Apple Sinks to Kick Off 2024, While Bitcoin Breaks Back Above $45,000 1/2/24

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. Bruised Apple. The tech giant stumbling to start the year down over three and a half percent. Barclays downgrading the stock, saying it is time to take a breather. Is it simply a profit taking move or the beginning of a meaningful mag seven rotation? Plus, ripping high Bitcoin starting 24 the way it ended. Twenty three booming. But will the rally stall out once the ETF gets a thumbs up? And what happens to all the stocks that soared along with crypto? And later, we'll go inside the numbers of a pharma stock that is so bad.

0:34Even Dan, even Dan thinks it could be good right now. The big reveal and the reasons why coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. Happy New Year, everybody. On the desk tonight, Tennessee, Dan Nathan, Guy Dami, and Mike Coe. We start off with a sign that Mike confirmed last year's mega cap tech rally is truly in the past. Shares of Apple sinking more than 3.5 % for its worst performance since last September. The stock closing the day at its lowest point since mid-November. The move coming after Barclays cut its rating on the stock to an underweight, citing concerns over demand for the latest iPhone.

1:08UBS also pointing to specific weakness in the U.S. and China. But it wasn't just Apple under pressure today. Check out the moves in the other big cap tech names. Netflix, NVIDIA, Meta and more all dragging the Nasdaq to its worst first day of the year since 2016. Meantime, investors seem to flock to one of the most beaten down sectors from last year and that'd be health care. But the biotech and pharma stocks saw outsized gains today. The group was the best performer in the S &P. So is Apple's dropped just a sign of natural rotation in the markets, or does it send a more ominous signal? Guy. Okay, let's get the Happy New Year stuff out of the way.

1:43Happy New Year, everybody. Happy New Year to Bob Rodgers. I reserve the right to say Happy New Year all week, and I might. Maybe next week, too. Maybe next week, too. Well, yeah, that's the last one you hear from me. It's interesting. You know, Dan made a comment earlier today. Apple, he thought, could have been lower today regardless of whether or not. And D.A. Davidson today, after the bell, I believe, initiated Apple with a neutral$166 price target. One thing we've said, I think, pretty consistently is I don't think anybody's ever said to short the stock on this desk. What we have said pretty consistently, though, is there will be better opportunities at certain points in the year to buy the stock.

2:18And I think that's manifesting itself right now. Over the summer, we thought it could go down to$160. I think it got down to 165 in October. And quite frankly, given the backdrop and that we traded up to prior highs and seemingly have failed now, that 165 level, that Barclays price target doesn't seem unreasonable to me. I mean, I guess the question is, is this Apple specific? I mean, the note cited volume declines, bad mix, service revenues down. It is Apple specific when you think of a stock that's trading at 29 times earnings, that's expected to grow earnings at mid to high single digits and sales growth in the low to mid.

2:50You know what I mean? It is Apple specific. If you also think about the gross margin that they have in the smartphone space in general, they basically have the whole industry's margin there. So I just think of this. And by the way, I have probably said to short the stock here. Maybe you guys have not. But, you know, the story in Apple is one of monopoly. By the way, Guy, happy new year. Happy new year. No, but it's management. It's balance sheet. You know, it's all the things that we know, you know what I mean, is working for them. And you could have said the same things that this analyst who downgraded the stock today on November 2nd when the company reported their fiscal Q4.

3:23And all those trends were evident. And you know what happened? The stock went from 172 to 195 to make a new all-time high. And what's changed here is just the sentiment, is the calendar. And who knows? You know, like, could this thing kind of fall back into its 200-day moving average or that support, that uptrend that's been in place just from a technical standpoint? Take one or two turns off its valuation from those highs. take some of the sentiment euphoria out of it? Yeah, sure. And that would probably be healthy. Well, for one day, I think it's both. In other words, I think the fact that the Nasdaq 100 underperformed the S &P significantly today and that the equal-weighted S &P actually was flat on the day.

4:01So it outperformed by 150 basis points, a trend we were seeing towards the end of the year. We're talking about the biggest stock in the world. We're talking about a stock that was up 55%, 60 % last year. So it is the market overall. But no question, these downgrades were targeting important things about Apple, but things we could say about other companies as well. By the way, Guy, Happy New Year. If Mike Coe does it, that's the end of it. But what we're talking about with Apple that I think you could reference other stocks in the market is the multiple, right? So the downgrade is, you know what, we're going to go 25 times a mid-650 EPS for 24, and we end up where we end up.

4:37And in fact, I do think they're going to struggle to grow EPS. So if you start to see multiple contraction across the group, and I do mean the high multiple techs, and I think Apple's the most vulnerable. And part of what they've also singled out here is that they say services are going to grow 10 percent. That's been the story, right? That's been the multiple driver. And if you think you're not going to go 20 percent, but you're going to grow 10, I do think it's a case where it's Apple-specific. Yeah, services in China. And they've lost share in China, which is what UBS specifically cites Mike Coe.

5:09Happy New Year, by the way. Happy New Year. That one's for you, Guy. Look, I mean, when it comes to valuation for Apple, obviously, everybody in the desk has already talked about this. It's at the upper end of its range. This is a difficult thing. When you look at companies that are growing at a very high rate, and you talk about the multiple, they can always grow into that multiple. But in the case of Apple, it's not growing that quickly. So when you start saying it's trading towards the upper end of its valuation range, you actually can say, maybe this is a time to take profits if you've been lucky enough to get them.

5:42And of course, anybody who is thinking that going into November and December, if you were thinking it then, you definitely are thinking after that tax year ends. And now that it has, of course, you would expect to see some selling pressure. I don't think that same story applies necessarily to other companies that have, let's call it higher valuation multiples like NVIDIA, which could indeed grow into it, or companies that were up a lot on the year but don't necessarily trade at a high multiple like Meta. But in the case of Apple, I think if you own it, if it's an outsized position for you, then you definitely want to pair it at the very least.

6:14We don't own it. And I wouldn't be considering buying it at these levels. It would have to fall quite significantly from here. I mean, for Barclays, it's mean reversion, right? That's what they said in their note several times. It's a company that has not delivered solid earnings in the past few quarters. So they're saying, you know what, this year we're going to go back. And so I think the question here is, you know, for companies that have not delivered, have not knocked the cover off the ball for earnings, Maybe there is no more patients in this market where you want to take a look at valuations.

6:42And today, for instance, we saw the rotation to health care. We saw the rotation to utilities, sort of the safer areas of the market. All good signs, by the way, without question. But I think you bring up a good point. The market rewarded companies that even just came in in line to slightly worse last year for a myriad of reasons. And we've said this as well. Apple is the biggest beneficiary of passive investing, without question. You can at me if you want, but it happens to be true. So in the absence of anything happening, each day Apple sees money flows into the stock. But it has gotten itself expensive.

7:12And I do think there's a bit of mean reversion going on here. And quickly, the reason why they get that premium multiple is services revenue, which I think now is almost 25 percent of overall revenue. But if that starts to top out here at 25 and starts to trend the other way, that multiple is definitely in jeopardy. Well, that's the point. And that's what you guys are both keying on. Just look at Microsoft. the other$3 trillion market cap company is expected to grow earnings and sales this current year, double digits. OK, and so it's trading at 32 times, but they're also getting that tailwind of the Gen AI stuff.

7:41And Apple doesn't have any of that. And so to me, I think if you were playing a little bit of a would you rather at some point, I said that we're doing that on the first day of the year. I think just observing. But I think at some point Microsoft overtakes Apple this year in market cap and never looks back because they have the tailwind, And their ability, this is a 68 % gross margin company versus Apple, that 50 % of the revenue still comes from hardware. So whatever Microsoft is able to do, right, with their open AI access and integrating it into their productivity tools, this is all the J &I stuff, it will be like creative to margin.

8:15And this is why there doesn't have to be a mag seven. Guy, I think you're saying that's not what I'm about to do. I think you're saying it's actually good for markets if we're getting some discrimination between these stocks. and why this is also not just a market story and an Apple story. They're also citing market share loss. OK, so they're talking about they're actually losing ground in the U.S. We know they're losing ground in China. India, which is supposed to be this bright spot, was not so good. So the fact that the iPhone, the 15, essentially is down in terms of where it's sell through is as a percentage of the overall product line.

8:48It's mid 50s, high to mid 50s, where in the past it was kind of mid 60s or more. In other words, the refresh isn't that important. As the phones get better and there's less innovation, you don't really feel like if you have a 13, you have to go buy a 15. At least that's what these numbers are telling you. That's why for Apple, look, I think the multiple can come in. And with macro, I mean, you might hold that phone longer, right? I mean, Dan, you just bought one, but you always buy the new thing. Yeah, but I didn't buy the high-end one. And I went from like a 12 to a 15. And again— So to their point, the mix is not good.

9:18You're not buying the highest. And I'll tell you that qualitatively, I went into an Apple store in Dallas, Texas. It was the day before. There were more people in Apple red shirts than there were consumers in there the day before. I mean, it was like inundated with their own employees or whatever. So that was just my. It's like going to a Met game and there are more vendors and fans, Mel. Why do we have to do this in the first day? No, because Dan just brought it up. I think we've got a guest who I bet is a Met fan. So, you know, let's get there. We'll see. We'll see. I don't know. Despite the negative start to 2024, an investor known for the big short questions whether we are still too bullish.

9:47Steve Eisman is senior portfolio manager at Newburger Berman. Steve, welcome to the show. So happy new year to you. Thank you. I'm honored to be here on your first show. So you think that market fundamentals are actually good, but overall sentiment is too bullish? How do you distinguish? I mean, think of it this way. Let's say we were here a year ago. Most of your guests would have come in and said the earnings of the S &P are going to be down. The market's going to be down. The economy is going to go into a recession in about 15 seconds. And none of that happened. The recession, that never was.

10:20And so the market climbed the wall of worry the whole year. So now here we are a year later, and everybody is, including me, has a pretty benign view of the economy. The only thing that bothers me is just that I don't think we're necessarily wrong on the economy. I think we're probably right. It's just everybody's coming to the year so bullish that if there are any disappointments, you know, what's going to hold the market up? But I think long time I'm still very bullish. But near term, I just worry that everybody's coming to the year, you know, feeling too good. We're having a whole conversation about Apple and how the markets might need to discriminate, you know, within big cap technology.

10:59How do you feel about the backdrop of the economy with the Magnificent Seven? Is it time for rotation? Is this the backdrop to rotate into lower PE stocks? Or does that not matter to you? I don't focus on that that much. I still think you have to have at least a significant percentage of your assets in the Magnificent Seven. There are the themes that we also really talk to our investors about, like infrastructure. $1.2 trillion is still going to get spent in the United States over the next 10 years. First time we've had an industrial policy in the United States of America, probably since anybody in this room has been alive.

11:39So that's a big theme. Look, I think there are a lot of good things going forward in the market. Just, you know, just start the year psychologically. Everybody is just a little too freaking happy. Well, so a place where you haven't been terribly happy and we want to hear most investors, when you talk about banks, people want to listen. You've got a note in history. Well, you've made some great calls, some very successful calls on the banking sector. And I think probably three months ago, you said somewhere, you know, in the context of probably a much bigger conversation, but that banks were not investable.

12:11And I think if we're going to get the market to rally further from here, we need the participation of banks. So just touch base on banks at the start of this. So, I mean, let's take let's pick on one bank. I mean, and I have no position in this bank and I have nothing against the company's like Bank of America. So Bank of America is a very well run bank. It's got a very good CEO. That doesn't mean they haven't made mistakes. They bought a hell of a lot of long-term bonds at the wrong point in the cycle. It's not a balance sheet problem. It's more of an earnings problem. So the earnings, if you look, are basically flattish for the last few years up and down by just a little bit of percentage.

12:45So how are you going to make money in Bank of America? You're going to need really two things. You're going to need the Fed to cut rates. So that'll help people's perception of the balance sheet. And you need no recession, so benign credit. Now, could that happen? Sure. But I'm actually of the view, you know, the market seems to think the Fed's going to cut rates at least three times this year. I, at this point, don't have that view. I think the Fed is still petrified of making the mistake that Volcker made in the early 80s, where he stopped raising rates and inflation got out of control again.

13:21So I'm not that bullish on the Fed cutting rates. And if that's correct, I think it's going to be hard to make money in the major money center banks. Now, that's not that's not a company specific call. That's a real macro we call. You know, it's hard to, you know, make a long term investment case for the banks when you have to deal with so many macro factors like that. Steve, as we sit here, U.S. debt, 34, just went over 34 trillion today. is there a scenario where there's a debt concern, debt problem in 2024, some sort of credit crisis that you're looking at? 100 % no. 100 % no. No. You know, in our business, we like to say being too early is the equivalent of being wrong.

14:06And there have been plenty of times in my career where I've been too early. But I'm not 40 years too early. You know, the people who are making this argument about U.S. debt have been literally been making this argument for the last 30 to 40 years, and they're still making it, and they're telling you to buy Bitcoin because of it. My attitude is when you're 40 years too early, have a little frickin' humility, and keep your mouth shut. So there's absolutely no evidence whatsoever that the dollar is going to lose its reserve currency status. People still want to buy US debt. They're not replacing it with Chinese debt.

14:44So, you know, until there's a real problem in the U.S. bond market, I think we're just fine. Hey, speaking of humility, Guy, as the kids would say, he's got a good fit. Well, I was going to what's going on before we the last time Steve was on, I commented on his stylist. Yeah. But you've taken it up. Well, you know, you put so much pressure on me. I got another new jacket. Looks great. A little pocket square. And I have a whole, you know, this is all part of my New Year's resolution. That's working. Which is think Yiddish, dress British. There you go. All right. There you go. All right, but Steve, so you manage portfolios.

15:16And again, we love to focus on the things that a lot of our viewers know you to be great at, right? But when you think about it, you manage portfolios across lots of different industries, right? And you think about what generative AI did to the stock market this year, right? And that's really what infected the Magnificent Seven and really buoyed the stock market in a year where you just mentioned earnings. They didn't grow much this year. They were up less than 1%, right? Right, but the expectation was they were going to be down 10 to 15. Correct. All right. But next year, the expectation is that they're going to be up 10 to 11 percent.

15:44Correct. So my question to you now is that the stock market has realized a lot of the enthusiasm about this technology. Again, being 40 years early, this is going to be something that dominates for decades. What do you expect it to do in 2024 for actual earnings, not just in the Magnificent Seven, but across other industries? You know, other than NVIDIA and maybe AMD and, you know, maybe some Microsoft, I don't think you're going to see that much of an impact on earnings in tech yet. It's going to be it's still going to be very story driven. You know, what I'm most curious about is other than the very, very large tech companies, nobody really yet has a real AI story to tell.

16:24And the question is, is anybody going to emerge? And it's only day one of the year. So, I mean, the best part of it being day one of the year is I haven't made many mistakes yet. So you had mentioned that you don't think the Fed's going to cut rates. I didn't say that. I said I think the expectation that the Fed will cut rates three times from where I'm sitting, I think, is wrong. OK. Or is too aggressive at this point. What is right in your view? Because the market believes that there's going to be probably at least two and maybe three at this point. I think the best, if you had to lay your life on the line, I'd say one.

17:00One. Unless there's a recession. If there's no recession, I don't see any reason why the Fed needs to be aggressive at cutting rates. That seems like a dichotomy versus what is within market consensus. And so that leads me to the question of what we've seen rallies in the end of the year as that consensus has taken hold that the Fed will cut rates about three times. Things have rallied. I'm thinking, you know, if solar, for instance, that depends on funding, other sectors that depend on funding. Have massive, had massive rallies. I think that's probably not right, at least not at this point. But, Steve, you must not think inflation is going to come in much then, because if the Fed is only going to cut once, right?

17:34I think even if inflation does come in, if I'm the Fed and I'm looking at the Volcker lesson, I say to myself, what's my rush? Inflation has come in. If I'm not aggressive, I could always cut rates tomorrow if things get weak. But if the economy is still flying and inflation has come in, why do I keep rates here? I mean, look, nobody calls me to consult. I'm just giving you a buy opinion. They call you to say, what should we wear today? Yes, exactly. But so if I'm in Powell's seat, I pat myself on the back and say, job well done. And the risk, my real risk is that I cut rates and inflation resurges and then I have a real problem.

18:17If I don't cut rates or if I maybe only cut once and I just sit there and wait, I can wait. I'll see how the data goes. That's what I would do if I were in their shoes. What they'll do, who knows. You mentioned the run, for instance, in solar. Housing has had a huge run as well. That's also not great. I would say housing stocks are justified. I'd say residential solar stocks are not justified. The housing stocks are justified in the sense that the home builders have great balance sheets. rates, they're able to buy down rates to their customers so that the customers can afford to buy new homes.

18:48And there's a shortage of new homes. You know, residential solar at this point, I think, is still going to have a down year. How down, I don't know. But I haven't seen a data point yet in residential solar that would make me be positive. I'd like to see one, but I haven't seen one yet. What about the, again, in a world where the market does have rotation, and we talked about the vulnerability of either multiples and high multiple tech, but the sectors that include health care, energy, staples. And look, let's be clear, utilities and staples got hammered a good part of last year. I mean, that seems interesting.

19:23You know, utilities, I think, had just a horrendous year last year. And it wasn't, there really no fundamental issue was a pure rate play. So look, if you have a benign rate environment. I'd probably rather own utilities than most staples at this point. Steve, great to see you. Happy New Year. Thank you. Great outfit. His wife's watching right now, by the way. She did a tremendous—you should be proud of yourself. I mean, you started the new year off with a bang. Happy New Year, Mrs. Eisman. I'll say this, though. I think a lot of the rally—and Steve is still here, but I'll say it was predicated on the belief that there will be 150 or so basis points of cuts next year starting early in next year.

20:06I'm with Steve on this one. I don't think that's going to happen. So if the market starts to come to that realization, what happens to the broader S &P? Mike Coe, what do you think? I think that the principal reason that you would have aggressive rate cutting is because it was economically justified. And what would justify it economically is that we start seeing signs of a material slowdown. And if you get a material slowdown, that's not great for equities either. Right now, we're not that far off of the all-time highs. The economy seems to be doing OK. And as long as those two things persist, then I'm kind of with Steve there.

20:37I don't really see a big justification for bringing the rates in. Of course, that does create a little bit of a problem for some of those that have said that maybe financials are investable here. That includes me, because, of course, then you don't really get the yield curve in the shape that you want. But obviously, if you start getting aggressive rate cutting, there's going to be a reason for it. And that reason is going to be not good for equities. What comes down if rates only cut once this year? What comes down? Yeah. In other words, what has rallied hard on the notion of three rate cuts?

21:07High multiple tech. I mean, you look at the companies that have the longest duration and have trouble making money in a high rate environment. Unprofitable tech. Yeah. I mean, but again, I think we're all saying something. If we only cut one time this year, I think it's a great year for equities. Really? See, I actually think differently. It means the economy is doing well. It means that EPS is growing, I think. Or they're just stuck in a low growth, you know, high inflation environment. And to me, you know, we spent so much time talking about the long and variable lags of Fed policy. And we haven't felt it not in the economy this year.

21:42If you think of some of these GDP prints and we haven't seen it in the stock market that was discounted last year. Right. And so I just say to myself, it's a very confusing picture. And it's one of the reasons why I wanted to ask Steve why he doesn't think we're going to have three, which is what the dot plots are saying, three cuts. Right. Because the other scenario in the Fed chair said this at his presser a couple of weeks ago, they're not going to wait until inflation gets to their target. He said that explicitly. And I thought that gave a boost to the stock market because it said something more than what the dot plots were suggesting.

22:13So if we start getting weak inflationary readings, you should assume that the Fed's going to cut more. So and that should be good for stocks, I assume. Coming up, a red flag on China. President Xi Jinping warning of a stormy economic picture as the country's recovery loses steam. The global impact and the beaten down names that could be ready for a rebound. Plus, talk about a New Year's resolution. One top bank analyst forecasting Citi to double in the next three years. Why he is so bullish on the name. And do our traders agree when Fast Money returns? This is Fast Money with Melissa Lee right here on CNBC.