Another Round of Records Prompts the Question, “What Slowdown?” 1/22/24

0:00Live 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. Another round of records. The S &P and Dow hitting all-time highs for the second day in a row. And some big consumer names from Marriott to MasterCard notching their own records, too. So what happened to the slowdown? We'll debate what we should make of this recent resilience. Plus, the sun rising on Japan, the ETF that tracks the country's top market, is up more than 9 percent already this year, far outpacing the S &P's performance. But can the run keep going? We'll dive into the charts to find out.

0:32And later, United takes flight after its latest report. Netflix nears two-year highs ahead of its earnings. And why one of our traders says there's more to Macy's than meets the eye. We're digging into all those trades tonight. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Steve Grasso, Karen Freiderman, Baddowin Eisen, and Guy Adami. We start off with the Dow hitting another milestone, closing above 38 ,000 for the first time ever. It took 25 trading days for the blue chip index to jump 1 ,000 points. The S &P 500 also closing in on record territory for the second session in a row.

1:03And the Nasdaq hitting its highest in over two years. The bullishness extending to popular consumer stocks, too. Uber, Chipotle, Costco, Marriott, and Visa hitting records during today's trading. The name standing out over the past year with massive gains. So what kind of message is this run-in consumer name sending us about slowdown worries? And I'll go to the worrier-in-chief on the staff, Ghanami. Nami, this segment of the market is telling us something. Telling them people feel good about things. Obviously, they've seen headline inflation come down. They've seen interest rates come down. There hasn't been really a market event for the last five or six months, meaningful at least.

1:42So people feel good about things. It's a new year, all those things. I totally get it. Unemployment rates where it is. So there's a reason to feel good. The flip side of that coin, and Peter Bookvar will probably speak to this, leading economic indicators out today. Now down 21 months in a row. Now, granted, it wasn't as bad as the street was expecting, but it was still down now 22 out of the last 24 months. So something's got to come home to roost at some point. Again, I'm still on the camp. You put all this together, it means unemployment's probably going to start ratcheting higher in a meaningful way.

2:11But right now, people feel great about everything. But shouldn't these stocks factor that in? Should. If it's going to happen, right, they should factor them in today, rising unemployment rates, that is. Sure. I just don't think the market is necessarily taking into account that the Fed may not be as accommodative as they'd like to think. We have seen that March number move from, I guess, whatever it was, 81 percent, 85 percent to just now sub 50. But there's still several calls for us that be well over 100 basis points in terms of cuts. And I just think that, you know, that pull forward persists.

2:44And then you look at the stock market performance over the last four months or so since the bottoming out of October. you really can't afford not to be involved. And then you look at the top heaviness of that and some of the laggards. You look at consumer spinning. You look at consumer sentiment. The consumer has remained strong. And I think, and I'm guilty of it myself, I definitely would have faded the better part of that consumer discretionary complex. And that is likely why you're seeing the strength, because you expected to see it in technology. You expected to see broadening out in maybe some of the other stapled areas.

3:14You did not expect to see it in consumer discretionary, and you likely didn't expect it in the home building complex either. And those two have been off to the races. I get intellectually why one might doubt the market gains, why one might doubt this consumer rally, why one might doubt the strength of the market given how lopsided the gains are. But yet this is the market that we have, Steve. So what do you do? How can you reconcile that? Yeah, so if you think that it doesn't have to be a recession or no recession. Recessions happen. They're normal, natural, healthy. what happens if we had a recession late last year?

3:50Not last year. What happens if we had a recession in 22? What happens if we had rolling recessions in different sectors? We could have already got past that. This could be the the the soft landing. And to Guy's point, if if unemployment starts ratcheting up, isn't that the long and variable lag that the Fed is most likely afraid of? And that's why it doesn't appear as though he should be cutting, but he's going to cut. So it shouldn't feel right. It does because he's late. So if we start to see all of that happen now, to Bono's point, I think you have to front load these cuts because you're in an election year cycle.

4:30You have to stay away from looking political. He wants to stay away from the back half of this year because he doesn't want people to think he's screwing around with the marketplace. So you invest through it. You buy the market. But what Waller said was basically, you know, we're in a stone's throw, whatever the phrasing is, of our inflation target. But at the same time, one of the worst things that could happen is that we start cutting when inflation ticks higher. So there does seem to be a recognition that there is some, you know, concern that they might start too early. They might start aggressively and that inflation is not, in fact, fully tamed.

5:03I think it's not fully tamed. It's heading in the right direction. But I don't know why they need to cut now. Right. It seems to me sort of why give it away for free. Right. The economy is sort of doing fine. And, you know, the the the error of cutting too soon is far greater than the benefit of cutting a little bit early or when people expect. I don't know why they would need to cut in March. I think I hear you about your point of not wanting to be political. I think you could not cut and still talk somewhere in the dovishness kind of area. and so keep the market excited about that. I mean, we're right now in this Goldilocks where if unemployment does tick up a little, that people think, oh, that's great because now they can really, you know, rates will come down, right?

5:49So I do think that's what we'll see. Why the market goes up every day, I don't really know. It doesn't make sense to me that things are vastly different. Valuations are high. They could get higher for sure. I do think, though, that this leading indicator thing, I realize it was negative and we're a stream of negative, but everything in the market's about expectations. What were the expectations? You mentioned that the expectations were for something worse. Yeah, the expectations were for negative point three, came in negative point one. It is all about expect. I'm just pointing out now it's almost two.

6:22It is two years. So it's 22 out of 24 months, 20 months in a row. And for whatever reason, again, money flows, whatever it is, exuberance of markets, not pricing any of that in. And one has to wonder, though, again, with the yield curve that's seemingly steepening now. It's the inversion that's sort of the warning sign. It's the steepening that should give people pause. Historically, that's been the case. It's happening now. Two 30s, I think, have flattened out. But again, the market doesn't seem to care right now. So what would you be inclined to do at this point, Bono? Would you be inclined to buy protection on this market at this point, brace for some sort of downturn in certain sectors?

7:00What? I think you'd probably start dollar cost averaging. I think Steve mentioned that. So I'm going to maybe like get in between. I think he said buy the market. I think you continue to invest in the market. I think protection is extremely cheap. So it makes a lot of sense to do it. So begrudgingly, it sounds like you put money into the market. That's exactly the word I use in Q4, begrudgingly. But yes, I mean, do you want to be right or do you want to make money? And as you said, we can do the mental gymnastics as to why we think our thesis is correct. But ultimately, you have to trade the market that you're given.

7:29With that said, not buying protection to me is just a bit irresponsible at these levels if you're not at least going to mitigate risk by some type of dollar cost averaging. All right. Well, our next guest suggests the market rally isn't sustainable and weaker economic data could soon get in its way. Peter Bookfar is chief investment officer at Bleakley Financial Group and a CNBC contributor. Peter, great to have you with us. Bono just said he is begrudgingly putting money into the markets. That was his motto in Q4 as well. I mean, I understand that you think the economic data is going to turn and work against the markets, et cetera, et cetera.

8:03But at this point in time, do you acknowledge that the market seems a little bit stronger than what you may have anticipated going into this year? Yeah, well, certainly the last couple of days and how we ended last year. But I understand the market's desire to rally on expectations of Fed rate cuts. I mean, that's been the playbook for decades now. So I get why we rallied. I think earnings over the next couple of weeks are just in time in the sense of testing the thesis that everything is fine. And there are just so many mixed signals within the global economy that it just can make your head spin.

8:44When you look at holiday sales, for example, you have the MasterCard Spending Pulse. You had the National Retail Federation saying that holiday sales were about 3.5%. Well, that's the rate of inflation. So on a real basis, holiday sales were zero. U.S. manufacturing, global manufacturing for that matter, are in a recession. You have the pace of existing home sales near 30-year lows, but home building doing okay. You have high-end spending on travel and leisure, hospitality, restaurants doing fine, but spending on stuff not doing well. And if you looked at the Beige Book last week of the 12 districts, eight basically saw no growth.

9:26You had three that saw modest growth, one that saw a modest decline. That doesn't sound like a great economy. So it just, and then you look at overseas, Europe is essentially at best flatlining. China, we know, is further decelerating. So it's really a tough environment to both figure out and maneuver through. And I think the stock market is really trading off. The Fed is going to not be in our face anymore. And maybe even in QT, too, to throw that in there and just buy stocks because of that rather than a real analysis on the full macro. So, Peter, when you would admit that the market is taking its lead from the Fed, if the Fed cuts, the market's going to rally.

10:09That's been the standard. What can QT give us a clue on right now? Should we watch for that to stop first and then the cut is coming? Because you can't have both at the same time, I wouldn't think. Well, I think that's an internal debate within the Fed. Can they continue with QT because Jay Powell wants to get the balance sheet to a level that he's comfortable with, which he can't even define, actually, but at the same time sort of tweak monetary policy on the rate side to reduce the odds of a recession? but not cut too much that you stoke higher inflation again. And this is a very difficult situation that Powell's in.

10:52I think his main priority right now is not to stoke a flare-up in inflation. He thinks he's got a handle on it with the downside of the cyclical spike, but keeping inflation low is his next battle. And I think it's really going to be interesting to see how the Fed plays the balance sheet with what they do with interest rates. But even the interest rate story is a tradeoff. If they only cut a couple of times, call that maybe just a tweak and the Fed funds rate is still going to remain high. If they cut six times, seven times, that's because the unemployment rate is going to four and a half to five and we're in a recession.

11:29So this is not an easy situation to really analyze and from the Fed's perspective to actually maneuver through. Peter, it's Karen. Thanks for being on. And so for a while, we've talked about this idea of a long and variable lag. Has enough time passed through when the Fed started hiking aggressively that we've seen what the lag is? Or do you think that there's more to come on that? I think this is going to take a few more years. This year, we have about$750 billion of corporate debt that needs to be refinanced. Now, granted, some of that took place in 2023, but that rises to over a trillion in 2025.

12:10You have about a half a trillion dollars of commercial real estate that needs to be refinanced. And I've spoken to just over the weekend to some real estate people that are just crossing their fingers that the 10-year yield goes down to 3 percent. Because if rates stay around these levels with their debt coming due at the latter part of this year, they're in trouble. So I still think that this has many years to sort of work its way through the refinancing cycle. And that is going to be a continuous drag on economic activity. Now, that said, when you look at those companies that borrow SOFR Plus, well, if the Fed's going to cut, maybe they've seen the worst of it.

12:48A lot of small, medium-sized businesses do borrow a floating rate. So ironically, it could be the bigger companies that are going to see the jumps in interest rates. And we have to remember that one of the main contributors to profit margin expansion over the past couple of decades was lower interest expense. Peter, what do you make that's going on in China? The FXI closed around 21, levels we probably haven't seen in 16 or so years. Is that any reason for concern whatsoever? Well, it's certainly a concern because it's the second biggest economy. But if you showed me that chart and I didn't know what it was called, I would say that this is final capitulation.

13:25Everyone's just throwing up. And this is the bottom. And I actually think that is the case with the Hang Seng Index. And I've been dead wrong in the first three weeks of the year calling for the Hang Seng to outperform the S &P 500 this year. But I still think that this is sort of the final leg of the bear market, specifically Hang Seng, the eight shares. The eight shares, much more complicated and tied to Chinese policy, where there are a lot of companies within Hong Kong that have global operations, and particularly operations throughout the region of Asia. Peter, great to see you. Always good to get your analysis.

14:01Thank you. Thanks for having me. Peter Bookvar, Bleakly Financial, one of the strangest markets he's seen. Ben Emmons wrote a note this morning, Medley, and he said, you know, the markets are trading on this notion of an exquisite soft landing, which I really, the phrase stuck out at me because it felt really right that the markets were thinking that it was going to be just right For the first time maybe in history, the Fed has actually succeeded in doing exactly what it set out to do. Certainly appears unlikely. It seems. But I thought it was unlikely for a long time. However, today it still seems unlikely, given everything that you see below the surface.

14:39The only, in my opinion, the only thing that's giving you encouragement or backing up that thesis is the stock market, because everything below the surface says something else is going on. Right. You're always long. I'm always long, right. But how does that composition of long change in this sort of market environment? So just increasingly nervous, you know, stressful, anxiety, that kind of thing. But and then as you talked about the volatility index being relatively low. So look for protection there. I always have some kind of protection on and I just nervous. But I'm not going to trade around things, particularly if they have big gains.

15:16That's a really, really tax inefficient structure for me to think I know when to go out, when to get in. and then I make enough difference to make back what I pay on realized gains, I know I'm not capable of that. So I just get increasingly nervous. Would you buy some of the consumer stocks that we named at the top of the show that are hitting new highs? Yeah, I mean, Marriott looks like it was breaking out on a chart. And whenever they break out, it looks like you'll get that tailwind. So you could have a little bit of reversion. But when you look at a name like Costco, Costco has an over 90 % renewal rate on its membership.

15:45That one has been a steady eddy as well. Markets will fluctuate. I do trade around positions. And people that are watching the show that have it in a retirement account don't have the issue that Karen's talking about. So you can have market timing. All right. We've got an earnings alert for you. United Airlines soaring in the after hours on a top and bottom line beat. But the airline is forecasting a loss of the current quarter due to the Boeing 737 Max 9 grounding. CNBC's Phil Abose got the details. Phil. Melissa, that lost expectation for the first quarter, not entirely because of the Max 9, though.

16:18It certainly is contributing to what the company is expecting in Q1. We'll talk about that in a bit. Let's quickly go through the Q4 numbers. Part of the reason why the stock is moving higher, look, we knew it would be a strong fourth quarter. It was a clean holiday period for the airlines, strong demand. As a result, you have United earning$2 a share in the fourth quarter. The street expectation was$1.69. Revenue also coming in better than expected at$13.63 billion. Total revenue per available seat mile was down 4.2 percent compared to the same quarter in 2022. Keep in mind, capacity was up 14 percent.

16:54Now to the Q1 guidance, and this is what people are going to be talking about on Wall Street over the next couple of days. Earnings per share, a loss of between 35 and 85 cents a share in the first quarter. The street was expecting a loss or the guidance going into the earnings today was 21 cents a share for the first quarter. Total revenue per seat mile flat in the first quarter. Cost per available seat mile up mid-single digits versus the first quarter of 2023. And we talk about the impact of the MAX 9 grounding. The company says that if this grounding extends to the end of the month, it is a 3 % cost per available seat mile headwind for the first quarter.

17:34So that's part of the reason why the company is now expecting a loss of, what, 35 cents to 85 cents a share. Keep in mind that Boeing or United has 79 Boeing 737 MAX 9 planes. They have been grounded for two weeks. No indication when that grounding is going to be lifted. We'll be talking with Scott Kirby, CEO of United Airlines, tomorrow morning. Not just about the MAX 9 grounding, Melissa, but the broader question. The question that all airlines who have orders with Boeing are facing right now. Now, do they feel confident that the maxes they are scheduled to receive, including the Max 10, which is not yet certified, do they think that those are going to be coming as planned?

18:14United has a schedule for 77 they expect to get this year, maxes, and then 277 next year and beyond. Does that get pushed out? And if you're Scott Kirby and United, what does that do for your planning? How do you adjust to that? Lots to discuss with him. We'll be talking with him tomorrow morning on Squawk Box. Melissa, back to you. Just to be clear, Phil, the wider than expected Q1 forecast includes the potential impact from further grounding. If the grounding goes to the end of the month, it's a three percent headwind. It's a three percent and nothing. They haven't gone beyond that. And any word from United at all so far?

18:51And I understand the earnings call is going to happen, etc. And there may be more that comes out there. But there was a report saying that Scott Kirby was expressing frustration over how the FAA handled the grounding, how Boeing has handled it, frustration with the management at Boeing, etc. Anything on the record with that? Is he frustrated? Mm-hmm. On the record, we haven't heard from him yet. We'll hear it tomorrow morning. Do I expect to hear Scott Kirby, a frustrated Scott Kirby? You bet. I mean, look at it from his perspective, Melissa. Not only do you have 79 MAX 9s that have been grounded, and they may be grounded here for another week or two.

19:25Who knows how long they're grounded? But he's got 354 MAX planes, including 150 MAX 10s, on the order book. He is looking over the next couple of years saying, this is how I want to build our airline. Well, how much confidence do you have that you'll be able to receive those MAXs, including the MAX 10, which is not yet certified? And the reason I bring this up, Melissa, is many people believe that the Max 10 certification, which is right now, most people say fourth quarter event, is it going to happen in the fourth quarter? There's increasingly chatter of, hey, the FAA might feel pressure to push this out a little bit further.

20:03We don't know for sure, but that's that's at the heart of the frustration that Scott Kirby is likely expressing right now. All right, Phil, thank you, Phil LeBeau. and I'm sure the frustration that Boeing shareholders have as well. How many times can Dave Calhoun be let off the hook for things like this guy? Well, at least it'll be the fourth or fifth time. And I think there's going to listen at some point. Right. You're going to have to answer a lot of questions. What with that said, Boeing traded down, filled a gap on the downside very quietly. She probably rallied seven percent in a couple of days.

20:34With that said, United, the first quarter guide will write it off. But look at the full year guide. They narrowed it to nine bucks to 11 bucks. Take the mid-point 10. That's better than the street is expecting. Start doing the multiple game. You put a four and a half, even a five multiple. It's a$50 stock. Delta is the way to play. United goes higher, I think, but Delta is the one I would buy here. I agree with you in terms of valuation, right? That's pretty compelling. But some of the unit economics, to me, were a bit concerning. I see top and bottom line numbers, which beat. When you're talking about the cost associated with average seat mile, revenue per average seat mile, as well as now the higher cost of employment staff, I think that's just a bit of a tough makeup for me.

21:14Coming up, a biotech bust. Shares of Gilead seeing its worst drop since 2014. The disappointing drug results that sent that name sinking. That's next. Plus, Macy's getting a boost after rejecting a takeover bid to go private. Why the company says the deal fell short and why one of our traders scooped up more stock this morning. Don't go anywhere. More Fast Money in two. This is Fast Money with Melissa Lee. right here on CNBC.

21:47Welcome back to Fast Money. We've got a buzzkill on Gilead. Shares plunging more than 10%. That's its worst day in over nine years after the company said its cancer drug, Trodelvi, failed to meet expectations in a late-stage trial. Gilead saying the drug, which is already approved for certain breast cancer and bladder cancers, did not improve survival rates in patients with metastatic non-small cell lung cancer. Tredelvie is one of Gilead's best-selling treatments. The company also said that it still feels confident in the prospects for this drug. This was a test to test this alongside another drug.

22:21That's what failed. So it's cell first, ask questions later, they're going to present again. They actually were sort of encouraged by some of the data, but obviously the trading community was not. And the problem, of course, is it's had a huge run into this event. I get it. But then you look at the analysts, Piper Jaffrey, just came out with a note after that was they still reiterate their$100 price target. There are a lot of things to like about Gilead here. Traded 20 million shares today. Maybe that's not full capitulation. Maybe it's another day or two of selling. But I think you buy the weakness on the back of this.

22:51So this is why so many people play, including myself. You'll pick the biotech stock that you want to play. But then you buy the IBB, the large cap biotech, or you buy the XBI. Because if you look at the IBB, it wasn't down today. You look at the XBI, it wasn't down today. It was actually up today. So it's very difficult to pick those binary outcomes or these one-offs. But I agree with Guy. If you have the stomach to watch the roller coaster, then you could be long a name like Gilead, which is the number four waiting in the IBB to begin with. But I think you're better off buying an ETF versus buying the single names.

23:21Yeah, and that's been your philosophy as well. I don't have the stomach for sure. Yeah, Gilead was a reason it wasn't up more. It still managed to be up nicely. But I'm in your camp. I just can't do it. All right. There's a lot more Fast Monday to come. Here's what's coming up next.