A Consumer Canary In The Coal Mine… And An AI Bubble Warning 03/25/25

0:02Live from the Nasdaq market site in the heart of New York City's Times Square, this is Fast Money. Here's what's on tap tonight. A consumer under pressure shares a Walmart sinking as a new read on buyer sentiment hits 12-year lows. Is there still hope that the consumer can come to the economy's rescue? We'll debate that. And a big warning on AI from Alibaba chair Joe Tsai. Why he's scared of a bubble forming and whether you should be too. Plus, is copper telling a completely different story about the state of the economy? What options markets are saying about Tesla as That stock tries to mount a rebound and a big win for a win as one billionaire investor ups his stake in the casino operator.

0:38I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Dan Nathan, Guy Dami and Mike Coe. We start off with what could be a consumer canary in the coal mine. Walmart tumbling more than 3 percent today on the back of the worst consumer confidence reading in more than a decade. Shares now down 6 percent this year. The conference board's gauge of buyer sentiment falling for a fourth straight month. while inflation expectations rose to their highest level in nearly two years. Less than 40 percent of consumers say they expect stocks to rise in the next year.

1:09That's 10 percentage points less than in February. And just 16 percent say they expect job openings to rise. The implications being felt throughout the consumer space, from dollar stores to department stores, luxury to athletic wear, those stocks all seeing outsized losses in today's session. So does this latest data suggest chances for a recession are higher than we might think? Guy, what do you think? Well, the delinquency rates suggest you're already in a recession. I mean, serious delinquencies, 90 days are over, north of 11.5%, which is the highest we've seen in about 14 years. The mainstream media is now picking up on this.

1:42And I think it's concerning because we're not in a recession, yet you're seeing these rates, the highest growth rate since the great financial crisis. So I think it's a problem. And if you look at the home building stocks and the way they've traded and some of the commentary out of them, it's problematic. And if people are concerned about their jobs, Tim mentioned this last night, The last sort of the shoe to drop is the unemployment rate. If that starts ticking up, yeah, we're going to have problems, Jim. It's all about jobs. And while the confidence numbers certainly give you some sense of where the consumer is ready to spend and housing numbers are showing some of that weakness and durables are showing it, it's really about whether you have jobs.

2:16And it's interesting because UBS, who in a note out there today, said that the consumer looks visibly tired. And yet they're out there reaffirming 2 percent growth in 2025 from 2.3. So downshifting, but not saying we're anywhere near recession. In fact, it's fascinating that suddenly we have people saying we, you know, whatever the percentages are on recession or north of 50 percent suddenly for the first time. It's a very different view than what I think you're getting from the labor market. The labor market is not telling us that. The Fed is not concerned about that either. So and I would echo the fact that this was slowflation.

2:48I mean, this was this was, if anything, the consumer confidence read into it what you want about the economy. But there's no question there was inflation in there. There's no question. You look at the 12 month mean inflation expectations. So one year out and they're up to six point three percent. They were about five percent back in November and they're back pre covid. They were in the mid four. So inflation's back. The Fed has to be careful about this, but the economy is not falling apart. Yeah. Well, just say what's showing it, what's not showing it. Retailers, the stocks are kind of telling you that right now.

3:16We just got through their earnings period, you know, I think over the last few weeks or so. And the stocks acted really bad. And I think you brought up Walmart here. That was one that was a very crowded trade. Costco is very crowded trade. No one cared about valuation on the way up. They certainly did on the way down. So to see a market like we're in right now and not see Walmart bounce at all. The flip side of this is that, you know, when you look at this consumer data, we had the University of Michigan, I think, two weeks ago or so. It really was split right down, but split right down Democrat and Republican.

3:45The Democrats thought it was much worse. The Republicans thought it was a lot better. I guess the risk to that is you look at this piece of data here. And if it starts kind of coming together a little bit, if the housing market starts to weaken, if you see inflation start to pick up a little bit, then you're going to see kind of everybody be in that camp. And then it's going to not be a great situation, especially when you think about if the stock market is heading lower and you have housing that's kind of locked up, that wealth effect that you might expect in a good economy kind of goes away, too.

4:10I mean, that's, you know, when Jay Pell was speaking after the press conference, Mike, he was ready to say that the U-MICH data was an outlier. It was one data point. Here we have consumer confidence. And at a certain point, all of this soft data, as it's called, goes into the hard data. And so I'm wondering what you think in terms of at what point does the market think, oh, it's going to be in the hard data? Do you think it's already going to be in the hard data? Yeah, I think it is. There's a reflexive impact, of course. You know, I mean, as people sit here and watch shows like this one and they see that the data is coming in weaker than some people may have expected.

4:42I think that that's going to cause some pause where I'm kind of interested to see what's going to happen. and we've got Lulu reporting later this week, you know, it's the consumer discretionary spending that I think is, you know, that's gonna have the most flexibility, right? So people going out and buying toilet paper, I mean, maybe they're buying smaller packages, but they're gonna continue to buy it. Are they gonna continue to do the discretionary spending? That's really the issue. Those are the people that have the luxury to continue to spend if they want to, but the flexibility to not do so if they are, you know, getting increasingly concerned.

5:13You know, look, if we do see a lot of government spending cuts, that is going to end up playing into these figures as well. There's only a certain amount of government spending cuts you can impose on an economy that was previously thought to get about 2.1 percent of GDP growth and not have a material impact. So those estimates coming in, I think that some of those, that trimming is actually a little bit conservative. I might actually think that you would trim it a little bit more. Maybe they just don't think they're going to get those government spending cuts. Yeah. Interesting to hear where Mike's cutting back.

5:45He's saying other people They might buy smaller packages instead of buying, like, the bulk value packages. Small packages or sheets? I don't know. I like, you know, four rolls instead of, like, 36. I like the big rolls. First of all, I get in trouble when I come home with the wrong kind of TP. Some of the commercials are getting really racy on the toilet paper front. But, guys, there's a trade here. Interesting you should mention that, Melissa. So I do think people are, and, again, I do think it comes down to charge-offs and delinquencies. An American Express report, I think, on April 17th. Pull up a chart.

6:17You have not seen that dramatic itself in American Express in probably five years, but you saw it recently. Yeah, we've bounced off the bottom, but their delinquency rates are starting to tick up as well. And I think that's going to be a huge tell going forward. Not that I want to go back to toilet paper. You did it. You did it. I think that the real point is that there is a chilling effect on consumers. If you think about, for instance, if you're a federal worker and you think your job might be on the line or you're a contractor tied to federal contracts, your job might be on the line. If you are a person who is here whose immigration status might, you know, you're not a U.S.

6:50citizen, you might be afraid of being deported. By the way, I got this from the CEO of a major company that I spoke to this afternoon. So this is not coming from me. But if you're out there and you think that you're, you know, you might be deported, you might lose your place in this country, you're not out there spending the way you were spending before. And that's just the effect. It's a devastating time for people. And I do think that there are people that are very nervous right now. And to the extent that spending is going to be affected, I would just get back to a Walmart, though. I love Walmart.

7:23I'm long Walmart. But Walmart's trading 55 percent, even after a pullback, north of its 10 year P.E. There's nothing cheap about it. it was priced like a growth stock. So at a time when you're punishing growth, why? I mean, Walmart wasn't responding today to a consumer confidence number, if you ask me. I think it was just the dynamics around what we've seen as an unwind of a crowded trade. And I think sometimes they can look the same. I think you also have a dynamic here where you really do have discretionary stocks that have been torched for six months now. And I bring back names like Decker's and those names that were trading as if they had AI and data center in them as well.

8:02So I think part of what we've seen over the last call it month, but one of this, you know, the velocity of this pullback, we've all talked about it, is something that has been rare. And it's actually happened very quickly. But it's happened in names where the valuation really didn't make sense. And the rotation into names that actually are, in some ways, representative of the real economy don't tell you recession. And how can copper be at all-time highs if we're in recession? This is not just shenanigans with supply. I mean, Dr. Copper is, in some level, a measure of economic, at least, growth or resiliency.

8:34We'll talk about Copper in a little bit. But, I mean, to your point about the unwind would have happened, I mean, that goes back to the question of you go back to February highs and you wonder, would we have seen that pullback? Is it because the data changed? Is it because we're afraid of confidence by CEOs turning on a dime, things like that? Or was it just that was the excuse to unwind crowded trades like the AI trade? was today's confidence number an excuse to unwind the crowded trades like a Walmart. Yeah, well, they didn't get that unwound either, if you think about it. I really do think it was kind of consumer-related.

9:04You know, it's funny on the copper thing. I mean, you could say it's not reflective of an economy that's about to go in recession, and then you could go, and Guy will probably make this point, you look at gold. What is gold telling you? It's not telling you anything similar to that copper. It's basically telling you that there's a lot of worry there from institutions, from central banks, and the like. So, you know, I thought today they kind of held in there. And given that sort of news, I just don't think investors are ready to pull the plug on the U.S. consumer right now. And, you know, you think about what we talked a lot about when the S &P was down 10 percent or so.

9:33You know, Treasury Secretary Besant, they don't care about the stock market. Trump said they don't care about the stock market. They obviously do care about the stock market. It'll be really interesting to see if February or April 2nd comes next week and they don't really kind of lay off on some of these tariffs and the stock market doesn't like it. It's going back towards 5 ,500 because when it goes through the lows, if it goes through those recent lows, I think you're going to see a different demeanor from this administration. All right. Let's bring in Terry Lundgren, Macy's former chairman and CEO.

9:58He joins. He now runs TJL Advisors and is executive in residence at Columbia Business School. Terry, great to have you with us. Thanks, Melissa. When you see these consumer confidence, consumer sentiment numbers, how concerned do you get when you were CEO? Did you look at those numbers and think, oh, boy, we're in for a slowdown here on the part of the consumer? Historically, no, because there wasn't a direct correlation between how consumers felt at the moment and how they spent moments later. In fact, I would say consumers have historically been really bad forecasters of what they will actually do in the future.

10:36So I would say I wasn't worried about it in the past, but I think that's a little bit different today. And you all have touched on it just now in your conversation. conversation my biggest worry melissa is that this is just part of a package of numbers that are going to eventually come out uh that are combined will have show some concern and the biggest one of all and you touched on it to me is jobs you know and so when consumers lack confidence and they're thinking about you know is this is there going to be a slowdown and is by the way the person neck my next door neighbor lost their job i mean i still have my job is my neighbor lost our job?

11:14Does that mean that I could potentially lose mine? And I think when that starts to filter into the psyche of the consumer is when there's going to be a slowdown, that's when jobs are going to be affected. Because obviously, I'm talking to CEOs, and they're thinking about the same thing. Do I invest in a consumer that has been on a terror for the last two years? Or is that going to slow down now? And should I be a little bit more cautious with my inventory decisions. Terry, I've thought for a long time that what scares the the jobs, obviously, but what scares the consumer, regardless of whether or not they own stocks, is a precipitous decline in the stock market when the six o 'clock news leads with big sell off in the stock market.

11:56And when that takes place over a couple of weeks, we've seen consumer spending stop on a dime. Is that something you've noticed over your years or am I just making this up? No, because, I mean, you know, even though, well, first of all, as you as you all know, So there's been more participation in the markets from the average household income in the last five, six years than there has been previously. And so there's more people invested. But most people or many people who are working today have got a 401k or have got company investments. And so, yeah, it matters. And they think about that. And they're counting on that.

12:30You know, they were counting on that plus the growth of their home as, you know, their future nest eggs for retirement. And if those two both become in question, clearly that causes people to slow down in their spending. Hey, Terry, it's Tim. While we're the traders and we're supposed to really have a sense of where the market is punished certain stocks. I'm reading your notes and you're talking about, say, dollar stores and saying you think that they're still really under a lot of pressure. And one might argue they've been de-risked because these have been some of the worst performing stocks in the market over the last couple of years.

13:01I'm curious whether you think they are broken in terms of their model. and at a time where Walmart is taking in more affluent consumers and really seems like they're winning in all segments and demos, do you think the dollar stores are under more pressure? We know they're under more pressure. Do you think that their model is challenged? I do, but I think there's a lot going on. You touched on it. I know you were all concerned and commenting on the Walmart stock performance today, and perhaps you guys know better than most about whether they're overvalued or not in terms of PE multiples. But they're such a strong performing company on so many levels, I think with miles to go before they sleep.

13:42I mean, just watch what they're doing on an innovation standpoint. And they're continuing to reinvent what didn't necessarily work for them in the past. And I think they're going to get better and better. And that will negatively affect other retailers. They're just too big of a share of total consumption for a retailer. So they will affect the dollar stores and others. The dollar stores are affected in many ways, though. I mean, think about that that lower household income consumer that we're talking about here, the lower and low middle household income consumer. That's what they live on. That's what they they thrive on, that that consumer.

14:20If there's, you know, immigration concerns is some of those consumers. They're not shopping. I mean, they're not in those stores and exposing themselves and out there spending money on discretionary items. So, you know, is it broken? You know, I think there's a lot of issues that is affecting the dollar store category right now. It's going to continue for for some time. Terry, this may be an unfair question, but I'll go ahead and ask it anyway. And I know you're not a stock picker, but but if you were forced to choose, would you choose Macy's the stock or Walmart in this environment? Ah, that's a tough one, because I own both stocks, but Walmart, because they're already doing well.

14:59And I think Macy's is the nicest neighborhood in a difficult or the nicest, you know, home in a in a difficult neighborhood, if you if you will. I think the category of mid-price department stores has been under a lot of pressure at both ends, the high end, the specialty stores, the brands opening their own direct-to-consumer opportunities with physical stores as well as direct-to-consumer. And so so I think they've been under under under pressure. But I think now you're seeing more and more of those mid tier, particularly the lower mid tier. If you if I if I if I can point to a couple like pennies, of course, has been obviously under tremendous pressure.

15:39Cole's been under a lot of pressure. I think making Macy's can actually take share from those. But I think Macy's has some work to do first to get their house in order. I have a lot of confidence in Tony Spring that he's going to do just that. I've talked to him about his strategies, believe totally that he's on the right track. So given the time that he's got, I believe that they will be able to take share from some of the others in the category. All right. Terry, always great to speak with you. Thank you. Thanks, Melissa. Terry Lundgren. He also likes, by the way, T.J. Maxx, Ralph Lauren, Coach Berkenstock in terms of standout retailers and operators.

16:13Mike Coe, what do you think? Well, as far as Macy's is concerned, no disrespect. I have to say I wouldn't really be interested in picking up anything that is just declining on the top line. You know, you have a little bit of leverage on this balance sheet. Obviously, they have a good cash position, probably about 1.2 billion bucks. But I don't see any reason to reach out in a market that's shopping around like this and start picking up stocks that are seeing real year-on-year declines in sales. In a market where we've seen actually rotation into value, into real economy stocks, into equal weighted.

16:47So just look at the forms. The XRT or the retail measure has underperformed a underperforming S &P by 13 percent since Thanksgiving or the day you're supposed to run out and go buy your holiday stuff. So I think the consumer remains under pressure. I don't think that we're falling into a recession. I think there also had been such pent up demand that in a lot of these discretionary categories and even travel, we've talked about this, where it seemed like, OK, we'll spend money on services now. We'll go on a trip. We're seeing some pressure there. We've heard from the airlines. They've all downgraded, essentially, first quarter.

17:16And I think that's something that doesn't change overnight. It's not just market sentiment here. I think this is a real shift. Did you catch Terry Lundgren, who, by the way, is out of Central Casting, dropping a little Robert Frost on it? Did you catch that? No. Oh, yeah, he did. Miles to go before I sleep. Oh, yes, yes, yes. I mean, come on. Why Central Casting? He looks great. I mean, that's a handsome man. I mean, if I'm thinking like a CEO. Central Casting implies he's impersonating something. No, not at all. I think people should strive to be like Terry Lundgren. With that said, TJ, I do.

17:47Very handsome. TJ Maxx has been bulletproof. It's actually sold off over the last couple of weeks. That has always been an interesting stock year. Coming up, mainland matchups. The details behind Merck's latest China deal and why the pharma space is going overseas to access new drugs. That's next. Plus, doubling down on wind. The headlines helping that casino stock cash in even as its rivals flop. We're talking everything gaming when Fast Money returns back in two.

18:12This is Fast Money with Melissa Lee, right here on CNBC.

18:23Welcome back to Fast Money. Merck dropping almost 5 % to close near session lows. The company announcing it will pay up to$2 billion for rights to an experimental heart disease drug out of China. The latest in a string of pharma deals for medicines developed by Chinese biotechs. For more on this and all the China deals, let's bring in Angelica Peebles. Angelica. Yeah, Melissa, this is just the latest deal out of China from Merck. They did a cancer deal and an obesity deal with Chinese companies late last year. And just yesterday, Novo Nordisk announced that it was licensing an obesity drug from a Chinese company.

18:53And late last week, AstraZeneca also announced licensing deals with two Chinese biotechs. So far this year, 42 percent of big pharma deals with at least$50 million up front have come from China. That's according to data from Dealforma. And that is up from 30 percent last year. And get this, zero in 2019. We're seeing large pharma companies and private investors essentially importing Chinese molecules. That's a strategy that's less risky than an outright acquisition. Plus, it's also less expensive to buy one drug versus buying an entire company. Now, dealmakers tell me that the drugs coming out of China are better than ever before.

19:27And Chinese companies can test their drugs faster and at a lower cost than they can here in the U.S. The drug that Merck is licensing today is already in phase two trials in China. So Merck will need to test the pill around the world to get it approved in the U.S., but they already have a head start. Mel? Angelica, is there a sense that there had been a rush to do these deals either ahead of or just when Trump was elected? Because it seemed like there was just an onslaught of deals all at once. Yeah, it's an interesting point in terms of the timing, but I haven't heard that there's any correlation in terms of the Trump administration and these deals.

20:02And in fact, you know, there's this debate right now whether this is a risk or an opportunity. And, of course, different people will tell you different things. Some people say this is actually good for American companies because maybe it'll make drug prices less expensive over time if it takes less money to get a drug approved. You know, when you're importing these drugs and the American companies are getting the value. Obviously, there's another side that will tell you this is bad for U.S. biotech companies because maybe, you know, if big pharma companies like Merck are not buying those biotech companies, they're just going to China and getting what they need.

20:33That'll be bad for the industry. So there's two sides of it, but we'll have to see how it plays out and if the Trump administration does take a closer look at this. Angelica, thank you. Angelica Peebles. By the way, a lot of these deals are very cheap up front. It's usually a$200 million payment. So it's almost like an option. Yeah. I think a couple things. You know, the performance day of Merck was awful. A lot of the big cap pharma names. I think people in the pharma world is something called LOE, loss of exclusivity. And around Keytruda, there's a concern. And I think the – why are you laughing at me?

21:04Because it's like a Tim thing to do, to throw out an acronym. Well, he Tim does ARPU and those things, and I think you do explain that. I dropped an LOE on you. No, it's good. Well, some people might say, you know what, I'm glad you explained it because I didn't know. That's what we do. We want people to – That's right. We don't talk about that. We don't talk about that. You're a man of the people. You're a man of the people. Anyway. I mean, there's this gigantic hole in terms of Keytrude. I think the market's concerned. They look at this as sort of a, I don't know, this is sort of a Hail Mary type of thing, and it reeks maybe of desperation.