A Pre-Santa Claus Rally and Meta Hits a New 22-Month High 11/14/23

0:01Live 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. Off to the races. Stocks rallying in a big way after a tamer than expected inflation report. But is this really the all clear investors have been waiting for? Or is this pre-Santa Claus rally going to run out of steam? And the countdown is on to the Biden Xi meeting. What is at stake when the leaders of the world's two biggest economies meet face to face? And what might come out of this summit? Plus, the mega melt up in shares of Meta. Home Depot builds up big gains and Michael Burry's latest big bet.

0:33The stories behind these movers all coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feiderman, Julie Beal, and Chris Verone of Strategas, a Baird company. And we have to start off with that major rally on Wall Street. The S &P and NASDAQ both posting their best days since April. The tech heavy index closing on its highest since early August, the S &P jumping nearly 2 percent, the Dow up 490 points, and the big standout, the small cap Russell 2000, which had its best day of the year, up more than 5%. The move's coming after a tamer than expected inflation report.

1:07Further reassured investors that the Fed is done raising rates. A benchmark 10-year Treasury note yield tumbling below 4.5%. It was above 5 % just three weeks ago. And take a look at some sector standouts. Regional banks soaring 7%, flirting with the 200-day moving average for the first time since February. The builders less than 5 % from an all-time high. So was today a CPI print the green light for the markets? Got to go to Chris first on this one. What's changed here? It feels like everything has changed, has it? Well, it's the big question. Was today a game change for the market after what was a pretty squishy year, right?

1:39For most of the year, we were all talking about how narrow it was, how underwhelming the trends were. Does a 15 to 1 internal day today, we were 15 to 1 advancers versus decliners. Best day we've seen effectively since last year's low, actually really going back to the March 2020 low. Does that flip the script here? I think the big test over the next couple weeks is what does consumer discretionary do? If you look at the soft landings historically, 1994-95, 1984-85, 67-68, the one thing they all have in common is discretionary roared coming out of them. I like what we saw today. I think there's more work to do there.

2:14I think the other big question on small versus large, if you look at the IWM versus triple Q pair, that could rally another 15 % before it even gets back to resistance. So there's still some daylight in front of us here on those moves. Yeah, I think we blew a lot of those downtrends to shreds. I think you have, whether it's even the S &P, because between 43.50 and 4 ,400, people are like, ah, we still are still kind of on that downtrend from August 1. The Russell, to me, still has plenty of room to run. You know, the KR, we, I mean, and it was a big, big run in regional banks. And look, even if we have a slowing consumer and credit issues, I don't think that changed day over day.

2:52I think we have issues that are going to be confronted with a slower economy and a consumer that's finally catching up to spent down savings and possibly even joblessness. But I do think you have a case where banks have room to run. Again, the stress that was on these banks and that was certainly coming from interest rates. You know, we can dissect CPI all you want. There were some elements of it without getting too wonky that I think were really important. I mean, owner's equivalent rent looks like maybe it's stabilizing. You have some dynamics, I think, on the headline stuff. Energy prices were a big gift.

3:19But there's some elements of CPI that structurally look like they could be getting a little bit better. But mostly, I would also just, we're going to have a great and stick around for an international conversation later on in the show. The dollar's weakness sets up a lot of different asset classes, including resources and absolutely international. And I think it was an exciting day for that. Do you feel better about the markets overall compared to 24 hours ago? Do I feel better? I mean, yes, I do feel better than CPI that we didn't have a really hot number and that we didn't sort of reignite the Fed is active once again.

3:49Right. So that seems to be whether or not they're fully done or 25 basic points. I don't think it matters. But I think that they're not going to call success yet, but they're well on the way for having engineered this. And so that is good. I look at something like a Home Depot and that was nice. The earnings were fine. They were good. They were better than expected. But that's not why the stock was up this much. Right. Anything just remotely related to anything real estate. That was great. It seemed I thought we would have a little more of a rotation, maybe away from some of the magnificent seven, just because there are so many other things that are really cheap.

4:28Right. Right. The divergence has been so huge. I thought we would have a little more of a rotation than that. But the IWM to me was sort of the most impressive thing. Yeah. And that is Julie Beal's sandbox. The Russell, do you think there's still more daylight ahead, as Chris Marone said? Yeah, I mean, if you look at the spreads in valuation, they're still substantial between small, mid and large. And I think that's just a reflection that people still are a little worried about higher for longer, right? Yes, we're going to probably be at these levels and not higher. But if it's up there, it's still going to be difficult for these smaller businesses to refinance themselves.

5:02So while I'm super excited to see more enthusiasm around small caps, I recommend being very, very cautious and particularly focusing on businesses with really clean balance sheets right now. Let's say you believe that the Santa Claus rally is here or whatever you want to call it, the rally into urine, seasonal rally. Are we in this sort of sweet spot? Are we just in a sweet spot right now where the full impact of the past and the impact of rates has not hit the consumer yet? We're seeing the benefit of inflation coming down, but we haven't seen the really hard impact of higher rates. We're coming through a four quarter annualized 2.9 GDP on the economy with with 3.7 percent unemployment with credit.

5:42Nowhere a problem just yet. By the way, I was the guy yesterday that said I have to go back to this. I think I said something like I don't think the CPI could be much of a driver. I actually think I think we've had enough juice out of these things. So totally wrong on that. But yes. And I think that gets back to the banks. And I would go. And, you know, it's great having a guy like Chris here because we can suddenly look at a Bank of America chart, which challenges the 200 to the upside for the first time back in January. A lot of the banks, which obviously we know what happened in March, it was SVB, and how that hangover has haunted the banks.

6:12I think there's an opportunity here. And we haven't even talked about the fact that semis closed at an all-time high. Semiconductor sector, the leadership of this market. So you're getting the broadening of the market. You saw an equal aided S &P outperform, but you still have the leadership of the big boys. And that's really important. But, you know, I don't know. What do you do with banks? I think if you're short, you have to cover them, right? When you get moves like you saw today in bank stocks. I think the harder question, Tim, is we saw the curve actually quietly steepen today. That was one thing that actually surprised me.

6:40I actually would have expected a flatter curve today. Curves steeper, we know what we historically associate that with. We associate that with end-of-cycle dynamics, not new cycle dynamics. So I understand why the banks are up on that. But I do think we have to just ask what are the longer-term implications of that, particularly on a day, and I was surprised by this, copper did nothing today. If I was looking for an area, particularly with the dollar down as sharply as it was, I would have expected some response from copper, some response from crude, of which we didn't get. Wait, so does that mean that it's sort of a false rally, perhaps?

7:11Because you don't have the confirmation of the more cyclical areas? I think the message the market gave us internally says, game on, play long, cover your shorts. I think the question for 2024 is, does the steeper curve, does the lack of participation from things like copper and crude, Is that a harbinger of something else that's still out there to be determined? Right. So the bank thing that we were talking about, this in the elevator on the way to Studio B. This is what we do talk about in elevators, by the way. Very short. Brief conversation. Longer than actually this one will be, which was Bank of America had a huge outperform today.

7:44One, because it's had, you know, it's been really an underperformer. The metrics are very cheap relative to the other big banks. But also that big problem we talk about that held to maturity because they have so much exposure to further out the curve. And that's improving. You know, in the last few weeks, that's been a big move. That's actually better for lessons that bear case of the held to maturity being so bad. So that was a catch up trade. My exposure to JPM is that's where I want to be in the bank space. All right. For more on today's data and the Fed impact, let's turn to Mark Zandi, chief economist at Moody's Analytics.

8:17Thanks, Mark. Great to have you with us. You've been in the no recession, soft landing sort of camp for for some time. How does this change your calculus in terms of what you see the Fed doing, whether it be in terms of hikes, more hikes and or cuts next year? Well, well, Melissa, I think it just confirms that the right hikes are over. I mean, I don't see any reason why the Fed would view this report any other way than, you know, inflation is coming in and all the trend lines look really good. It was just an absolutely positive report. You know, I don't think the bar is pretty high for them to actually cut rates.

8:51I think they need to be absolutely sure that inflation is going to get back to their target before they do that and that Zandi's forecast is correct. So I don't think that happens quickly. That's probably not until mid next year. And then even after that, I think they cut rates slowly. But, you know, a report like this does just cement, I think, that path that they're headed on. And I think they should feel very good about the way things are going. Hey, Mark, it's Tim. I was not joking, but there is some sense out there that people saying the Fed has had nothing to do with this, that this is really just working through COVID dynamics.

9:26I don't think that's really true. And when the government gives away 25 percent of GDP, you know, reeling in both money supply, but, you know, having some of that stuff run offs, you get the impact we've had. Was there anything today in those numbers, though, in that core that structurally felt different about where we are in CPI that's Fed impacted? Good point. I mean, I think most of the improvement in inflation goes to the fact that the pandemic and the effect of the Russian war on energy and supply prices, that's now increasingly in the rearview mirror. And, you know, as a result, that's why inflation has come in and why, you know, the Fed hasn't had to raise rates more and why the economy is going to be able to avoid a recession.

10:06Having said that, the rate hikes have had an impact. Job growth is slowing. Wage growth is moderating. And that is having an imprint on the inflation number. So on the list of reasons why inflation is coming in, I would put the Fed at the top of the list. But it's definitely on the list. And it's helping get inflation back into the bottle. And without those Fed rate hikes, I don't think we'd be where we are today. Looking at these reports, though, the thing that makes me feel particularly good is you saw new vehicle prices finally roll over. And I think that's the beginning of a trend here. We're going to see new vehicle prices come in as we get better production numbers coming in from Germany and Japan.

10:51We should see more inventory and weaker car prices. And then, of course, the key is the cost of housing services, as you pointed out, Tim. That is moving in the right direction. And I expect that to continue, you know, over the next 6, 12 months. So everything feels like it's descript. But I wouldn't give the I wouldn't again, I wouldn't give the Fed a lot of credit here, but they certainly deserve some credit. So if they only deserve some credit, Mark, that implies that the full impact of the rate hikes have not yet been felt. So how do you think we will see them and why do you think that won't tip us into a recession?

11:22No, I think we've mostly I think we have seen the effects of the rate hikes. You know, the job growth is slowing. The labor market's easing. when wage growth is moderating. You know, the economy is, you know, abstracting from that third quarter number, which was gangbusters for GDP. It does feel like the economy is kind of throttling back. Unemployment is starting to move higher. So I do think they, you know, we've seen a lot of the rate, the effects of the rate hikes already. We've got more to come, but I think they'll be modest and, you know, sufficient to get the economy where it needs to be to get inflation back in the bottle.

11:54Mark, it's Karen. Thanks for being on. Let me just play devil's advocate for a minute. we have so many mortgage holders that have, you know, very low rates and those are starting to age. And they may be, you know, if they're 2000 or 21 vintage, 25, they may start to really see those effects. And you usually shouldn't wait to the very end to roll over. So I think that that does seem to be like a lot of current cash flow that mortgage owner, mortgage borrowers have that they won't have 18 months down the road. Well, I don't know, Karen. I mean, the bulk of the mortgages were made back in 2020, 2021.

12:30And those are 30-year or maybe 15-year fixed rate. So it's going to take a long time before those homeowners see rates adjust. And the only adjustment is if they move. And if they move, there's no problem there whatsoever. And here's the other thing. I mean, you look at total household debt, all liabilities, the whole shoot and match, cards and consumer finance, mortgages, home equity, student loans, only 10 percent of that debt adjusts within one year of a change in market rates. You know, you're right. I mean, over time, the rate effects will be felt, but that's over a long period of time. And I don't think it's going to do a whole lot of damage.

13:09Mark, great to have you with us as always. Thank you. Sure thing. Mark Zandi, Moody's. Julie Beal, I'll go back to the question we started the show off, And that is, is this an all clear? Because it sounds, you know, at least according to Mark, that we felt most of the effects of the rate hikes. And, you know, the data is coming in better. And you know what? Things are looking pretty good. Do you feel that same way or do you feel like we are in a window, a sort of sweet spot right now before things really hit the proverbial fan? Well, I think it's a question of tell me what you think the job market is going to do.

13:40And I can tell you how the rest of the economy is going to go. Right. It's everyone who's out there spending, and remember the economy is 70 % plus the consumer, everyone that has a job is happily spending their paychecks. It's been more towards services. We'll see if it goes more towards goods. But the minute people start losing their jobs, that's what really changes all the calculus for all of this because it doesn't just change whether or not people can pay for things. It completely changes consumer confidence and business confidence and their willingness to invest. And so as long as things remain positive in the job market, the thing is, it's really hard to architect a soft landing.

14:17It's really, really quite challenging. I'm encouraged by this CPI print, especially on the housing side. I think it's actually even softer than is predicted in the CPI. If you look at the Zillow rent index, it's actually much softer than what's in CPI. But it's a little early to call all clear. Yeah. Karen, you're asking about the idea that people would have to refinance or do their mortgages. that come due. And so is that a concern of yours? That for the consumer down the road? It is a little bit. I mean, I sort of, I imagine people have time to get ready for that, but maybe they don't. Maybe they just wait till the very, very end.

14:55I guess, you know, Marks, I imagine that we're going to see more turnover. That's great. People have 30 years, but they don't really live. Very few ultimately make it to a 30 year mortgage, right? You have to move death, right? More kids, whatever, that we're going to see. It's kind of a downer. I mean, you know. Well, you have more kids. You get a better job. You move. Good things. All great things happen to you, and you need another mortgage. Right. And so you're going to have less spending power if you're paying, you know, 400 basic points more, for sure. But I would push back a little bit on the housing rally today.

15:27Like, I don't, I mean, the XHB moving 6 % and going within 3 % of all-time highs, really, I don't think so. I don't think the housing market has that kind of strength behind it. And I realize the components of the XHB, including things like like Home Depot and, you know, housing companies, Williams-Sonoma, et cetera. But I mean, I ultimately do think that these are dynamics. I think the housing market is going to continue to weaken. I think the consumer will at some point not have the job they have today. And I think those are dynamics that aren't necessarily awful for the market in the here term.

15:59But I get why there was so much pressure from rates on the housing market, but I would be fading in that SHB move. Housing moved as if mortgage rates were going down by integers. Yeah, come on. As opposed to, you know, percentage, you know, fractions of a percent. Well, I'm still struck by this view, and a lot of the economists have it, that the market's rallying here because the Fed will be able to gradually bring rates down next year. When in history has the Fed been able to gradually bring rates down? I would be more comfortable saying the market's rallying because the Fed won't have to cut next year.

16:28I think predicated on the strength is that the economy hangs in there. And we're going to have to use stuff like housing or consumer to make that judgment. All right. Well, meantime, the growth trade broadly outperforming value this year. But one of our traders is pointing out a divergence in how small and large cap growth stocks have fared. Let's go off the charts with Chris. What are you looking at? Well, I think this is really interesting because it's the exact opposite of what was playing out a year ago. So one year ago, if you go back to last fall, early last winter, you had a growth versus value actually making new lows.

16:59And it was making new lows among the large caps. But it wasn't making new lows among the small caps. The growth names in the small cap world began to turn up about a year ago. Fast forward to right now, it's the exact opposite. You have the large cap growth, as we know, as dominant as it's been over the last number of months. Curiously, small cap growth really hasn't worked here. Small cap value has been pretty dominant over small cap growth the last three or four months. So I wonder kind of what that message is. Is it the market hinting at us that maybe we should dig into these value stocks and try to find some areas that in any broadening of the market where we want to play?

17:37So I think there's a couple names here probably worth talking about. Industrials have been a favorite of ours. Parker Hannafin, I think, is a great example of something in the value index that has just been neglected all year. This is a stock at new absolute highs and new relative highs. Very much a standout within industrials. PACCAR, PCAR, another example of that. And what we like about this one is the sell side hates it. There's like about 20 analysts who cover it. There's only five buys on the name. Another stock that all year, despite the emphasis on growth, has exhibited leadership. And then lastly, if you want to stay with tech, look at IBM.

18:13I mean, this thing is finally coming. Really? Is that what we got to do on a day like today? We got to do it. I got to go to IBM. Those were the down days where my glass was half empty. I mean, this is coming out of a 10-year range. It reminds me of Microsoft, say, 10, 12 years ago, when no one would even consider Microsoft on the long side. Another name the analysts hate, 23 analysts covered, I think, four or five buys. So look elsewhere if this thing is broadening out. Julie, you like any of these names? Yeah, I like most of them, especially IBM. I think companies like IBM are the type that are actually going to benefit from AI in that they are a trusted resource in terms of guiding enterprise companies into how to do this, right?

18:50And if you already have your exposure to Google for your AI, I think this is also an interesting one. And I love that when it's so hated, typically there's just no more sellers left, right? And those are the ones that can be a really nice opportunity. Karen, do you like either of these industrials, PACCAR or Parker Hannafin? I don't know them so well, to be honest. I mean, my industrial heart is with URI, and that's been a decent place to be. I do have a question, though, for either Julie or Chris. When you say small caps, in your view, is that$10 billion? What is it? You know, it's funny. You would answer that question very differently a handful of years ago.

19:28The small cap index has been brought up so much. I think you're dealing with somewhere in the 5 to 15 neighborhood, which sounds absurd relative to what we would have said 10 years ago. But I just think the reality of the indices put you kind of in that cap range. Yeah. Same for you, Julie. Yeah, absolutely. Right. It's sort of there's a lot of dispersion where you have a lot of the micro caps. And then there's kind of this gap between, let's call it one and five. And then suddenly between five and 15, there's a lot more populace there. So it just really depends how you want to define it. But my clients certainly like to give me a hard time about it.

19:59That's for sure. Coming up, a massive run for meta. Shares have nearly tripled over the past year. But can the stock keep climbing the social ladder? We'll debate that next. Plus, building up gains, Home Depot shares surging after a big earnings beat, even as home improvement sales level off. We'll hammer into why investors were so constructive on the name when Fast Money returns.

20:25Welcome back to Fast Money. Meta's mega moves. The social media giant has been on a tear over the last year. At last November's lows, it was a sub -$90 stock. Now it is more than$333 ,000 $36. It's nearly tripled in just over a year. The stock is now at its highest level since February of 2022. At what point does it get expensive? It's more expensive for sure than it was. But I think that 89 is really it's a red herring. It's it never should have been there. It never should have been there. At that time, I think it was trading at maybe 11 or 12 times earnings. So, I mean, now it's in the low 20s, slightly above a market multiple, which it seems it should have above a market multiple.

21:09$25 billion of cash. It's a cash machine. I mean, there's a lot to still like about it. I thought that last quarter was really good. The overreaction to the earnings last quarter was kind of ridiculous, which, you know, I just think they were giving conservative guidance in the world that was in somewhat of upheaval. So I still like it. I think all of the things, the pillars that brought it here are still there. It's actually harder now. It's a much bigger position that I wrestle with. It's a good problem to have. It is. So often what I do when I have that problem is sell upside calls and then deal with a different problem.

21:42I remember getting it from 90 to 120 and thought I had a good trade. And here we are, 200 bucks later on the stock. This is a stock that's been above its 50-day moving average effectively every single day since December 23rd of last year. So I think if you're long and you're trying to protect the position, so long as you're above the 50-day, you stay long until the fact change. The dynamics around meta that also allowed it to participate in the AI rally, I think, are real. I mean, I think of the mega cap tech companies that truly get the benefit of AI. It's Facebook. And, you know, you talk about reels and you talk about some core businesses that get them straight into the consumer.

22:20This is part of where they get past just being so tied to the ad revenue or at least those dynamics. So I'm long meta. I think it goes higher. I think the valuation is still somewhat defensive. And there's no question you have people that are chasing this. And I think a lot of people are still underweight. All right. There's a lot more fast money to come. Here's what's coming up next. Home Depot looking tough as nails after earnings. But it wasn't home improvement sales that had investors building their stakes. The tools of that trade next. Plus, the U.S.-China relationship in focus on the eve of President Biden and Xi's highly anticipated meeting.