Banks Get Hit… Plus Lawmakers Target Chinese Biotechs 9/10/24

0:02Live from the Nasdaq market and in the heart of New York City's Times Square this is fast money Here's what's on tap tonight. A bank breakdown from money centers to regionals to lenders, the warnings that sent these stocks tumbling today, and how you can trade the moves. Plus, we're counting down to tomorrow's big CPI print, the last big data point before the Fed is expected to cut rates. What tomorrow's number could mean for the central bank. And on the brink, WNBA star Cameron Brink joins us live from Gameplan in L.A. What she says is driving a surge in interest in the league and how she's looking to build her brand.

0:33I'm Melissa Lee, coming to you live from Studio B at the NASDAQ on the desk tonight. Karen Feinerman, Julie Beal, Guy Adami, and Dan Nathan. Look, Julie Beal's in the house. In the house. Nice. But we start off with big trouble in the big banks. J.P. Morgan falling as much as 7.5 percent at its lows after its president, Daniel Pinto, said he expects 2025 net interest income to come in below expectations. Pinto joins a chorus of bank execs tempering outlooks just yesterday. Goldman Sachs CEO David Solomon said he expects trading revenues to fall by 10 percent in the third quarter, while Citi's CFO warned of a consumer credit crunch.

1:06And just this afternoon, Bank of America CEO Brian Moynihan told her Sarah Eisen he expects mixed results in the upcoming quarter. Our trading revenue is sort of, we think it'll be up low single digits. That's kind of counter to what we've heard. And humans had down 10 percent. Yeah. In our investment banking revenue, I think it'll be softer because our mix of business in this quarter won't be strong. And check out shares of Ally Financial dropping over 17 percent after the company said credit challenges are increasing, particularly around auto loans. So are the banks sending signals that a true slowdown is here?

1:43There's a lot to unpack, but I turn to you for J.P. Morgan banks. So, J.P. Morgan, you know, my gut reaction seeing the stock down$16 was, wow, this is probably overdone. And it rallied a little. And I thought, all right, let me just actually listen to exactly what he said. And anyone can do that. You just go on JPMorgan Investor Relations. Even if you weren't at that conference, they put it on. So just a little PSA there. And it wasn't about this quarter. It was about next year. He said the net interest income is a little too optimistic. I don't know how much optimistic means in terms of billions.

2:18Right. At ninety one and a half, he said a little optimistic. So, you know, I took a little bit of haircut there. He talked about expenses, actually, that the street was a little too optimistic there as well. Took a little bit more. They're also not going to be doing aggressive buybacks, which is not particularly new. And so it was an overreaction, but it wasn't a crazy reaction, particularly when you step back and see, wow, where had this stock gone in the two weeks before this? And we knew that there would be a sort of restructuring to Basel Endgame. We still don't know what it is. But there is one thing outstanding that is sort of important, which is for the big trading desks, a Goldman, you know, Bank of America or J.P.

3:00Morgan being probably the biggest, is what will the capital requirements be on that part of their business? That's really important. And that's still very much up in the air. Yeah, Julie. Yeah, it's central because so much of the trading business has been driving revenue for these companies. And it's really challenging for them to find a replacement for that business. And, you know, based on capital requirements, it's going to be tricky for them to really even be able to forecast the net interest income. It makes sense to me that they would be trying to tamp down expectations. This is actually the first bank that's really giving any kind of indication on what 2025 is going to look like.

3:34And I think it makes sense to try to put some conservatism in there, especially if you're a producer. The stock reaction is just a function of expectations being so high, right? The stock has just really been on a tear. Guy, what's your take on the fallout? Well, I mean, first of all, Karen said if you want to hear that call, you can go to the website or you could call Karen's phone and listen to her ringtone. I think you've got to listen to what they're saying. First of all, Jamie Dimon's been saying similar for quite a long time, so I discount that a little bit. But then when you hear Brian Moynihan, who's always effervescent, talk, I don't want to say dour, but somewhat, you know, concern, I think you take that and sort of throw it on everything else we've heard from not only bank CEOs but across a swath of industries.

4:16Look at the BKX, our crack staff back in EC can pull this up. And we just topped out at levels we topped out at in January of 2023. So I think there's a reason technically also to be concerned. And again, when Jamie Dimon, I think it was two and a half, three months ago, said, you know, I think the stock, J.P. Morgan, was trading 202. They weren't going to buy back stock at these levels. The stock was rich. You know, I think he was right in bringing that up. And on a price to tangible book or price to book, historically, it was rich. So I think the banks, I understand why people got enthusiastic, the yield curve re-steepening, but I think it's the wrong environment to think they're off to the races.

4:51Yeah. How do you impute this bank mosaic, Dan, onto the rest of the markets? Yeah. Well, Mel, I was in the same camp as far as Karen was this morning, watching, you know, J.P. Morgan fall off a cliff like that at one point down 7%. I mean, you would think that something is going on, at least in the markets, maybe the economy to see that sort of downward pressure on a market leader like that. And so it just tells me a little bit that investors were looking for an excuse to kind of move out of a very crowded trade. When I think about just what Guy said, I mean, Jamie Dimon has been somewhat subdued on the outlook for, you know, the bank, for the economy, for the idea that rates were going to come down so hard.

5:32So I find it all a bit curious. The one thing I'll just say about some of the commentary in and around trading revenues is like, man, we finally have equity market volatility. We have currency volatility. We have commodity volatility. We have rates volatility. I don't understand how, you know, we're going to see trading down 10 % at Goldman, that sort of thing. So to me, I think it's very curious. And the last thing I'll just say as far as net interest income, I mean, it was supposedly going to be great for these money center banks on the way up with yields. It was supposedly going to be pretty good on the way down.

6:03And it just seems like there's a chorus of folks getting cautious on that line of income. So to me, I do think it's a pretty tricky time to try, you know, picking a bottom in some of these names. Pinto said we're not going to guide down on that yet. So no formal guidance. But you have to wonder when that does come out, what the reaction will, if it trades down again on the same news. Well, we always talk about that phenomenon. Are things trading down on the same news and then some other bank will come out and they'll all trade down again on it. I do want to disagree with Dan on something, just one for the sake of disagreeing with Dan.

6:36But also netting and interest income has been good for the banks. And so, you know, for J.P. Morgan, they have a little bit different mix. Actually, this is a little bit of Bank America's mix probably being better now for them. And then maybe seeing a little less net interest income compression or net interest margin compression. compression. But I would, if you would say to Jamie Dimon, are you optimistic about your business overall going forward? You think he would say? Yes. So that Jacob, J.P. Morgan is very well positioned. We're in this market. We're in that market. You know, we're going to become more efficient.

7:11They did talk a lot about, not a lot, some about productivity enhancements for AI, which will cost them some to get going. But they talked about it in processing, in fraud protection. one other area that I forgot I don't want to split hairs though but I mean saying that your business is good doesn't necessarily mean that the stock or investors are prepared for that, right? Prepared for that sort of forecast What's interesting about, and I agree with Karen I think the more if things start to deteriorate I shouldn't say the more things deteriorate if things start to deteriorate in terms of the economy I think the better prepared and the better suited JP Morgan probably is So I think both those things can be true.

7:53I think he can be concerned about the macro environment and optimistic about his business, the way they've positioned themselves. So that actually the worst things get. I mean, you can make an argument that the better things might be for JPM. Well, how are you feeling about the banks, Julie, at this point, having heard from a lot of them about their businesses? Well, I mean, I still struggle to understand how you differentiate as a bank. It's not a sector that I really find very attractive. What I will say is there is this influx of PE and transactions that has to happen. And we're still in a pretty anemic M &A environment.

8:24What I like are these smaller boutique investment banks because then I don't have to worry so much about trading revenue. I don't have to worry as much about net interest income. It's a cleaner story. So those are the types that I'm more interested in right now. Yeah, we haven't even touched on Ally Financial. And I guess this is a theme that we've been harping on a lot, especially as we have gotten data points from Dollar General and Dollar Tree and those sorts. We know that the low-end consumer, that the lower-income household, Dan, has been having trouble. And this just sort of underscores that point.

8:51And you saw a lot of the operators in this sort of income cohort fall on the back of what Ally Financial said, particularly about auto loans. We saw Affirm. We saw Discovery. We saw Capital One. We saw a lot of them decline on the back of today's comments. Yeah, no doubt. I mean, the knock-on effect to your point about auto loans is you saw AutoNation, you saw Ford, you saw GM getting hit really hard. When we think about some of the past credit cycles, we know that it kind of starts in this subprime area. And you first see some of these defaults, or at least the delinquencies in the auto space.

9:27We've been talking about it, I think, at least through the earnings season over the last two months. What became very apparent, other than some weakness on the high end, a lot of that coming from China. But if you think about the U.S., it's a tale of two economies in a way. And I know we're going to hit that a bit later. But again, to start to see a warning sign like this out of Ally and then see the stock down 17 percent, it is basically round trip the entire move of this past year or so. It's, again, just like JP Morgan at one point down 7 percent. You have to take notice of this sort of price action.

10:00Over the course of the quarter, credit challenges have increased. And what is Phil LeBeau been telling us about the relationship between rates, the Fed sets, versus auto loan rates? Auto loan rates are very sticky. It takes a long time before any Fed rate cuts actually catch up with the rate you would pay on an auto loan. So is this a leading indicator in terms of what it means for credit? And if you throw up an HYG chart, HYG is not worried. I mean, it's 79 and change. I mean, this thing has been flatlining to slightly higher probably for the last seven or eight months. But I guess the question one has to ask again in sort of this conversation is credit the next sort of shoe to drop.

10:38And I think inevitably the answer almost has to be yes. I mean, it's not manifesting itself in terms of spreads or HYG or anything else. But I think it's absolutely out there something to be watched. So for Ally, obviously, of course, fear of charges to come, even if they're not there right now. I think you're looking at different customers at a JP Morgan. However, if an ally really does have trouble and charge-offs go way up, they're all going to get hurt, even if it doesn't affect their own critical. And you've been on the bandwagon of the consumer is going to be really weak and we haven't seen the worst of it, et cetera.

11:13Have we seen it yet, the worst of it? I don't think we've really seen the worst of it, right? We still haven't even really lost any jobs. And that's really when you start to see this cascading effect in terms of credit cycles. The place that I continue to be the most concerned is, you know, we're no longer getting the student loan support that a lot of people had been expecting and counting on. And once that starts to trickle, you really can see an unwinding of the strength of the consumer that we are dependent on in this consumer economy. I just had one thing. It's delinquencies first that we start to see before they actually end up making their way through the, OK, we've got to write it off.

11:46Right. To charge off. Right. OK. It is the last major economic report before next week's Fed meeting. The Consumer Price Index is out tomorrow morning. Let's bring in Michael Schumacher, global head of macro strategy at Wells Fargo Securities. Mike, great to see you. What's your outlook? What's your outlook for the market reaction? Slightly above consensus. So our econ team and Sarah House. So hotter. A little bit, yeah, 0.25. People like to think about that second decimal place right now. I know it's kind of crazy, but still, that's the way it goes. Just a touch above consensus. But I do think that inflation genie is just about back in the bottle.

12:19It's a lot more about the topics you all were just discussing. Consumer, recession, growth. That's where the market focus is now. So 0.25 would make it seem like then 25 basis points would be in the cards for the Fed, much more so than? Than 50. Than 50, yeah. Whereas if it comes out at, say, 0.1, party on. 50 is pretty likely. Right. Jay Powell's all excited at that point, and you've got markets doing, I think, a victory dance. But, yeah, 0.25 would be a little bit challenging. So you think the markets would rally more on a 50 basis point cut? Or do you think that's what you wish for? Exactly.

12:52So is good news good news or is good news bad news? And I'd say in the near term, people do look at the Fed. And markets are taking their cues very much from Fed expectations or other central bank expectations. So it's look at the data, think about the Fed's lens. How does the Fed see it and then react? That's how the markets have been going. So it's a little bit of a Rubik's Cube, right? You get the green side fixed, but then the red side screwed up. And so and I say that in terms of jobs and inflation, because, you know, maybe they figured out the inflation portion, although I'm not convinced.

13:22But on the flip side, as we were just talking about, Julie's concerned about, as am I, it's the employment side that's going to do escape velocity. So they may fix one at the expense of the other. And so where are we on the employment side of things? Because that's the next story, I think. Yeah, the employment indicator has been lagging. So our econ team likes to point to lots of other indicators. So do we. If you look at the quits rate, if you look at jolts, et cetera, et cetera. They've been weakening for quite some time. And we finally had this uptick in unemployment. And then from the clients I talked to, it really caused a big stir when it triggered the SOM rule.

13:54So a bit more than a month ago, people said, oh, wow, it's a great indicator. It's 0.5 now. That's bad. So now people are looking much more tightly, I would say, at the employment indicators than they had been. But you don't get the next report for a while. So tomorrow, yes, all about inflation with this little debate thing, I believe, is tonight as well. So that may get some attention. But I do think you're right, though, Guy, it's going to shift back to the labor market pretty soon. So, Mike, just addressing the politics of it, do you think that plays into the 25 or 50 that the Fed is contemplating?

14:25Whatever. We'll see the data, of course. But is that an element that moves them? Probably not in the near term, though, Karen. I think longer term, if you say, well, what if Donald Trump wins? Forget the debate, but the election. What's the likely configuration of Congress? probably it's unified Republican control. What does that mean? Bigger deficits. The Fed says, oh, lots of deficits, lots of fiscal support. We, the Fed, probably won't need to cut as much. Whereas if Kamala Harris wins, yes, Democrats could win the Senate, but it's a much tougher road to hoe. So I'd say in that case, you get more likely the Fed thinking, hmm, probably not going to get deficits as big.

15:01We then have to cut a bit more. So down the road, it matters quite a bit. The markets may shift their probabilities a little, depending what happens tonight, but not a huge amount, in my opinion. So just looking at the various scenarios and what you think is most likely, what is the best case scenario election-wise for the markets? And I know it's early going. There's a lot of road between now and November. But still, I mean, from clients, what are you hearing? Markets like divided government. And they'd like to see more fiscal restraint. You just haven't had it in Washington in quite some time.

15:31And not even just in the U.S., but in other countries as well. So some lineup where it is divided, that's the best. whether it's Democrat in the White House and Republicans having the Senate or some sort of other scenario. It doesn't matter so much, but divided is what people want to see. All right. Michael, great to see you. Thank you for coming by. Michael Schumacher of Wells Fargo. All right, Julie, what are you thinking for CPI tomorrow? I'm hoping that it's, you know, we get a softer number, but I think I'm pretty concerned about the longer-term outlook. If I think about investor expectations and the setup for 2025, people are expecting double-digit growth in the S &P, and they're expecting, you know, multiple rate cuts.

16:11That's only happened once in 1984, which coincidentally was when my firm was founded. Uh-huh. Interesting. But that is a very tall ask, and that means that expectations are very high, and high expectations lead to broken hearts usually. That sounds like it's needle-pointed on a pillow somewhere in the Beal household. Dan, Ethan, what's your take on our setup into tomorrow's print? Well, I think it's interesting. You know, Guy just mentioned unemployment. If unemployment is going to be going up, then I would expect wage growth is going down. And that's a huge component to inflation. And if you look at some of the inflation break evens, it's suggesting that, you know, we're going to be below 2 percent in the not too distant future.

16:55And I say to myself, OK, well, is this a stagflationary environment? The economy is weakening, too. And so it's a difficult picture. I mean, like if inflation starts to come down faster than expected, it is easy to make the case why the Fed should go on autopilot and start cutting interest rates, I call it 25 basis points at a time. Now, if the economy falls out of bed, then they're going to get a bit more aggressive, not too different than what happened in 2022 when they were raising interest rates to combat inflation. Last thing I'll just say is that China as this engine of growth that no longer exists, if you look at some of the readings that we're getting over there, it's massively deflationary.

17:32So to me, I just really think that, you know, the lack of inflation should be the story going forward. And a soft CPI only makes the case of why the Fed should start cutting sooner than later. I mean, where do we buy a lot of goods from? Where are they manufactured? In China. So deflation over there could potentially be exported here, too. There's a lot of expectation, too, that the housing component will come down because rents have really gone down year on year at this point. The insurance component, though, is not going anywhere. And that's been a huge factor. And we've talked about that for a while.

18:03So, listen, I get it. I mean, people will say they've tamed the inflation dragon the same way they said that in the early 1970s. We shall see. But I'm telling you, if they do go 50, that genie's going to be right out of the bottle. And I think, you know, if you saw Richard Fisher on Squawk Box this morning. Yes. By the way, happy anniversary. It's his 20th anniversary of being a CNBC contributor. It's quite a milestone. And he was quite enthusiastic about that. He should be. But he said for a myriad of different reasons, specifically two, he didn't see 50. One being whether it's political or not, it will be made political, something we've said.

18:36And two, it might send the wrong message to the market in terms of what are they scared of that we're not seeing. Coming up, NVIDIA CEO Jensen Huang set to speak with Goldman Sachs' CEO tomorrow. What investors are hoping to hear and whether it will help NVIDIA shares bounce back. That's next. Plus, Bitcoin's been range bound for the last few months. But could there be a breakout on the horizon? The next move in the crypto space and how the AI surge will impact the Bitcoin mining space. Don't go anywhere. More Fast Money in two.

19:09Welcome back to Fast Money. NVIDIA CEO Jensen Huang on deck to speak at Goldman Sachs' Communicopia conference tomorrow morning. Shares are down almost 25 percent from records. Hit less than three months ago. Gross margins, a major concern for investors after its latest earnings report. Guidance was slightly lower than expected. So what do you want to hear from Huang tomorrow, Dan Nathan? Yeah, I think, listen, first things first, he's going to be in front of a very agreeable audience at a Goldman tech conference. Let's be clear on that. And I think if you think back to August 28th when the company reported, you know, again, big beats, good raises, but just not good enough.

19:45The expectations, whatever Julie just said about expectations and broken hearts. I mean, that's what's happened over the last month and a half or so, down 25 % or so. What I think investors want to hear a little more clarity on is what the delays look like for this Blackwell, this next generation GPU, how long it's going to be, and what is the margin impact going to be? Because if people are basically pulling back from purchases of this hopper because they're waiting for Blackwell, and what does that transition look like from a margin perspective? Earlier this year, investors were very happy to see margins get above 70 % on their way to high 70s.

20:21And if they're working their way back down on a sequential basis, it doesn't leave a lot of room for the stock to appreciate, in my opinion, before we get more clarity on this transition to Blackwell. I mean, his credibility, Jensen Huang's credibility a little bit, is sort of on the line or will be questioned if they can't explain Blackwell. He did say two quarters ago, we're going to have a lot of Blackwell revenue this year. And so there's not a lot left left time to the end of the year to get that black oil revenue if the delays persist. Yes. Although I do think it's about demand, not so much supply.

20:54Right. If they're late. Delayed, not denied. Delayed, not denied. Because there is no other place to go really right now. I mean, AMD somewhat. But to me, I thought I mean, I actually agree with pretty much everything Dan said. I think, though, that NVIDIA, I thought that call from Oracle last night was very, very, very bullish. And yet the reaction to the stock was pretty muted, up only slightly. So it's going to be hard to get excitement, I guess, going again. Yeah, I think it's the same concept of just the level of expectations is so high. And for NVIDIA in particular, the real question is how much can these hyperscalers continue to spend on a prolonged basis?

21:34Right. And so we can talk about the transitions between the different architectures as much as we want. But what we need are these customers to continue to spend at this level. Plus, we need other customers to also be expanding their spend. And that, to me, is still a big question mark. What is the what is the competitive landscape look like one? And what's the growth trajectory for revenue? Because at current valuations, historically, you're a very rich company on price to revenue. So I'm curious to know, like where the sales trajectory is for the next three to five years. Yeah, 1020 a.m. Eastern time is when Huang is scheduled to speak.

22:07There's a lot more Fast Money to come. Here's what's coming up next. The next moves in crypto. Bitcoin looking for a breakout as crypto miners get in on the AI surge. How the latest advancements in tech could impact the entire space. Plus, a biotech block. The House voting to restrict business with Chinese companies. how the move could hit drug prices, and the impact on U.S. relations with Beijing. You're watching Fast Money, live from the Nasdaq market site in Times Square. We're back right after this.

22:48Welcome back to Fast Money. Bitcoin making a comeback after its worst week in more than a year. The cryptocurrency rising for a second day, back near the 58 ,000 level. Separately, Bitcoin miner Core Scientific recently announced a$6.7 billion partnership with NVIDIA-backed cloud startup CoreWeave as it looks to diversify its revenue from crypto to AI. The stock has nearly tripled since relisting in January. CEO Adam Sullivan joins us now. Adam, great to see you. What's your forecast in terms of the revenue breakdown, crypto versus AI? Yeah, looking forward to 2025 and 2026, we are going to become much more predominantly towards HPC revenue.