Asset Moves Ahead Of The Election… And A Tight Boeing Vote On Deck 10/22/24

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. Bright and shiny returns. Traders keep flooding into gold and silver. The precious metals climb into new highs as fears grow about skyrocketing deficits. When will it trickle down to stocks? We'll debate that. Plus, housing hammered. Shares of Pulte leading the sector lower while the DIY trade is also taking on the chin. Is it time to remodel your way out of this trade? And later, Boeing's on the clock. Will the deal with the union get done? Shares of GM revved up after earnings and dialing up the telecom.

0:33Should you hold on or hang up at Verizon, AT &T, and T-Mobile. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Dan Nathan, Guy Dami, and Katie Stockton of Fairleaf Strategies. And we're going to get to the moves in the commodities and rates in just a moment, but we start off with two breaking stories at this hour. Shares of McDonald's and Starbucks both dropping after the close. Kate Rogers got the details on these fast-moving stories. Kate. Hi, Melissa. That's right. We will start with McDonald's, as you saw. Shares of the fast-food giant, down nearly 10 percent right now.

1:01This on a warning from the CDC that the company has been linked to an E. coli outbreak. No recall has been issued. The investigation began today. The agency saying there are so far 49 cases across 10 states with 10 hospitalizations and one death. Most of the people affected so far are in Colorado and Nebraska. And the CDC with an update saying that slivered onions are likely the source of the contamination, although the investigation is ongoing. That's the latest update we have from them. We've reached out to McDonald's for comment. We will bring you any further updates on that story as we get them, Melissa.

1:34And then moving on to Starbucks, the company giving a Q4 warning with a preliminary earnings report ahead of its scheduled earnings next Wednesday, the 30th. It also suspended its full year guidance for 2025. The company says it's expecting 80 cents adjusted. That is lower than the dollar three cents. estimated revenues$9.1 billion, also lower than the$9.38 billion. Analysts were looking for same-store sales globally down 7 percent. That's almost double the drop anticipated by analysts. The company's results, it says, primarily driven by softness in North America. Revenues in Q4, a 6 percent decline in U.S.

2:10comp store sales, driven by a 10 percent decline in comp transactions. Now, that was partially offset, Starbucks says, by a 4 percent increase in average tickets. So, that metric growing. China, another key problem area for Starbucks, its comp store sales declined 14 percent, driven by an 8 percent decline in average ticket, compounded by a 6 percent decline in comp transactions. The company noting it was weighed down by intensified competition and a soft macro environment. We know that's going on that impacted consumer spending in China. Now, in prepared remarks, CEO Brian Nichols saying, quote, it's clear we need to fundamentally change our strategy so we can get back to growth.

2:45And that's exactly what we're doing with our back to Starbucks plan. You saw, Melissa, the stock lower on that news, and we'll hear much more from Brian Nickel on the 30th, his first quarter as CEO for that company. Back over to you. Have we heard officially from McDonald's yet, Kate? We have not, Melissa. I will bring you that statement as soon as we hear from the company. All right. Keep us posted. Kate Rogers in San Francisco for us. Let's drill down to McDonald's. This would be the biggest move since March 2020. So this is a pandemic-like drop. There's a lot of things we don't know about the story right now.

3:14It is developing. But what we do know is a comparable to Chipotle and the E. coli outbreak there. And that took multiple years to resolve. So how do we figure out whether or not this drop is too little, too much? Guy, what do you think? We were talking about before the show, I think, I might be mistaken, I don't think anybody died from the Chipotle E. coli. I think 11 people were hospitalized or something like that. There's a death involved here, which I think changes the dynamics a little bit. That stock, I think lost, and you said it before, I was looking back, almost 60 % of its value. I think it was from October 2015, the first one, then again in December.

3:51It lasted a long time. Okay. In terms of McDonald's, this is going to be self-first, ask questions later. This is not a one-day thing. But you have to figure out where is there going to be support in the stock. And Katie can speak to this, but if you look at the two recent lows, they probably come in around 251 to 255 or so. So that should be the first logical point of support. And they report, I think, next week as well. So one has to wonder if the earnings even matter at this point. But I guess the point is, if you're looking to buy this on a dip today or tomorrow, I think you're doing it wrong.

4:22A couple more details from what we're getting from the CDC. And that is it takes three to four weeks potentially to develop symptoms. So we still don't know how this is going to unfold in terms of people actually falling ill to this. And also, the person who died, there's a separate person that has hemolytic uremic syndrome, which could cause kidney failure. That is not the person who passed away from this. So there's a person in serious condition right now in addition to this death. That's what we know right now. Yeah, so going back to Chipotle and Guy just mentioned, there were two major incidents in 2015.

4:53You know, the company was growing sales at over 25 % a year in the lead up to it. It was one of the best growth stories, I think, in the entire consumer space. And so sales growth decelerated massively in 15 % to 10%. It actually went down 13 % in 2016. But then it reaccelerated and it got back to kind of that peak number in 2017. So interestingly enough, it did take a while to get confidence back. Net income went from, you know, almost a half a billion dollars to basically flat in 2016. And then it reaccelerated again. So earnings got back there by 2017. Sales got back there. But that is a long time to stay away from a growth story.

5:32And then it ultimately did get back to growth, but it took, you know, years. What do you think of this draft? You know, it's been such a nice run for McDonald's. It comes at a very unfortunate time. We had just seen it break out to new all-time highs. And, you know, we'd seen good follow-through, good momentum. And, of course, this changes everything, really, if it does open up where it looks like it's offered, around 285. So that'll take it right back to the 200-day moving average and back into its range. So it really would be a setback from a technical perspective. That long-term support is around 250.

6:03So maybe that's where it finds ultimately buyers again. Yeah. Tim, just last week we were talking about how analysts across the street were raising their price target on McDonald's going to earnings. Just unexpected momentum recovery there based on those value deals. And here we are, a major setback as we try and figure out whether or not the Chipotle, by the way, 2015 to 2018 affected more than 1 ,100 individuals. and they actually had to pay a fine to the DOJ to settle criminal charges. There is a death involved so far, one death. So McDonald's will likely, I would imagine, face some sort of charges related to that death as well.

6:41Tim. Yeah, I think it was a$25 million fine. What we're talking about in chronicling what went on with Chipotle was it was a three-year process, but it was multiple events. And so we don't know what's going on here. And obviously, there still is a dynamic here with incubation of E. coli-like symptoms. But if you think about the stock before this event, the question was after a 31 % move going into earnings, where the third quarter same-store sales, at least the U.S., were expected to be down small, half a percent. Maybe they've gotten a little bit better. The value mill promotion cycle was very, very successful.

7:16I think the companies returned back to at least taking market share in the space. It was getting to a place where it was really just about, I think, the valuation and 26, 27 times 24 is where this was trading. We know it's traded up over 30 times, at least different times coming out of COVID. I guess, you know, no one knows what the playbook will be in terms of the news cycle. Everyone has done a good job talking about how Chipotle fell. Their 2018 earnings alone fell 44 percent. So that was a dynamic that I think was a combination of different issues for a company that was growing dramatically.

7:49Right now, making that call on McDonald's, I wouldn't do that. But it's obviously, look, this is scary news. This is something that the company is going to take very seriously and the market will weigh it. Guys, right. You don't need to do anything today. But my first kind of look through some of these headlines to if you could get it anywhere near that 255 level again, I think you'd be going for it. Yeah. Would you? Makes sense. Again, there's a lot still to unravel here, right? Then the next question is, depending on how long this lasts, regardless of what it was, are people going to go to McDonald's?

8:25I mean, whether it's for breakfast, lunch or dinner. So one has to wonder how many quarters. Again, you said it. CMG lasted a long time. It's obviously a different set of circumstances. But in terms of playing a little bit of stock market here, to do something tomorrow on the back of this, I think you've got to wait and see. Wait for your levels. And I do think that$250 to$255 level makes sense. By the way, we are seeing some reaction in related stocks. Shake Shack shares are higher. Lamb Weston shares, the maker of French fries, stores and French fries down a little bit. Tyson, which is a beef supplier, also feeling some downside here.

8:57Yeah, so you hope it's contained. You know, obviously it's a very sad story here. And so, you know, at the end of the day, the idea of kind of calculating where you'd buy the stock and what else you would buy, you know, the Chipotle thing, to your point, you know, affected hundreds of people. It went on for, you know, over a year. I think the FDA did not declare it over until early 2016. And I think those sorts of things just leave questions in your mind. You have a lot of other options. I think the interesting thing about this is McDonald's was trading at 52-week lows just, you know, four or five months ago.

9:29And the story was not particularly great. We spent a lot of time talking about a lower-end consumer that was doing a trade down. And you would have thought McDonald's was benefiting from that. And I think some of the metrics picked up. I think Tim just mentioned some of the value, you know, promotions that they were doing. But to me, I just think that, you know, when you don't know this, markets, they don't like uncertainty or investors don't like uncertainty. It's probably going to be stuck here for a while because they are not going to be able to put their finger on this anytime soon. Yeah, of course, we're still awaiting a statement from McDonald's.

9:57Kate Rogers is chasing that down. So we'll continue to keep you posted on anything we're getting from the CDC or from McDonald's. We do want to quickly trade Starbucks here. As expected, it's a pre-announcement. It's basically a prelude to a kitchen sink quarter guy, which we sort of expected. when they switched CEOs? Yeah, we talked about it, Karen, Tim, everybody on the desk. But I'll say this. I'm surprised personally that it's not down more than it is, given the run that it had after they made the Brian Nickel announcement. Now, I think it went from 75 to about, what, 96 or so it topped out, 97 maybe.

10:31It's pulled back a little bit. But, again, if you just look at the guide, the revenue, I mean, this is not particularly good. And then they suspended full year 2025 guidance, probably anticipated. But the magnitude of the miss suggests, in my opinion, it should be trading lower than it is just based on still what is a rather lofty valuation, Mel. Yeah. Tim, your take on the pre-announcement? I hate to kind of blow this off, but I just feel like this is what you would have expected. You know, you've got earnings coming out. You get out there in advance. You've got a new CEO. You have every opportunity to say we're turning it around.

11:07We care more next week about hearing about strategic objectives. I mean, isn't that really what this is about? Long term, how to return growth to China. This is what's going to move the stock, not numbers that we knew were not great. So pulling guidance is, I think, just a tactical opportunity for a new CEO going out into a period where the company has a handful of questions to answer. Again, core markets, core growth markets like China are really important here. China, you know, down 6 percent ish in terms of same store sales or down 14, I'm sorry, you know, versus down six expected is a bad number.

11:44And but I you know, this this headline, if I was looking to be building a position in Starbucks and I'd like to be, I have a small position doesn't scare me. You know, we've actually had an active short recommendation on Starbucks since early September, and it's because it's a longer term sort of downtrend or trading range at best. And within that context, we have an overbought condition that has yielded a loss of momentum. Of course, that's become pronounced likely for tomorrow. We're watching gap-based support from August. It's right around 90. If we do see the stock dip into that gap, the gap creates a bit of a vacuum on the chart to the downside to below 80.

12:24So I'd be pretty wary of this one and just let it settle. Some headlines for McDonald's. They're removing the quarter pounder from the menu. Other menu items are not affected. that they will remain on the menu. So they're hoping to contain this sort of impact here. But again, to Guy's point, you hear about this outbreak and you think, should I even go to McDonald's? Do they know if it's the onions or if it's the buns or whatever else it is? And do I take that risk at this point? Maybe you don't. Especially if you're talking about, you know, if it's a family thing. Are you going to bring your kids?

12:55One thing for me to show up and get a couple cheeseburgers, I mean, it doesn't matter. But if you bring in your family, I mean, that's a whole different kit and caboodle, right? So I think people are going to sort of avoid this until they have clarity. And it takes time to get clarity, in my opinion. Yeah, this is happening, by the way, in the impacted area. So not everywhere will you be deprived of quarter pounders, perhaps in your state. You'll still have them on the menu. Let's get back to Kate Rogers, who's got some more on the story. Kate. Hi, Melissa. That's right. An internal message just posted on McDonald's website from its chief supply chain officer for North America, Cesar Pena.

13:31I'll read you some of the headlines here. McDonald says we are taking swift and decisive action following an E. coli outbreak in certain states. We're temporarily removing the quarter pounder from restaurants in the impacted area, working in close partnership with suppliers to replenish supply for the quarter pounder in the coming weeks. All local restaurants have been instructed to remove affected product from supply. We've paused the distribution of all slivered onions, which we mentioned in the original hit, in the impacted area. And the initial findings from the investigation indicate that some set of illnesses may be linked to slivered onions used in Quarter Pounder.

14:08Initial findings indicate that the onions were sourced by single supplier that serves three distribution centers. So once again, an update there. And just a reminder for viewers that most of the people affected so far, rather, are in Colorado and Nebraska by this E. coli outbreak. The CDC says it's across 10 states, but those two states are where they are most affected. As you can see, stock doing a little better, but down 7.5 % on the news. Back over to you. I guess there's really some degree of certainty as to where the E. coli is coming from, if they're willing to keep certain things on the menu in all other areas.

14:42Yeah, I would say so. But as the CDC, Melissa, said in its initial release, it's a fast-moving investigation, as these things tend to be. So we'll see what later in the day and tomorrow brings. But that's where we stand right now. We'll bring you any additional updates from McDonald's as we get them. I don't want to put you on the spot, Kate, but is there any sense in terms of the geography, the importance of that geography revenue wise to McDonald's? I don't have it off the top of my head and I wouldn't want to misspeak. But once again, the geography you're talking about, Colorado, Nebraska, I will get that answer for you and bring you an update when I have it.

15:13All right, Kate, thank you. Kate Rogers. So maybe it's more contained for now. For now. So these are tough situations because obviously it's a major indictment of the company, at least from just a confidence standpoint. But then you think about it, there's a supply chain. You know, this is something that is not exactly a reflection on the company and the product. But again, you're going to have these concerns about going to the restaurant. So at the end of the day, you at least have a one quarter impact from an earnings and sales standpoint. And then again, you know, it just how quickly do customers come back?

15:46Yeah. Tim, any last words before we move on from this story? No, I there's so much unknown here and this could play out. But this is a company that has had a tremendous run and probably not terribly cheap. Although Katie points out, was that a place where maybe you'd find a way to break out to new levels? I think you're going to wait on this one. All right. And Katie, just quickly on the charts, how much more downside is there in McDonald's before it reaches some sort of critical level? You know, the 200 day moving average is roughly 280. So that will be sort of a line in the sand for the chart.

16:24I do think that support levels matter a little bit less when you have this kind of news. Admittedly, the buyers might not be there to step in and provide that support that you would expect normally. So I wouldn't rely on support, but rather wait for the indicators to improve, wait for the oversold and wait for the stabilization. Importantly, no sense in buying into a gap lower. All right. We'll have much more on this developing story. In the meantime, we'll look at the big moves in gold rates and much more. Fast Money is back in two.

17:01Welcome back to Fast Money. Some big moves and some key asset classes today. gold up almost a percent, setting its 45th record high of the year. Silver jumping nearly 3 percent, topping 35 bucks for the first time in over 12 years. Meantime, yields continue their trek higher with the 10-year crossing 4.2 percent for the first time since late July. Let's get more on this move in rates with Rick Santelli. We were just debating this here on the desk yesterday, Rick, what the move higher means. What do you think? Well, it means the election's close and many are concentrating on areas of debt and deficits, areas that neither candidate, at least during what I call a Santa Claus period, are discussing.

17:39Now, we all know before an election, many candidates like to promise the world. And we also know that after the election's over, pretty much the promises will disappear. Congress probably won't pass most of them. And the politicians will get back to the same type of work they were doing prior. Now, one big issue is, if you recall, one year ago today, we're hovering about 5 % in a 10-year. So we've seen that every now and again, a little bit of fear comes into the realm of fixed income government trading. And with all yields going up around the globe, all I can say is that the U.S. has a huge spending problem.

18:19The rest of the globe is pushing debt out. China, EU, the U.S., and there's going to be a competition, which means in order to find enough demand And for the ongoing onslaught of issuance, we're going to have to find that appropriate yield that garners added interest by investors. Where will that yield be? I can't tell you. But as you look at a chart of 10-year rates going back to the early 1960s, going from 5 % to 15 % can happen pretty quickly. I understand this notion of competition because of all the debt issuance around the world, Rick. But really, there is no competition when it comes to the quality of debt the United States offers for sale.

19:01And so it only this only really matters when the buyers step away from the market. Right. And so have we have we seen that in recent auctions? Are we getting indications of that? I mean, we know, you know, I don't agree with that. I don't agree with that presence. I don't agree. I think there was a point in time where the U.S. paper was undeniably fantabulous. And I'm still saying that it's better than all the rest. but it's nowhere as good as it used to be. Just consider, in 1970, foreigners held about 5 % of our debt, in 95, about 23%. Now, it's about a third, okay? Which means domestic accounts own two-thirds, and it's our Fed that owns one-third of the two-thirds.

19:42See, the real issue is that our quality, our spending, our policies, our financial culture in the U.S. today is dramatically different to, yes, our debt is still the best. We still have the reserve currency, and I don't think that'll change. But none of those are as good, as solid, or as financially perfect as they were a generation ago. Rick, you've been doing this a long time, and I'm not looking to tee you up, but I don't remember if it's ever happened where you've had a rate cut of that magnitude, and then almost to the day, you've seen bond yields move the entirely different direction to the level that we've seen over, I guess now, a month since they lowered rates.

20:26So speak to the unprecedented nature and what you think it means maybe to equity markets. Well, I think it's investors, which we call the market, are pushing back on the notion that central banks are the mighty force in the universe. Certainly they can get away with a lot, but they can't muscle up all interest rates. And I continue to use the analogy of a water balloon. Central banks could squeeze it where they want, but we're in a day and age where it's going to pop out somewhere else. The market is showing that it may take more yield horsepower to move the paper. And I continue to say that it isn't only that aspect.

21:05It's about policy. All the debates that we seem to be having are about tax policy. Listen, other than leases and little trinkles, the government's basic money comes from taxes. So there's so much money in the country. Now, if the private sector spends those monies, that capital, I think it's much more efficient than the government. So when we talk about more taxation, what we're really talking about is more control over what Americans make spent by the government. That doesn't make any sense to me. And if you draw a line of spending, it is grossly outpacing revenues. And revenues, for the most part every year, continue to make records.

21:45You talk about the tax changes in 2017, 2018. Look at what revenues did. They went up. The problem is that our baseline spending goes up every year on automatic pilot. And in welfare, we have unlimited spending. You know what the issue is? If you want our debt to find more buyers, we have to change our policies and quit spending so much more than we make on an automatic pilot system. Amen. Rick, always good to see you. Thank you. Rick Santelli. Absolutely. All this to say, Tim, that gold, silver, even Bitcoin for that matter, may be the way to go. Well, gold is the best 20-year chart you're going to find.

22:31So the argument for gold is everything Rick's saying that's been happening slowly. And it's a combination also of the other central banks of the world. And I'm glad he brought up the rest of the world. I just want to point out, as much as we're alarmed at the move in the U.S. bond market and where rates have moved, if it's been roughly a 15 % move in the 10-year Treasury to this point from where it was down around 355, 360. Buns are about 15, 16%. JGBs are 16, 17%. So, you know, I agree with everything we're all saying in terms about runaway spending, and neither candidate, like Mr. Tudor Jones said today, has any clue really about the deficit that they're talking about or not talking about.

23:08But it's a case where rates are going up because the U.S. economy isn't as weak as everybody thought it was three weeks ago or a month ago. The Fed is now potentially going to back off what would seem to be an overly aggressive stance towards easing. I think it's a combination of economic dynamics. And there's no question the credit worthiness of the United States is being held to question here. But so is the rest of the world. Be careful where you're investing on the curve, too, because two years is very different than 10. and the risk you have in terms of asset allocation is moving out the curve.