look at the CME FedWatch tool, I mean, we've seen a lot of juice come out of the potential for cuts.

9:05So, again, maybe we are where we should be. Maybe equities just need to put a little fear in them because there's a lot of other things going around in risk asset markets that suggest that. I go back to saying, you know, equities are the only place where we haven't seen any volatility of late. For more on the market moves, let's bring in CNBC contributor Peter Bookvar, Bleakley Financial Group, CIO. Peter, always great to see you. As I understand from the notes, Peter, you are also a little bit flummoxed in terms of what the jobs report conveyed, given the prior data. And you specifically cite a lot of data points from the Beige Book, which don't necessarily seem to back up the idea or the thought of a strong jobs market right now.

9:47Right. Early September, when we heard the last Beige Book, if you look through all of the districts, they talked about, at best, modest job growth. In some regions, there was no job growth. You combine that with even right before the payroll number came out, the day before, the ISM services employment component was under 50. You have elevated continuing claims. So hiring is still OK, but it wasn't as robust as Friday's numbers implied. So I do think that investors need to look at the whole mosaic, not just take the Friday payroll number on its surface and say, oh, everything's great, Goldilocks, but piece it out with a lot of different things.

10:26And I think the economy is OK. It's very uneven. It's very mixed. There are parts that are fine and there are parts that are not. And I think people look at the economy as this holistic thing, like things are great or they're not great. It's very much more mixed than that. And so all of this leads you to believe that rates will actually go higher. Is that right? Well, the way that I look at rates is take the 10. Well, let's start with the two year. The two year is up 40 basis points since the day before the Fed cut interest rates. 30 basis points of the 40 is higher inflation expectations. Now, that is in part because the Fed got more aggressive with the cut.

11:04Then you throw in the China news, this lift in oil prices. And back to the China news, you have copper prices, iron wars at a multi-month high. And if you're a bond investor, you don't want to see the Fed slashing interest rates. You want them to be more diligent when it comes to inflation and not complacent. On the longer end, to me, the 360, 370 level that we sort of stopped at on the downside here was where the liftoff point was last July when the BOJ got rid of yield curve control and we went to 5%. So we held that level here over the past couple of weeks, and obviously it lifted to 4%, because I think if you're the long-end owner of a treasury, you don't want the Fed to be too aggressive either because that risks flaring up inflation, and that's not the thing that you want to see.

11:52I do think, though, there are the potential for accidents here. Guy mentioned earlier debts and deficits finally mattering. I think they do. All you have to do is look at the price of gold or the very choppy behavior of the dollar to know that maybe it does finally matter. And if the Fed is going to keep on cutting, long rates are going to go up. And that's one of the fears that I've had is just because short rates go down doesn't mean that long rates do as well. And we have the risk of them going higher. I mean, there's plenty of real estate people on the commercial side. And if you're a residential potential buyer saying that, oh, the Fed's going to cut interest rates, I'm going to get a lower mortgage rate.

12:27Well, that move has already happened. And now mortgage rates are obviously ticking up again. Peter, real quick. And we've talked about, obviously, Chinese stocks over the last couple of weeks. I mean, 35, 50 percent moves in these names, which makes sense on the equity front. But what's happened in China, does that make the Fed's job more difficult? Because I'm of the belief that that's just going to sort of accelerate the possible, you know, inflationary cycle I think we're still in. Thoughts on that? It definitely complicates that. I made it a point over the weekend to try to find every article I could to see what was the consumer response to all the moves the Chinese took to put a bottom in residential real estate.

13:03And things got busy again over the weekend. Now, I don't think Xi wants to inflate the housing market again. He just wants to have it bottomed out. But there are signs that maybe it is going to be bottoming out. And if that's going to be bottoming out, you can argue that commodity prices are too. And that's why I'm very bullish on most commodities and we're long a bunch of stocks in the space. Peter, always great to see you. Thank you. Peter Bookvar of Bleakley Financial. The call on commodities, that's been a hot one on this desk as well. It has. And Peter's bullish on gold. He's bullish on commodities.

13:35And, you know, those are things that I think both structurally and the China news only enhances that. And going into a lot of this, one of the things I've been saying, and it just seems so obvious, is that equities and credit weren't pricing in any negative dynamics. Commodities and the bond market or the rates markets were pricing in recession. So you could make an argument that what's going on in rates and in commodities is something that's just taking out some of that over, I think, some of the movement to the downside. But get back to the China news. What does it have, I think, a very big impact on the following trades?

14:05It is iron ore. It is BHP Billiton. It is Rio Tinto. It is Freeport Mac. It's Southern Copper. I think those are trades that continue to work. in addition to that U.S. luxury trade with exposure to China. Those things have been moving. We've got a news alert on the FDA being sued by the drug compounding industry group. Angelica Peoples has got the details on this one. Angelica. Hey, Melissa, that's right. An industry group that represents compounders is suing the FDA, saying that they took trisopatide off the shortage list, even though it's still in short supply. Remember, trisopatide is the active ingredient in Manjaro and ZepBound, so we'll keep an eye on this and see if it changes anything at all.

14:42Melissa? Do they offer any sort of data on why it would not be in short supply? Because as I understand it, the wait times in terms of your ability to get a prescription filled is actually a lot less now. It's a great question. And we just got this. So I haven't had a chance to go through the full lawsuit. But they are saying that the FDA acted too quickly and then it still is in shortage, even though they took it off the shortage list. So again, we'll have to see exactly what they're claiming in this lawsuit. All right. Fascinating story. Angelica, thank you. Angelica Peebles. Let's turn out to a couple of big tech calls today.

15:15We'll start off with Apple. That stocked down slightly today after Jeffries downgraded this one. Analysts saying the near-term expectations for AI are too high as the technology will likely not be commercialized in Apple products for two to three years, not in time for the new iPhone 16 or even iPhone 17. Jeffries' price target applies 4 % downside to today's close. Dan Nathan, I think you're pretty much on the same page as Jeffries on this one. Yeah, well, this was what I was saying in early June after the company rolled out Apple Intelligence, and I was wrong to the, you know, I mean, listen, the stock rallied 15 % and really had to do with the upgrade cycle or like the way analysts were calling it the potential for a super cycle.

15:58And I just don't think that's going to happen. I think a lot of the stuff they're going to roll out on October 28th is a software upgrade. The promise of Apple intelligence is going to be on device. The analyst makes the point that these devices, they don't have the memory. They don't have the computing power to do this in a way that a lot of folks might hope for. So I don't think you're going to see the upgrades for this. I think you're going to see Apple probably come down as we get through the rollout of this software upgrade. And I just don't think you're going to see that upgrade cycle. And the hardware is a stock trading about 30 times next year, a little expensive.

16:31Yeah, it probably is when you're considering that revenue growth is going to be high single digits. Maybe you get 10 % earnings growth. But at the end of the day, I just don't think it's a real compelling sort of offering from the company here. And I almost think that the advertising has been very disingenuous. Check out shares of Netflix as well. That stock dropping about 2.5 % after dueling calls on Wall Street. Piper Sandler upgrading the streaming giant to an overweight with a new$800 price target. Analysts arguing Netflix's high valuation is justified. But Barclay is downgrading that stock to an underweight, which is very rare on the street, saying growth is slowing and the valuation is unrealistic.

17:08Carter, I've got to go to you. You often cite analyst calls. And the fact that you've got such dispersion here, even just on one single day, is pretty interesting. Right. So, I mean, here, just to spend two seconds on it, one can go with one single expert. Maybe it's a chartist. Maybe it's a quantum. Maybe it's a fundamental analyst. One could go with what is so valuable, collective wisdom, crowdsourcing. We know that's what charts are. Should we go with the one who upgraded? Should we go with one who downgraded or should we go with the chart? I think we go with the chart. It's got major holders in there.

17:35Some are short, some are long. And it's a decent chart. It's an uptrend that's intact. It's exhibiting tremendous relative strength versus other marquee names such as Amazon and Google and Microsoft. My hunch is to retain longs if you're long. All right. In the meantime, shares of NVIDIA up nearly 3 % today for its fourth straight day of gains. It is now up more than 40 % from its August 5th lows, less than 10 % from its all-time high. The chipmaker kicking off its three-day AI summit this morning. Morgan Stanley reiterating the stock as an overweight rating guy. I think it was a super micro move if you throw that one up.

18:07But, you know, we've talked about this. I think Carter talked about it last week. You're in this pennant formation in NVIDIA. It's going to break one way or the other. Today it shows signs of breaking to the upside. But I still think this pennant is intact. The June 20th level, their formation that Tim sort of alluded to, I think the stock closed above 140 that day and reversed. That's interesting. It's not been broached yet. So the question is, which way does it break? Is it going to break to the upside out of this pennant or the downside? Today's action suggests the upside. We'll see, though.

18:35It's not there yet, Mel. And in the case of NVIDIA versus an Apple, I think you obviously have two stocks where I would stay with Carter. I just don't think the expectations in Apple are that great. NVIDIA, we know they're great. And so now we've dealt with some production issues. We've had the company come back and pretty much reassure. Fourth quarter demand, they're saying is going to be extremely strong. And I get back to the stock and I get back to even some of the market dynamics that have made NVIDIA an outperformer in addition to those ones that are obviously NVIDIA specific. I think the macro supports NVIDIA.

19:03I think it supports the names where you have growth. And I think the market is less worried about that multiple here. Coming up, a number of big names on the move today. Pfizer, Tesla, Amazon all catching our attention. The reasons and how our traders are handling the moves ahead. Plus, millions of Americans preparing for Hurricane Milton. Now a Category 5 storm. The latest on evacuations and the life-threatening surge next. Don't go anywhere. Fast when he's back in two.

19:32Hurricane Milton intensifying to a Category 5 storm as it approaches Florida. Landfall is expected late Wednesday. NBC News' Dana Griffin has the latest from Naples, Florida. Dana. Hi, Melissa. So behind me, this is the beach, and you can actually see three people in the water at this moment. These waves are slightly higher than what we noticed earlier today. And we're still two days out from Hurricane Milton approaching here. Right now, it's a Category 5 with 175 mile-per-hour winds. People here are showing up at the beach. Many tourists, including Juan I spoke with, her family here from Switzerland, they are now packing up and going to Miami where they think it'll be safer.

20:14Listen. I'm guessing this isn't what you had planned for your vacation. No, really not. We go into the sunshine state and now it's raining. And now a hurricane is coming. Yes. Well, be safe to everyone. Yes. Is there any thoughts for the people of Florida or anyone else that may be wondering what to do next? We hope they're all going to stay safe and, yeah, be praying. And Melissa, for other people we spoke with, they are staying put. They've gone out, they've gotten their supplies, but they really don't know where to go because of this cone of uncertainty, we still don't know exactly where Milton will make a direct hit.

20:54So people are waiting to get more updated information. We are still two days out from the storm making landfall. And right now, people are just preparing as much as they can. Governor Ron DeSantis says they have discarded or removed some 500 truckloads of debris, which are going to be pretty significant obstructions in this storm because they can be used as projectiles Once the tropical force winds pick up, that is a major concern. They are now asking people to discard their own debris at landfills to try to help get some of that debris out of the area. Melissa? Dana, thank you. Dana Griffin reporting from Naples, Florida, where we're expecting landfall on Wednesday, a very dangerous storm as it is right now.

21:34And, of course, we did see that move in oil. We saw a bunch of moves here. Tim, you're looking at oil specifically. Well, oil is fascinating, and it's usually less around weather disruption for me. What's going on in the Middle East is certainly critical. And I'm not sure from the geopolitical chessboard, and I do mean the map, whether oil facilities are in target. But we're at 4.4 million barrels of global reserves. We're significantly lower than we were last year when oil was at 92 bucks a barrel. In fact, that 4.4 is apparently the lowest on record at this time of year. So I do think there's an argument that oil can stay higher.

22:07and getting it back to some of those energy equities, which were outperforming even before the underlying started to rally, which I also, you know, we always point out that rallying oil prices isn't necessarily great for owning Exxon, but Exxon's at all-time highs. Look at Home Depot real quick. Again, our crack staff here in EC can throw up a chart. I mean, you'll see the prior all-time high. I think it was the fall of 2021. Stocks traded about 415. And look at where we just traded up to now. I don't think valuation is a huge concern at 25 times next year's numbers. It's not historically expensive.

22:36However, the technicals might start to get in the way here. A couple of upgrades over the last couple of weeks, but you need a breakout now through 420. And my sense is we're going to stall here in HD. All right. There's a lot more Fast Money to come. Here's what's coming up next. Welcome back to Fast Money. Sources confirming to CNBC that activist investment firm Starboard Value has amassed a roughly$1 billion stake in Pfizer, looking to mount a turnaround at the pharma giant. Angelica Peebles is here with all the details. Angelica. That's right, Melissa. At this point, we know that Starboard has about a billion dollar stake in Pfizer.