A Risk-Off Start To September… And What Berkshire Should Do With A Record Cash Pile 9/3/24

0:02Live from the Nasdaq market side in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. A sell-off to start September led by a major slump in semis. The SMH ETF seeing its worst day since the first days of the pandemic. Will this risk-off trade set the stage for what we can expect the rest of this month? And we're counting down to Friday's big jobs report. What it could tell us about the possibility of a soft landing and how all the data will impact the Fed. Plus, charting the rise in health care stocks to all-time highs. Boeing tumbling to nearly two-year lows.

0:33And what big bang is a noticeable underperformer even in today's broader sell-off. Is there more pain to come? We'll debate that. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Karen Feinerman, Dan Nathan, Guy Adami, and Chris Verone, head of technical and macro research at Strategas, a Baird company. But we begin with that rough start to September. Major averages seeing their worst day since the August 5th market route. The Dow losing more than 600 points, the S &P 500 sliding 2 percent, and the Nasdaq leading the losses down over 3%. Chips at the forefront of that tech slide.

1:06The VanEck semiconductor ETF closing more than 7 % lower for its worst day since 2020, led to the downside by NVIDIA. That stock notching its biggest one-day drop since April, losing$279 billion in market cap just today. KLA Corp, I should say, on Semi, and Intel among the names also falling sharply. Meantime, Treasuries are rallying with yields down across the board. The 10-year yield shedding about seven basis points, now hovering around 3.8 percent. All this action, of course, ahead of Friday's jobs report. So does this all set the stage for an even more volatile than usual September guy? Well, let's not bury the lead here, okay?

1:47I mean, the last two weeks we've had some amazing people sit in that seat, do yeoman's work. But, Melissa Lee, you are the key to the success of this show. So welcome back, number one. I'm glad to be back. You look rested. You look great. I'll say this. I think, yes, it's a fascinating day. And I think it's just sort of the aftermath of what we saw on August 5th. I don't think anything was necessarily cured. And as a matter of fact, that bounce we saw from the 5th until like the 11th or 12th, I think, was probably the worst thing that could happen to the market. If it had sent a gradual move like we saw in April into June, that would have been a lot better.

2:20With that said, you know, you just said an NVIDIA lost$280 billion. There are only 34 companies in the world that are that big in the first place. So these numbers are staggering, and personally, I think there's more to go. Yeah, so it's interesting. We're talking about the jobs number on Friday. I actually think there's a really interesting report. It's Broadcom. It's going to be Thursday after the close. 17 % of their sales are from Apple. You have Dell. You have Alphabet. You have Meta, all big customers at Broadcom. So I'm really interested to hear what they have to say, especially on forward guidance, right?

2:49Because this could be a good read on what this Apple phone that a lot of folks are really geeked up about. They're going to release it September 9th or at least the information about it should be shipping by late October. So I've just been fading that trade as far as the Apple excitement in and around that new phone. And then really what, you know, Meta, Google, some of these others have to see or at least what we can infer from their guidance. So it started off. We had some data that was mixed somewhat. Right. To me, the construction spending was sort of interesting. That was a big miss. However, the revision almost made up the entire miss, but didn't seem to matter.

3:23So something like industrials, which I own, that was not so fun today. This is actually one of the worst back to school days I've had in many, many years. So I'm not really that happy about it. But, you know, we had a very nice August after the bounce back was quite strong. And now for things for names like NVIDIA and the AI story, it's I don't know what catalysts there are in the short term. now that the earnings are over, right? So I think they're kind of, they'll sort of move with the current. And this current isn't great, but it's not going to make me a seller now. Well, I didn't think today came out of the blue.

4:01The weakness today was in the spirit of what's been playing out the last six, seven, eight weeks. Go back to the early August drawdown. What went down less? Equal weight S &P only went down six in that early August sell-off. Triple Q's went down 16. As we rallied off those lows, what made a new high? Equal weight S &P. What did not make a new high? Triple Q's. Semis. So this has all been in the spirit of this evolution of market leadership. And whoever's the weakest most pronounced today, as we talk about, semis, tech. So I don't think we're done there in terms of tech seeding leadership. The language we've been using is that tech is losing its grip on this market for which it's had for the last two years.

4:37That, I think, is the big shift. And I think many people would be surprised when you went into the last couple of weeks. You know, we have this impression of semis being so strong under the surface. They haven't been. Only 50 % of semis are above the 200-day moving average. Only 30 % are above their 50-day moving average. So this has been decaying internally. Micron had already broken. Qualcomm had broken. So this was preceded, I think, the last six, seven weeks with some signs. So you would say that tech has already ceded control, ceded its leadership position in the market. That's done. That's over.

5:05Best days are behind it for now, at least. What takes over? I mean, is that broadening of the market, the fact that the RRSP had made that new high off its drawdown, does that continue? or is there more trouble overall for every sector? Well, I think on the other side of tech, the strength, the relative strength we saw out of defensive today is not a one-day phenomenon. I mean, utilities have been strengthening all year. REITs have been strong all year. Staples finally waking up. We'll talk more about health care later in the show, but that's certainly strengthening here also. So what do all these have in common?

5:37I think it's bond yields and the macro. And, Guy, you hit it right on the head. What hasn't changed the last six weeks? The macro hasn't changed, right? Yields are exactly where they were in early August. Dollar-yen is exactly where it was in early August. So the macro never rallied with the equities here. Yeah, yeah. You were mentioning Con Ed on our call earlier today. All-time high today. So when you see a name, Con Edison making an all-time high. Coca-Cola makes an all-time high. It's great if you own the stocks, but what is it trying to tell you? And I think we've entered the realm of, and Karen alluded to this, I believe, bad news is now going to be bad news.

6:08Why is that? because you already have baked in 100 or so basis point of Fed rate cuts, however many in terms of next year as well. So now I think what you're hoping for actually is good news on the margins in addition to these rate cuts, because that would suggest that maybe they can stick this thing. I don't think you're going to get it. And this jobs number, which I still think is going to deteriorate, I think if this is going to be bad news, will in fact be bad news. What is good news? Is good news a 50 basis point cut? I would say that's actually bad news. I don't think it comes into form of the Fed.

6:40I think the Fed's a sideshow now, I think. I think we've all come to the realization of what they're probably going to do. Good news comes into form of the manufacturing data, some of this other data that we've been seeing that's been weak now for the last couple months, and an employment number that starts to sort of flatten out here at 4.3 percent and maybe heads lower. I don't think that's going to happen. Well, I think what was evident in Q2 earnings and then guidance is really that there's two different economies here in the U.S. I think there is a low end consumer that is clearly deteriorating.

7:08And we had lots of instances of that. But then the mid to high end is kind of hanging in there. I know a few months ago we were looking at some of the luxury stuff that was sort of deteriorating. So, again, I think the consumer confidence stuff is still hanging in there a little bit. But the one thing I'll say about the leadership, would you just ask Chris about? I mean, he's dead on with the deterioration with the concentration of the MAG-7, or if you want to expand it out to 10, which make up basically 50 % of the NASDAQ 100 and 30 % of the S &P 500. The only one of the MAG 7 that went back towards its highs was Meta and after its results.

7:43And this deterioration really happened or started to happen after Q2 earnings. The fact that Q3 guidance wasn't enough, I think that was kind of the problem. And I think it all kind of crescendoed into NVIDIA's earnings last week when the expectations were just so high. If you looked at a lot of the companies that are major customers, they just didn't raise CapEx enough and they didn't guide Q3 high enough. And so to me, that was all going to happen. It happened in 2023. It happened in 2024. Well, I mean, it makes sense because Meta is the only company so far that's actually able to monetize in a very robust way their AI investments.

8:19And maybe this forces us in a very tangible way. Maybe this forces us into the next chapter of this AI story away from picks and shovels and sort of the hardware aspect into what can this actually do for us? So, well, we talked about this a lot. I think it comes on the productivity, which you don't see as much as, all right, Medica can say our advertisers really love what we're doing. They're willing to pay more because we're so good at advertising now. And that's a great thing to see and a tangible thing to see. But there is still, of course, a lot of uncertainty about what is the promise of revenue, right?

8:50We saw Elon's Colossus today, right? And Grok, I guess, will be the product. But I'm not really sure what exactly the revenue model is and how it will work. But in the short term, my God, what an extraordinary amount of spend on NVIDIA chips. Sure. That was sort of interesting. But that's past now. It's a question of, you know, how much recurring revenue is there. So I don't know. As to the consumer, though, I do think that higher end consumer, which actually lower end is$25 ,000 or lower is one of the metrics, that family dollar buyer. But I do think for above that, which is really more of the driver of the U.S.

9:32economy, that person is still employed and that person is still spending if they see value like Target, Walmart. They're there. Well, I think this transition better happen because when you look at all the derivatives. The AI transition. Yes. So when you look at all the derivatives of AI, remember, it was eight weeks ago, 12 weeks ago. Everyone's so built up on the power stocks. CEGV, those have broken here. Those look like shorts here. So anything that's a derivative of this has been telling you for five, six, seven weeks, something here is starting to change. Now, let's look at the other side of this.

10:03I think the good news remains that these sectors that are reemerging as leadership, whether it's the defensives or even financials, still act pretty well here. So I don't think we want to look at financials and say, oh, my God, they're screaming recession here. That's not the message there. Credit has largely been restrained. But it's really essential that sustains itself. We don't want to be sitting here four, five, six months from now and 10-year yields are three and a quarter and financials have broken down. That would be the bad outcome. So essential to the call, those remain involved. All right.

10:31Speaking of NVIDIA, we've got a news alert on the DOJ subpoena for NVIDIA. Seema Modi's got the details. Seema. Most of the U.S. Justice Department reportedly sending a subpoena to NVIDIA asking for more information from the chipmaker amid antitrust concerns. So getting potentially a step closer to a complaint, this according to Bloomberg. Now, NVIDIA's dominance of artificial intelligence chips has gained more attention, inviting regulatory interest in recent months. Its main competitors in the public market, AMD and Intel. In the private market, there's two main players, Cerebris, which confidentially filed to go public this fall, and Grok, which has a$2.8 billion valuation.

11:08It's backed by BlackRock, Cisco and venture capital names. NVIDIA, declined to comment on this story, Mel, but we are seeing shares down another 2 % in after hours. All right, Seema, thank you. Seema Modi, so another strike potentially against NVIDIA. I mean, everybody wants NVIDIA chips for a reason. So if all of a sudden they don't have that lock, for whatever reason, the government... Well, I think partially that's why it sort of accelerated to the downside today. I think there was probably a leak on that. But to have this resolved in the short term seems It's highly unlikely to me. Highly.

11:42But this is such a joke. I mean, like, there's been a lot of stupid regulatory stuff that's looking at tech right now. I mean, there is no competition. So they have, like, all the products. You know what I mean? And also there's so much demand that they can obviously charge what they want to charge. So, I mean, at the end of the day, are we going to be into free market capitalism? Or, you know, it's one thing if they really have a lot of cheesy sort of sales practices and the like, but it just doesn't seem like that's the case. and customers are tripping over each other to buy their product. Right.

12:11I mean, part of the complaint, according to Bloomberg, is that it's difficult to switch once you're in this NVIDIA. Same for Apple. I mean, isn't that the mark of a great product? It's hard to switch. Gillette is great. Going way back to the original razor blade bottle. Right, exactly. Hard to switch. Use other razors. But that's the point. Guy still uses a straight edge. Yeah. And you're pulling his plus. Dan's right. I mean, there are a lot of things to be, I think, concerned about. I don't think this is one of them, but I understand. But, you know, if we're going to start to penalize greatness, I mean, we have bigger problems than just NVIDIA.

12:43But Karen said something always intelligent. She said it again tonight. What's the catalyst at this point for some of these names? And one has to wonder, unless the broader market gets back on its horse in a meaningful way, I do think these names are under pressure. And it's great. Chris mentioned this. Vistra Energy. This is not an indictment of the company. But if you pull up a 10-year chart, we never talked about this company because it didn't go anywhere for the better part of 10 years. The stock went from 60 to 125 like that. But look at the recent move back down to 75. This is all part and parcel of what we're talking about.

13:16I'm glad you mentioned AMD because that's been a disaster now for the last six months or so. What do we know? They always get to the marginal stocks first, right? They've hit all the marginal semis first. Ultimately, they get the general. NVIDIA peaked in June. It peaked a month before the S &P. That was the outside reversal day. June 20th. June 20th. Rain men. Exactly. Rain men. Well, for more on the markets all day, let's bring in Andy Constant, CEO and Chief Investment Officer at Damp Spring Advisors. Andy, were you busy trading today? What'd you do? I sure was. Melissa, today was a day where the stock market fell for a variety of reasons.

13:52could be anything from the rally, the last minute rally on Friday to what seemed to be an anti-growth sentiment generally. What I was doing was selling bonds because I thought the bond market actually, which rallied, didn't rally particularly significantly. And it's really just the last time I was on, we talked, it was the NFP day. And, you know, we saw what happened the following week. But except for that one bump in the descent, we've been in a Goldilocks environment for the last two months. And the rapid, frankly, the fastest recovery in history of a VIX spike of the nature that we saw, and stocks ending the month near all-time highs and bonds ending the month, very strong.

14:51We're in a Goldilocks environment. And so that's where I think we're at right now. Andy, it's Karen. Thanks for being on. So last time you were here, you talked about being short twos and spooze, which is bonds and futures. And so where are you now? Where do you think the relative pricing would each reflect? Right. So, you know, it's fairly active this last month and was able to cover some of my short and add some twos to my exposure the week where things went south. And then just recently, I've been adding longer term bonds as well. And the way I look at that is, let's assume the Fed is going to cut.

15:40We know Chairman Powell told us he's going to start the cutting cycle at Jackson Hole. And the data since the NFP has been Goldilocks in that it's just about right. So we know they're going to cut. They're going to cut 25 basis points, most likely. And then they're going to have a cutting cycle for the next 12 months. Currently, the market thinks it's about 215 basis points. That's probably more than they may actually do without if Goldilocks is the scenario. But let's just assume it is. At that point, the two-year note is going to be yielding$3.30,$3.25. And the 10-year note should be normalized and have a positive slope.

16:26And that would put us at around$3.85 on the 10-year, which is exactly where we're at. So when you look at the 10-year note, Goldilocks price has no return, no price return. All you get is the$3.85 coupon. And then when you look at stocks, Goldilocks is actually a 4 % sort of nominal GDP. And we've been used to a 6 % nominal GDP. Earnings estimates for the next 12 months are 12 % growth. And let's assume that's only 10%. And so you end up with a slightly lower earnings because nominal GDP falls by 33%. And the multiple contracts a little bit because growth comes down a little bit. At that point, you put the S &P at$3 ,800, which is about a 5 % return, about what bills are like.

17:32And so in the best, Melissa asked what the sort of good news can be. The good news is Goldilocks for both stocks and bonds. And in the good news, neither of those assets outperform cash. All right, Andy, the good news is a 95 analog. The bad news is every other analog. And what you just talked about is for the first time in, well, the longest inversion in history is on the verge of re-steepening. We're basically flat going to, I think what you said, about 50 basis points or so. That historically has been a really bad sign for equities. Is this going to be sort of a 95 repeaters that fall into the other whatever percent?

18:10Well, I look at it actually now. I don't think the stock market's going to crash, but I look at the analog closer to an 87 analog. in that equities had rallied 30 % into the summer, sold off, rallied back, and then began their descent that ended in the stock market crash, which is not what we're going to have in this environment. But that seems to be a better analog because the 95 cutting cycle was due to significant mortgage and bond duration problems that took out a bunch of hedge funds and took out Orange County, if you recall. And those sort of things, I don't expect. That was not a Fed cutting cycle to deal with the economy.

18:57This is a Fed cutting cycle to deal with the economy. And I would expect real bad news will result in even steeper curves than I just mentioned and lower Fed funds, but very bad news for equities. And if for some reason the economy continues to stay strong, then equity should do pretty well, but bonds will do very poorly. All right. Andy, great to see you. Thank you. Andy Constant, Damped Spring. All right. So his bottom line is sell bonds. Bonds are going to do badly. Do you agree? I'm not there. No, you're not there. Okay. I mean, global yields have topped in a very meaningful way. And could yields pop here over the next four weeks, eight weeks?

19:39Of course they could. But you've put in major, major tops in global bond yields. And I think the path of least resistance is lower. And, you know, just in terms of Goldilocks, the problem with Goldilocks right now is gold. The least productive asset in the world. Clever. The least productive asset in the world has outperformed the triple Qs over the last year, the most productive index in the world. Kind of crazy to think about. Why is that? Yeah. I just said this about yields. I mean, it looks like they kind of front run, you know, what they're going to do in September. I think the idea in August 5th that you're going to have some surprise cut, you know, that would be something that, you know, a lot of folks.

20:13I don't know why they were yelling about it then. I know Guy was yelling about the people who were yelling about it. No, there was one person yelling. You can call him by name. I mean, he's watching the show. Professor Jeremy Siegel. And then he backtracked, and I'm sorry. I'll just say this. You know, of all the things that went down today, it wasn't the MAG-7, you know, crowded trade. You know, everyone heads for the door at the same time. It was crude oil, you know, all the way back at 70. And so, to me, that is really sparking something about global growth fears. Obviously, the manufacturing data and some of the other stuff we've seen obviously doesn't speak well for crude.

20:42But that was the one thing that stuck out to me. All right. Coming up, are the charts pointing to a strong prognosis for the health care sector? Chris Verone is digging into the technicals as the group trades near all time highs. That is next. Plus, Boeing had it hitting its lowest level since November 2022 as analysts get even more negative on the stock. What they are saying about the company's cash flow, that could be a headwind for the name. Don't go anywhere. Fast Money is back in two.

21:12Welcome back to Fast Money. While large cap tech has taken a serious hit since mid-summer, health care stocks are surging. The XLV health care ETF is up more than 9 percent since early July, hitting a fresh all-time high today. The sector is led by Eli Lilly, whose weight loss drug dominance has fueled an almost 65 percent gain in 2024. But are there other names ready to break out. Let's go off the charts for Chris to find out. Chris? Yeah, well, I think this is a sector that's been on the come here for some time where the improvement is not two or three or five days old. It's been happening quietly under the surface for two or three months.

21:43We've seen the percentage of health care stocks and uptrends really start to improve. And if you look globally, what really led this move, the European health care names went first. The Japanese health care names have been leadership. So we're on guard or we're watching for continued improvement here. And I want to highlight a couple names in particular. Bristol Myers, which has been a dog for three years, finally starting to turn here. You had a big gap, I think, on July 29th. You came back. You tested it. You held the 50-day about to break up through the 200-day in Bristol for the first time in several years.

22:13I'd encourage people to play that one on any pullback. J &J is another here, which, frankly, is probably further ahead in its turn. It is short-term overbought, but I would be a buyer of pullbacks there. And then if you're looking for a big base and a breakout to an all-time high, ELV, Elevance, in the HMO space, just a great chart. UNH has broken out here as well. But this is an improving sector. It has not gotten enough attention. And if you look at the flow work, there has been an exodus of flows away from health care over the last couple years. So I think it's timely. I think there's a catalyst here, and the stocks are on the come.

22:45Elevance. Elevance. Yes, one I own. Where I expected you to go was to make fun of me for having the XLV. Well, that you could be. So many places. Yes, so many places. The XLV, which is the something in my head. Oh, yeah, I could go after that, too. But we'll go with the stocks. It's the health care, the H in the helm. No, I mean, there were some others. Abbey in there as well. So that's been a great place to be. And I think there's still more room to run. I think that it was somewhat of a laggard until the last six weeks or so and then sort of came back to life. So I'm sticking with this. I think there's still more room, even though you always say in an election year, it's very easy for both sides to use the health care as a punching bag.

23:30But I think there's a lot of value here. Amgen is interesting, probably around all-time highs. But if you can back out Lilly and UNH and J &J to a certain extent, the top three holdings, then there's a bevy of stocks that actually – Merck, for example, is significantly off its prior all-time high. I think it traded down to 109. I think it's currently trading 116 or so. So that probably has room. And then a name we used to talk about in sort of the early days of fast money, rarely talk about now. But Danaher, for example, is a really interesting company. I think that's the eighth largest holding in this ETF.