A Big Call On Yields… And Databricks CEO On New Funding Round 12/17/24

0:02Live from the Nasdaq market side in the heart of New York City's Times Square. This is Fast Buy up between Honda and Nissan says about the state of the industry and what Tesla's dominance in the space might have to do with it. Plus, UnitedHealth shares slide to an eight-month low. Shares of Pfizer get a booster shot on not-so-bad guidance. The former CEO of TD Ameritrade gives us his read on the retail trader. And the CEO of AI darling Databricks, who today announced a massive$10 billion funding round, is set to join us coming up. How he is planning to use that money and what it means for a potential IPO.

0:47I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Karen Feinerman, Steve Grasso, and Julie Beal. We start off with a bold new call for the bond market. T. Rowe Price out with a note today saying the benchmark 10-year yield could climb as high as 6%, a level last hit in the year 2000. Strategists outlining a number of fiscal risks at play, including a growing federal deficit fueled by Trump tax cuts, plus potential tariffs and immigration policies that could put even more pressure on prices. Rates have been climbing already this month, topping 4.4 percent at their highs today.

1:19But if T. Rowe price is right, T. Rowe is right. Price is right. Oh, yeah. That's right. That's why I said it. What could it mean for stocks? The major indices, well, down today, they're still trading close to records, even the Dow, logging its longest losing streak in more than four decades. It's less than 4 percent off its intraday high. Can the strength continue if yields push higher, Tim? Well, a little higher, yeah. Yeah. And remember, growth scare would push yields lower, and that's not good for the equity market. Where were we in September and October? You had a couple bad payroll numbers.

1:48People were starting to question what was going on with the economy. And that's a lot worse for equities to me than a 10-year that could go to 5%. And if it goes to 5%, I mean, who knows what the psychological level is? There's a lot of empirical data, and there's certainly a lot of history attached to when 6 % was. And we were a very different rate environment back in 2000. By the way, 2000 is also where we were the last time. Cash levels were this low on the equity market. So if you listen to Merrill Lynch, Bank of America, and their fund manager survey, we're at a sell signal in terms of equities in terms of cash levels are low.

2:19Optimism is high. So I'm not suggesting it's$2 ,000 both from a rates environment or necessarily an equity environment. But it does tell you where we are. And I think from an economic perspective with the Fed on deck tomorrow, you've got BOJ this week, you've got a lot of CPI data, I think it's a case where we want to see yields hold this level. I think I'd be very comfortable as an equity investor with yields up closer to 5 percent. Again, given the environment where we know the next administration has discussed dynamics that I think will be, frankly, yield friendly, meaning yields higher friendly.

2:51Go back to July of 2020 and you can make an argument that that rates have been slowly moving higher on the 10 year. There's been some fits and starts. Carter would tell you they've done nothing in three years. I think that five year chart tells you there's upward pressure. 5 % on the 10-year, that's fairly consensus out there. I mean, ING has that 5 % mark, J.P. Morgan Asset Management. I mean, a number of shops out there have 5 % baked in for next year. But I guess the question is, you know, the T. Rowe note indicated a lot of sort of technical reasons why the 10-year would go to, including other countries not wanting to buy our treasuries.

3:24And so does that matter that it's those factors that would drive yields higher? Well, you'd want yields to be higher because the economy is doing well, right? Obviously, you want that. And that's the scenario you're talking about where yields are higher because things are sort of, you know, the economy is growing and growing nicely. That 6 percent number, though, I think that that starts to get into a bad spiral. Right. And if the government needs to fund itself at six. Right. We're at I think our average debt now is maybe three three at me if that's materially wrong. But that's a very significant shift.

3:59So that they are talking about six right away, sort of a stop at five. And then it could move to six. That six to me is a scary scenario. But I think the market can handle five if it's sort of for the right reasons, not Japan pulling back, China pulling back as buyers of U.S. debt. Yeah. Julie. Yeah, I agree. For the right reasons is the really important distinction to make. If you think about where we are right now, there's a lot of enthusiasm, obviously, in the equity markets. And part of it was driven by lower rates. But part of it, too, is just the strength of the fundamentals. I think I have concerns for particularly what we see in small cap.

4:39A lot of these smaller businesses are impacted by higher rates. Many of them are not able to finance on long-term debt. They are typically on variable rate debts with their banks. And so that could be a real headwind for small cap. And so I think overall, it's not a terrible thing if we're at 5%, but it will hurt some businesses for sure. Yeah. So we just had Julian Emanuel on yesterday saying that small caps were his number one place to be in 2025. And so there's a collision course here if rates do go to 6%. I mean, he probably would change his outlook on small caps, but that is a major factor.

5:12Yeah, he would change his outlook on small caps. But, you know, obviously small caps are most cyclically tied to the overall economy. Is the economy doing well when we're at 5 % in the 10-year? Is unemployment static when we're at 5 % in the 10-year? So there's a lot of things you have to look at. I don't think there's going to be competition. You know, Japan's 10-year is yielding 1%. So I don't think there's going to be a lot of other countries where people are going to pull their money and go somewhere else. And remember what happened the last time yields spiked. They went to the safe haven of large mega-cap tech.

5:48Is that going to happen again? Maybe. And when you look at the overall market, I think we all probably have said on the desk that the market probably should retrace a little bit lower. It's had such a rip-roaring rally coming out of the election. Maybe we're due for a little bit of a pullback. Tim, you mentioned cash levels. The last time that rates were high, there was competition in the form of CDs. And you wonder whether or not that comes, especially as we have approached and are at record territory levels, the want to sort of remove some of that money, take the risk off and put it into something safer at a higher rate, even if it's 5 percent on the 10-year.

6:30I know I have clients that have a fair amount of money in interest-bearing money market funds or just playing treasury ladders and whatnot, but have felt a lot of anxiety about not being fully into this rally. Because, again, the place to be taking money out of money market accounts. Remember, it was May of 2023 when suddenly we had Silicon Valley Bank go bust and a lot of dynamics, which had people uneasy about certain banks and putting a lot of money into other places. But either way, we've been in a place for three years now where cash has been an allocation or essentially money market. I think that's supporting equities here.

7:03In terms of fund managers, institutional managers, they're not, you know, that's not what they do for a living. They keep certain amounts of cash. But this measure as a measure of risk, again, we haven't been here since Jan to March of 2000 or February of 2011. These are awful, awful equity moments and at least precursing awful equity moments. Well, we'll see what the Fed does, right, if they start to make those bills less attractive because a lot of money is parked there. One cut I don't think is going to make the difference. But what are we having right now, priced in two or three for next year?

7:36Three right now. OK, so maybe that maybe that sort of helps get that money over into equities. I'm not really sure. But I don't know. I just I also like to look at let's see what the deficit actually is. Let's see how they choose to fund it. What's the where across the curve are they going to be selling debt? That's going to be interesting to me. Yeah. You had mentioned so often, Karen, the inflationary pressures that we're going to see and a hawkish pause. Yes. Meaning they'll indicate that there's going to be a longer pause, perhaps, or they're more inclined to not. Yeah. How about the idea of a rate hike in the environment you're talking about?

8:15I mean, for all the reasons T. Rowe outlined the 10 year yield going to six percent. That would be bad. That would be inflation out of control. Right. Even with the economy growing, that if, let's say, let's the hypothetical, I think at that piece, they talk specifically about the deportation is actually the thing that would really drive inflation. So you have huge labor pressure. Yeah, that that would not be a good scenario. I just also bring it back to the equity market where, you know, the dynamics we're talking about with the Dow and is this down run. If you if you invest in kind of S &P value, this is a big ETF, SPYV.

8:51This is down 12 straight days. And we you know, we've had some some fun, if not feisty conversations on this desk in the last week where, you know, my argument is that the markets are going higher on the back of, unfortunately, those seven stocks. And I think we're in an environment where you're going to continue to see that. I think there's also a bit of a surge into year end that I think sets up people nicely to do some interesting things in the first part of the year. But it is a case where the parts of the market that were getting people excited about the breadth both of the market and also the strength of the economy are things that tell me people could be a little bit worried about yields.

9:26All right. Our next guest doesn't think the 10 year yield will head much higher from current levels. Subhadra Rajappa is the head of U.S. rate strategy for Societe Generale. Great to have you with us, Subhadra. So by end of the year, you don't expect 5 percent. How about for 2025? Unlikely. OK. Because I think that what we're going to be focused on, at least for the early part of the year, is tariffs and immigration and the inflationary impact of that. So if the Fed keeps policy on hold for a lot longer or doesn't deliver as many cuts, then what you're going to see is perhaps even a rally in the long end of the yield curve, because tariffs could be inflationary.

10:07And in some respects, if you look at that as a tax on consumers, you could see that translating into lower growth and lower yields in the back end. So it might seem like a contrarian view, but there's definitely a case to be made that the yield curve could actually even flatten from here. Implicit in that forecast, though, is the assumption that the Fed will adjust policy according to what is done by the president, what is done legislatively, and that there is that sort of reaction. When so many people have said, you know, tariffs are a one-off, they're going to look through that, you don't agree.

10:41They will adjust according to what is going on around them? Yeah, I mean, I think it is a one-off in the sense that you're going to see a step up in prices on the items that are being tariffed. It's not something that's going to have a multi-year impact. But that said, I think that, you know, the Fed doesn't have enough clarity on what's to come next year. So they're going to wait and see how things progress and then act accordingly. So you're going to see a little bit of a lag. And that's why I think in some respects, if you look at the summary of economic projections, I'm not sure how much real information there is going to be in tomorrow's update because they don't really know a lot about what's coming up on the policy side.

11:22So let me ask you, how much invisible pressure is there on the Fed to cut shorter end rate, to cut Fed funds rates because so much of the deficit is funded by these shorter term rates? Probably very little. I mean, the Fed and the Treasury work, you know, sort of separately. And the Fed, you know, the Fed, of course, has a dual mandate. They're going to be concerned about inflation as well as employment. The Treasury is the one that decides how they're going to issue. The Janet Yellen Treasury has favored more bills and hasn't really termed out the debt. We've heard from Besant that he might be more amenable to terming out the debt.

12:03But the concern, as you were talking about earlier, is that if you do see an increase in long-end coupon supply, that you could see that long-end start to rise. You could see that term premium start to build up on the yield curve. you really don't want treasury yields going to 5%, 6 % in short order. I mean, if it goes up gradually from here, it's one thing. But if there's sort of markets are spooked and you see this sort of sell-off at the long end because of more issuance, that's something that I think you're going to have an impact on risky assets and you're going to see a tightening of financial conditions.

12:36So in that context, Subhadra, when I think about U.S. rates, at times we've been somewhat a function of what's been going on globally. I was of the view that the BOJ was going to be in some way indirectly a driver of U.S. rates. In other words, if rates in Japan go higher, I think rates in the U.S. have to go higher. Any thoughts on this? Because, again, central bank policy also is becoming somewhat divergent. I mean, Canada, their inflation rate slipped below the central bank's target. You can make an argument the ECB is going to be cutting more aggressively than the U.S. Central banks around the world are not aligned anymore, and that will affect rates.

13:08Yep. And you are going to see these divergences between all the different countries' bonds. For instance, right now, if you look at what 10-year treasuries are versus 10-year bonds, you're seeing that spread widen out quite meaningfully because the market's priced in a lot more cuts for the ECB versus the Fed. It's the same with the BOJ. But the interesting thing about the BOJ is that the more they hike rates, the more, I should say, less the demand for treasuries because a lot of these domestic buyers are going to be buying JGBs as opposed to buying treasuries. So the demand dynamic really changes.

13:42Again, that could be something that could put some pressure on term premium because we do rely on foreign demand for treasuries to keep treasury yields lower. Right. Specifically for the Fed, what is the one thing you'll be looking for either in the SEP or in the press conference or any sort of what is the one data point or what is the one question that you would want answered? I'd like to see what their projections are for inflation for next year and how they square the circle on how many cuts they have penciled in. I mean, again, there's probably not going to be a lot of information about it because they don't know how things are going to play out next year.

14:21But that said, I think that at least gives you an initial read to recalibrate. I mean, let's say they go from four cuts for next year, which is what they had in September, to two. That leads me to believe that they're much more amenable just to keep policy on hold, perhaps, for a lot longer. Our personal view is that they go from four to three because it's much more gradual. They probably don't want to be seen as moving the dots too much. But that's something that I think would be more of an indication to the markets on where they're thinking on inflation, how they're likely to react if inflation is actually sticky.

14:54Subhajra, thanks so much for coming by. Thank you. Subhajra Rajaba. Julie Beal, your thoughts on the Fed tomorrow? Yeah, I'm really, I agree. I'm really curious about their outlook for inflation. Most importantly, the place I'm really fixated on is services inflation remains just too high for us to really get to the 2 % target that they have set out. And unless we solve that, it's really, really difficult to feel confident that, you know, mission accomplished, drop the banner, we beat inflation. And I think that, you know, Chair Powell is really mindful of the mistakes of the 1970s. And I think that he's really thoughtful about not wanting to be there and repeat that.

15:33So I think this kind of air of caution is probably going to be a little bit louder tomorrow. And I kind of look forward to seeing what they say about inflation for sure. All right. Well, UnitedHealth has continued weakness, a major driver of the Dow's longest losing streak since 1978. It is the worst performer in the index today, has tumbled more than 20 percent so far just this month alone. So where does the stock go from here? What's the prognosis? Steve Grasso, what are your thoughts here? Yeah, I think in light of the events that have transpired and the bipartisan effort to really go after health care companies in general, and in particular, UnitedHealthcare, I think you're going to see larger payouts from the group as a whole, and larger payouts are going to squash profits and their margins.

16:23So until we get more clarity, I think it's sort of a no touch for me. Yeah, there are a lot of different aspects of legislation that are trying to make their way through that would target the PBM business specifically on top. Different than what Steve's talking about, the MLR ratio, medical loss ratio. No, the PBM, I think this was today. Yeah, you have to be very specific. Which drop in UNH are you talking about? Because there have been so many. But today's was Trump really putting them in the cross, the PBMs. And for UnitedHealth, their PBM, that is a big part of their business. That's a little over 30 percent of their business.

17:02So and profitable, right? Right. More profitable than other parts of the business. So that's painful. I mean, it's as Steve pointed out, it's such a good bipartisan issue to pick because who's in favor of high drug prices? Right. Exactly. Drug companies, maybe. And PBMs, I guess. But it's problematic for me with my Elevance, which has just been terrible. It's a smaller part of the business. It's been downgraded in my head for a while. But, I mean, this is sort of, to me, feels like really max noise. And maybe it's not all noise. We don't know what, you know, a lot of Trump policies out there. We don't know what exactly is going to happen.

17:43But, I mean, max pain. There is one PBM effort that could be included in a continuing resolution, which will be voted on on Friday, which would basically the PBMs would get paid a flat fee as opposed to the rebates, which would be significant. And that could I mean, that's Friday and that's for real. I think it is. And I think I'd be most concerned if I'm a CVS shareholder on this, although CVS is priced in a lot of bad news. We know what what Boots has done. I think 26 is probably a target year for this. I think this is a lot of rhetoric now. But but, you know, Laurie Calvacina yesterday on the desk said, you know, investors are acting a little differently about this move in health care.

18:26This isn't just politics as usual around election season. It's usually before an election. By the way, you get this kind of concern because it's easy to attack them. This is post. So, yeah, I don't need to chase. But UNH terms of 30 percent growth and a multiple that is deserving of that gets attractive at some point. All right. Coming up, shares of Pfizer popping on a 2025 outlook with investors eyeing the company's cost cutting measures, a comprehensive checkup on the stock. That's next. Plus, a massive funding round from one of the most valuable private companies. But the CEO of AI startup Databricks says they'll do with the new cash and what it could say about the potential for an IPO.

19:02Don't go anywhere. Fast Money's back in two.

19:12welcome back to fast money a boost and shares of pfizer today after the company gave a 2025 outlook in line with wall street expectations revenue expected to come in between 61 and 64 billion next year investors breathing a sigh of relief after disappointing guidance last year pfizer though did say it expects a one billion dollar hit from changes to the medicare medicare Part D program. Shares still down more than 8 % this year. The transcript of the call is very positive. They said they're very confident about the guidance, all the guidance. Gross margins would be high end of 70%. That's nice.

19:46And it's great for a shareholder of Pfizer. And by the way, a stock that's really, at times we've said the stock is basing. It is basing, but it's been basing for a year. Now, maybe that's the definition of basing, but it was December. It could have been a year ago, we were saying around these levels that the stock might be looking interesting. Now, the stock's had a bit of a roller coaster in 24 times looking that goes breaking out. The key here is that management has truly bracketed kind of up and down part of the Wall Street expectations with this revenue nine for 25 kind of right where people wanted to see it for a company that at times hasn't been able to do that.

20:18The problem is there's not a whole lot of specifics here. This is another one of these slightly amorphic, hey, things are looking pretty good for us, we're feeling good, and it feels like a Christmas present that you're not really sure what's inside the wrapper. Oh, so you don't believe them necessarily, even though they say they're very confident. They talked about their oncology pipeline. I believe in Santa, but I'm not sure I believe in a tremendous amount of growth in 25 in Pfizer. So, I mean, it's nice, and certainly if they convey confidence, you want to really hope that they can deliver, because conveying confidence and not delivering is way better.

20:49Why would you say we're very confident about the guidance, unless you are very confident about the guidance. I mean, there's no reason to do that. Yes, that's true. And that's why it was up nicely today. However, you know, I've been pointing out the last few days, Pfizer doesn't go down on bad news. So I think it's sort of bottomed. But if this really is a bottom, this was kind of a tepid response, right? It's up nicely as a percentage, but only because it's so low. So I'm staying along. I am optimistic. I do think they will turn the corner. I like their optimism. I hope it's warranted. Yeah. These two burned Pfizer investors, Steve Grasso, are hoping for the best, but not assuming that it's going to come true.

21:31Is that the attitude you'd have about Pfizer, too? No, I'm more positive and I get why they're why they're they have a tepid response to it. But if you look at what's the difference between a Pfizer or Moderna, Pfizer has 50 drugs that that are just they're ongoing developing. They have 20 ongoing trials. Paxlovid sales up. Oncology, I think you mentioned that. Oncology, they have a huge pipeline in oncology. They are pivoting away from vaccines. They have something to pivot to. So when you said, and I think you're justified in saying, they wouldn't be this positive unless they were this positive.

22:14You know, when you look at the stock, it's down 8%. Moderna is down 60%. I think people try to classify these two things as the same thing. They are not. And Pfizer, I think, is in the beginning of a very large bounce higher. All right. There's a lot more Fast Monday to come. Here's what's coming up next. Merging lanes and businesses. Two Japanese auto giants may be coming together to take on EV giants like Tesla. What a deal could say about the electric landscape and how investors are plugging in. But first, brick by brick, one of the most valuable privately held companies is building up a big valuation.

22:51What the CEO says they'll do with the money and if an IPO could be on the horizon. You're watching Fast Money live from the NASDAQ market side in Times Square. We're back right after this.

23:12Welcome back to Fast Money. Databricks announcing today$10 billion in financing, valuing it at$62 billion total. That makes it one of the most valuable privately held companies in a growing force in the AI space. The data analytics company expects to generate positive free cash flow for the first time in the coming quarter. Deidre Bosa joins us now for an exclusive interview with the CEO, Ali Goetzee. Deidre. Mel, thank you so much. And Ali, thank you so much for being with us today. Let me put that number in context in another way. If this was an IPO, it would have been one of the largest by deal size of the last decade.