A Puzzling End To The Week… And More Room To Run In Energy’s Price Spike 4/5/24

0:03Live 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 stock surge that had us scratching our heads. Major indices rebounding from yesterday sell off in a big way, even with a slew of evidence that the Fed may not cut rates anytime soon. What gives? We'll try to decipher the action ahead of a busy week. Plus, a high energy trade. Crude oil hitting its best level since October. The S &P energy sector at all-time highs. Can the rally keep rocking? And how should you play the moves? And later, a rally 10 years in the making.

0:35The chartmaster has his eyes on this name that just recouped a decade's worth of losses. We'll find out what it is and where he says it is going later this hour. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Guy Adami, Mike Coe, and Julie Beal. We start off with a perplexing end to a volatile week. Stocks surging on Friday with the S &P gaining more than 1 % and nearly erasing all of yesterday's losses. The Dow and NASDAQ also higher today. The gains coming even after a hot jobs report pushed the prospect of rate cuts further down the road. The economy adding 303 ,000 payrolls in March, more than 100 ,000 above expectations.

1:11That took the possibility of a June cut down from more than 65 percent yesterday to about 50-50 right now. Add to that more hawkish talk out of the Fed. Central Bank Governor Michelle Bowman adding to the course today, saying another rate hike might be needed. A hike might be needed if inflation remains high. We'll get more data on that next week with CPI and PPI reports, both on the calendar, not to mention the kickoff to Q1 earnings season. And if all that wasn't enough, the ground was literally shaking under investors' feet this morning when a 4.8 magnitude earthquake hit the New York, New Jersey area.

1:42So after a hot jobs report, all this feds to an actual earthquake. What happened today? What happened? Well, and mercury is in retrograde, which explains if Guy's a little moody, apparently that's one of the byproducts. But, you know, and my wife tells me the locusts are coming and we have an eclipse next week. So, I mean, take cover. But if you think about the week and we question whether it was the geopolitics that were front and center yesterday, really whether it was the chorus of Fed speak. And again, I'll just say it was the chorus of Fed speak. A week after the Fed lit the market on fire, the Fed had to dial it back this week.

2:17But when you get a payroll number, that guy cover your ears, I think, was Goldilocks. You know, you have a combination of you had wage growth, but it wasn't too hot. You had a better participation rate for the labor force, which is broadening, which is very, very good. You have a payroll number that comes after a day when we question whether, you know, the Fed was not going to let the economy breathe and was going to kind of squelch it out. So I think very impressive. I think the fact that earnings season is coming up next week, along with a couple inflation prints, you have everything to take the market higher.

2:46I know it seems as if you've got a dynamic here where this was a week where it was glass half empty on almost everything. And yet look at that finish. I, you know, I'm half full. Throw that on top of the fact that clearly Tim is playing hurt today. He's a little hoarse. You hear that? No, but I appreciate that. He shows up. There's no I in the word, Tim. Well, I'll get carried away. But again, we play the game. If you had told me all these things, I mean, given yesterday's action, like we're down another 50, 60 S &P handles, obviously we're not. But the gold market then should have sold off today.

3:18The gold market actually went higher today. Bonds traded. so many yields traded up, I should say. So, so many strange things. But I'll say this as well. The one thing that stuck out to me amongst all the things we just talked about, the fact that the VIX effectively closed unchanged. And I think it still has a 16 handle, which is remarkable given the run that it's had and given that historically, when I say historically, the last couple of years, on a day like today, it would have been down a couple of handles easily. The other thing we didn't mention was that warning just yesterday from the CIA saying that Iran might strike Israel in the next 48 hours.

3:52So that's still potentially on the table. Going into a weekend, Mike, we saw stocks higher. That also didn't seem to make any sense. Yeah, I think what Guy was just talking about with respect to the VIX is pretty interesting. So even net of today's big rally, so a 1 % move today, a 1 % move yesterday. If you just take a look at the past 30 calendar days, You know, really, the S &P is moving with about a 10 percent implied volatility, much, much lower than what the VIX is currently implying. And what that tells me is that some of these concerns that we're talking about, like the possibility of, you know, a conflict between directly between Israel and Iran is something that is being discussed.

4:33You know, that kind of an environment, it shouldn't necessarily be good for equities. But the economic data, and I think this is what Tim was speaking to, has generally been pretty good. And, you know, for as long as we're running as big a fiscal deficit as we are there, that is the propellant, I think, that can sort of make up for the monetary propellant that we had in prior years. And I'm not necessarily saying that's a good thing from a budget perspective, but it is an element that helps support risk assets. I mean, the unemployment rate remained under four percent. Participation rate went higher.

5:02This is the first time it happened in a while, Julie. I mean, are you also glass half full here? I mean, the growth is there. This jobs report is telling us. Yeah, I think what I'm encouraged by is I find it pretty frustrating when we kept having, you know, good news is bad news because the focus is so much on the Fed. And what it really comes down to for your long term stock returns are what's happening with earnings growth. And I think what, you know, the jobs data is showing us is that this is a very resilient economy that can handle a major increase in interest rates and still deliver on that.

5:33So the question then becomes is what does the earnings forecast look like for the rest of the year? And I think if we look to what happened in 2023, most companies were worried about a recession and they got themselves pretty trim and fit. And so I think we start to see the benefits of that from a margin standpoint going into 2024. So it depends on the company, obviously, but I think we're in a good position, economically speaking. So on this beautiful Friday, I mean, I don't want to be the Debbie Downer in the group, but since I play that role typically, I'll play it again real quick. I mean, Obviously, look, a lot to love, 3.8 % in terms of the unemployment rate.

6:08Here's one of the reasons I think yields might have gone higher, because if you look at the trajectory between full-time jobs now and part-time employment, those are crossing over the wrong way. Part-time employment is going through the roof. Full-time jobs are going down. That tells me, and this is just my interpretation, people need more jobs, two jobs, because they're trying to combat inflation any way they can. And that, to me, reeks the fact that inflation is still a huge problem. You want to find something to poke at. Of course I do. But I started by saying it that way. Right. That was the thing.

6:43So let Debbie have his way. And I think you've got a case here, though. If rates are higher and there's a backdrop that I think at some point we know there are sensitivities to the equity market in higher rates, whether it's four and a half, whether it's going to be five again. This was a week that was also interesting because, you know, Microsoft got all time highs. You know, you have these upgrades of Meta and Google. So whether it's Fab Four, Super Five, less than seven, but in addition to the 493, the fact to me that we could get the 12.5 % earnings growth that the market's expecting, and even if it comes from this group of stocks, that are going to do better when rates move higher.

7:19So for the market itself to move higher, you still need that participation. Meanwhile, again, it was a week where look at airlines, look at Delta. You know, we're going to talk about United. They have their own issues. But look at banks, look at industrials, look at transports. I mean, the participation is here. And it's not just that, you know, energy and health care, which have particular drivers behind them. I think, you know, it is a market that's getting everything. Are you constructive of the markets? Are you bullish of the markets? Are you reluctantly bullish on the markets? Very reluctantly bullish.

7:50It doesn't mean I think you're chasing here, and this is part of the problem. and we know all the money that's on the sideline in terms of money markets and whatnot. And I think it is kind of that wall of worry that still makes me feel like we have to go higher. I also just, you know, I point this out because we're talking about Mercury retrograde and we're talking about all these other things that are more astrological. This is one of the best investment times of the year. April is one of the best months of the year, especially for the NASDAQ and especially for mega cap tech. So it's hard to ignore that, even though then we get right into selling mega.

8:20So the seasonality issue. Yeah. Julie, are you bullish too? Are you reluctantly bullish? How do you feel? I mean, I'm always pretty reluctantly bullish. I mean, I'm often told by clients I'm the gloomiest growth investor they've ever met. So I'm always worried about what is lurking behind. But I do feel more optimistic seeing more broadening both in jobs and also in terms of what's happening in the stock market. That makes me feel a little bit more optimistic. Do you think earnings will deliver, Guy? No. You don't? But I mean, you know, so color me a skeptic. What do you think is going to be the theme?

8:54In the aggregate, I think it's$245-ish is consensus, and I think it's 12.5%, maybe 12 % earnings growth this year. I just don't see that. The math doesn't work in terms of where GDP is and in terms of, I think, with all these now reacceleration of inflation, I think that's going to hurt earnings. That's just my opinion. If it comes out and everything's fine, that's why the market is rallying. But I'll say this as well real quick. I mean, this is still since March 8th, that Friday. So what's that, four or five Fridays ago? That reversal in individual stocks that has not been violated. And to me, despite what we saw today, despite what we saw yesterday, still reeks of a potential short-term top.

9:35All right, let's get back now to the March jobs report. The economy adding 303 ,000 jobs with the unemployment rate staying at 3.8 percent. Average hourly wages ticking up slightly. The labor force participation rate inching closer to 68 percent. That's encouraging to our next guest. Joining us now, Constance Hunter, Senior Advisor at Macro Policy Perspectives. Constance, thanks for joining us. Sure, my pleasure. Why did you pick the participation rate out in particular? Well, because it jumped up, and that's a really good piece of news, right? Because when you look at this headline number, you could say, oh, my goodness, it's going to cause inflation to reaccelerate.

10:12And the crux of why it's not has to do with supply. So greater number of people supplying labor means that it's less likely to be inflationary down the road. How does immigration factor into these numbers, in your view? Yeah, immigration is a really important part of this. We are adding workers when we need them, right? So we had sort of a lower increase in immigration during the 2000s. So if you go back to the 1990s, we had a much larger flow of immigrants. We have a strong economy that often attracts people to come to the United States. And it also means companies are applying for the HB1 visas in greater volume.

10:53We're starting to see that again. We have a strong economy. Employers are looking to bring in workers. And of course, we have people coming here seeking work. Hey, Constance, it's Tim. Thanks for joining us. You're focused on macro. What's the move in gold telling you? This is somewhat counter to what the equity market is doing and maybe even what the bond market is doing. Yeah, that's a great question. I mean, look, I'm not a gold trader. I remember starting my career on Wall Street when Wayne Angel was the gold bug, right, at Bear Stearns. And Bear Stearns got sued for him saying that gold was going to go up.

11:28It didn't go up. And the defense was, well, he's just there for entertainment. So look, people put gold into their portfolio when they feel insecure, right? It's like buying part of the zeitgeist. And if there's uncertainty, the value of gold will go up. We have a lot of uncertainty going on in the world, right? We have a lot of we've an unprecedented number of elections this year. We have a lot of geopolitical uncertainty. And and I think whenever you have times of surging productivity like we have right now, because productivity is not well understood. Right. We it can cause increased volatility.

12:03That increased volatility also may cause investors to flock towards gold. So, Constance, on the macro front, again, I think within the last month or so, we exceeded the 1978 to 1980 duration of an inverted yield curve. So it's the longest inverted yield curve since we started taking this data. Does that mean anything anymore? A lot of people say it's different this time. What is your sense? I mean, look, it's certainly a concern for the banks that have the held to maturity securities that are at a loss because of that inverted yield curve. they're not lending out money at the same rate. So we're seeing it in the senior loan officer survey.

12:41We're seeing it in the willingness of banks to lend and them keeping extra cash on the balance sheet. At the same time, we're also seeing the willingness to borrow decline, right? So you do see tighter liquidity conditions because of that inverted yield curve. Constance, I'm wondering how you view how many cuts we will get this year and if that view has changed in the past 48 hours. Yes, it has. So we are we have dialed back the number of cuts to three cuts this year. We still think there's a very good chance that they move in June because our forecast for the progress on inflation is fairly aggressive over the next several months as we start to see lower rents feed through into that rent component of core PCE.

13:33but we only think that they are going to cut three times. And by the way, this we have been saying for a little while, this is very reminiscent of the 75 basis point cuts that we got in the 1990s and a situation that perplexed the Fed and the market. Then when we had a productivity surge and we continue to have stronger growth, lower inflation with interest rates remaining fairly elevated. Constance, thanks for joining us. Thank you so much. Where do we stand, Mike? Where do you stand on the narrative that zero cuts would actually be the best thing for equities because it would show that the economy is actually pretty good versus three cuts?

14:16Because it seems like the market vacillates between it being a good thing and it being a bad thing. I think it's unhealthy for us to think that rates should be chronically well below, say, the 10-year well below 4%. I mean, everybody who's on the desk right now, up until the GFC, the rates that low actually would have indicated there was a real economic problem. So we should have an economy that can sustain itself and presumably grow with the 10-year above 4%, which is where it was for 50 years up until the GFC. So, I mean, we shouldn't necessarily need to have rates lower. The problem, though, is that, as I think Guy was probably pointing out here, is that in order to justify these valuations, you either have to see stellar earnings growth or you need low rates, because we are at above average historical valuations here for equities and other risk assets.

15:11And that's the dilemma I think that investors are facing right now. You need to have one or both of those things to justify the levels in the S &P right here. Meantime, we are getting some news on Tesla's robo-taxi as well as an Investor Day postponement. From United, Phil Abbeau's got the details on both stories. Phil. Hey, Melissa, let's start first off with Tesla. About a half hour ago, OnX, Elon Musk put out a very simple, short statement, but one that will get people buzzing. He says the robo-taxi will be unveiled August 8th. Now, this comes after a day where earlier today, Reuters put out a report saying that there had been meetings at Tesla where employees were told they're going to scrap plans for a$25 ,000 low-end car, and instead we're going to be focusing on robo-taxis.

15:57After that report came out, Elon Musk, also on X, said Reuters is lying again. All we know at this point is that we can expect to see what they are showing as the robo-taxi on August 8th. But there's no details in his comment on X. Does that mean it's a new vehicle? Does that mean it's a software platform? What's the date for the robo-taxi going into service? Lots of questions and speculation about what this will mean leading up to August 8th. And then let's shift gears and talk about United real quick. The company postponing its plan for an investor day on May 1st. That was when they were going to outline what their financial targets are.

16:35Not only near term, but over the next couple of years, the company putting out a statement saying that doing that at a time when they are working with the FAA, send the wrong message saying right now our entire team is focused on cooperating with the FAA to review our safety protocols. And it would simply send the wrong message to our team to have an exciting investor day focused primarily on financial results. So United says it will likely hold an investor day in the fall. No date has been given at this point, but two stories that are getting attention after hours today. Melissa, back to you.

17:09You know, Phil, the United news seemed kind of peculiar to me since United is going to report its earnings on April 17th and the investor day was after that. And you would think that it would give that sort of guidance before two weeks beforehand anyway. So why cancel that investor day? Well, you know how investor days go, Melissa. I mean, this is the one event that CEOs say we got to have our messaging. What's our messaging going to be? I would be there. Other reporters would be there. you know that other analysts or analysts who would be there would be asking questions about where do things stand with the FAA, what's happening in terms of your safety protocols.

17:45And if you're Scott Kirby, you don't want to spend the day answering those questions. You want your investor day to be focused on your financial results and your goals over the next couple of years. So I'm not entirely surprised that they've made this decision. OK, Phil, thanks. Phil LeBeau. Tim, you're you're an investor, correct? Were you looking forward to this investor day? Well, it's, you know, first of all, sometimes I point out. Are you making new plans now for May 1st? Well, yeah, look, I'm completely, you know, now I can rearrange my stock drawer and do some other things. But in airline stocks, sometimes I call myself a trader.

18:18In Delta's case, I'm an investor. And I've actually been a long-term investor and I'm a long-term consumer of Delta. But I do think there's a dynamic here with United that continues to be a very different story than what we're seeing of the big two versus Delta. It's underperformed, by the way, by 25 percent over six months. And it is interesting. You have an investor day when you have good news. There's no question. So when you don't have an investor day, do you by default have bad news? And that is something to think about. But I do think it's been an incredible run for airlines. I'm a little worried about the oil price.

18:50And I think that's what knocked Delta down from over$49, which was a key level. Yeah. Julie, what do you think? Yeah, absolutely. Typically, also during these investor days for the airlines, they talk about what they're envisioning for their new routes that they're going to be planning. And the FAA has halted any new routes for United based on issues with their pilots. And so that really makes it a lot harder to get people excited about the future of earnings growth and what new markets we're going to go and attack if you can't really announce those specifically. So I think that's part of the reason, too.

19:19But I agree. I'm suspicious that there is more bad news to come. Typically, that's where your analyst day is when you get to really trumpet everything that's going so well. RoboTaxi 8-8, which is an auspicious date. 8-8. Is that, yeah? For, yeah. I thought 8s were lucky, though. 8s were lucky, yeah. 8-1-8, 8-18, yeah. 1-8. I think it was an 8. Anyway, no details. Well, no details. And the stock, which underperformed a decent market today, has probably gotten in all, I'm meaning Tesla now. All the losses we saw today, they've probably gotten it back. So, look, we'll see. There are typically no details.

19:55And on a Friday afternoon, the timing of both these, to me, are very odd. All right. Coming up, a red carpet rally for Netflix as the streaming giant gets a big bullish call from Wall Street. Just how high can the stock go and what is going to drive the gains? That's next. Plus, a burger bummer for McDonald's, the fast food favorite in its longest losing streak since 2022. What's behind that slump when Fast Money returns? This is Fast Money with Melissa Lee right here on CNBC.

20:34Welcome back to Fast Money. We've got a call of the day on Netflix that stuck up 3 % after Pivotal Research raised its price target to$765. That's a new street high, about 20 % higher from current levels and more than 9 % above. Netflix's all-time high hit back in November 2021. Analysts saying higher revenue growth forecasts are driving this call. You're in this. Yeah, I am. And the bottom line here is it's not just growing revenue and subs that have been beaten to the upside, but it is a margin dynamic. And it's a story that has been a free cash flow, you know, dare I use the term machine in the case, especially in a sector where this has been the whole story.

21:12So the free cash flow ramp, I think, is part of it. The organic growth is interesting. We're all waiting for Netflix to do something either lateral or more interesting, whether it's in gaming or, you know, they're dancing around the event world. and it's not entirely sports, but whether it's wrestling or whether it's one-off events and music and whatnot. And I think with the subscriber base, they can do it. So I think you stay there. It's not cheap. Guys pointed this out, but maybe this is still a place it can exceed. The analyst at Pivotal said that Netflix has won the streaming war. And it's not just the analyst saying it.

21:45Bob Iger basically said this yesterday when he said that he wanted Disney to be number two, meaning that Netflix is number one, Mike. So is it just Netflix's world at this point? It would seem to be, right? So I think there was concerns, number one, that we had a lot of this sort of other over-the-top competition in the streaming world. They were suddenly going to be fighting against all of these other market participants. And they just aren't losing, basically, their subscriber base. Maybe some other people are picking up Disney+. Maybe some other people are using other services here and there.

22:19But Netflix is maintaining. They were able to raise prices. This new price target is, what, 30 times, I think, full year 26 estimates of just over $25 a share. And really, the question that people long had about it was, with the cost of content, was this company ever going to start generating free cash flow? And as Tim just pointed out, it finally did. And now it's really starting to print it. It's probably going to have$10 billion in free cash full year 2026. So I think the multiple is a little rich for me, given we're looking at probably teens in terms of growth. but I see where you could get that number.

22:54Bob Iger might have acknowledged it yesterday. You know who's been talking about it for six or seven years? Tom Rogers comes on the show. He's been saying it forever. So all the research you see, I mean, I don't want to say it's predicated on what Tom said, but a lot of it has its sort of seeds in a lot of things Tom has been saying. With all that said, if you pull up a longer-term chart, November 2021, 645-ish, I believe was that prior high. So we're right up against it. Yes, it's expensive, but you've got some momentum working for you. So I think Tim's been right. Maybe you stay with it into the earnings release on the 18th.

23:24But I would be a bit weary or leery of staying with it post. A lot more fast money to come. Here's what's coming up next. A burger bummer, a high energy rally and the chart that has the chartmaster mesmerized. Our traders are tackling today's seismic market moves. Plus, what crude's high energy rally means for prices at the pump and how oil stocks fit into your portfolio's profit pipeline with the high-flying sector at record highs. You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.