Best Days Behind Apple?... And A Bitcoin Bond ETF 1/16/25

0:02Live from the Nasdaq market side in the heart of New York City's Times Square this is Fast Here's what's on tap tonight. Rotten Apple, the iPhone maker seeing its worst day since August. China concerns and a looming trade war weighing on the stock. These are more pain ahead for the longtime market leader. And Bitcoin bonds, another way to play the red-hot crypto space. We'll dig in on the latest ETF in the sector with the CEO of Strive Asset Management. Plus, Taiwan semi surges on the back of results. Target misses the mark and widens the gap with Walmart. And two more trader acronyms will a rising tide lift Mike's boat.

0:35Did Bono and Pick a booming trade? We'll find out later this hour. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Bono and Eisen, Guy Dami and Mike Coe. We start off with Apple losing its top spot at the market in China. Shipments to the country plunging 17 percent in 2024, according to research firm Canalys, with a whopping 25 percent drop in just the fourth quarter. That was Apple's worst yearly decline ever and put it into third place behind China's Vivo and Huawei. The stock falling over 4 % today for its worst day since August. It's now lost nearly 9 % already in 2025, making it by far the worst-performing MAG7 stock so far this year.

1:15Analysts on Wall Street have also been getting a bit more bearish. Just last week, Moffitt Nathanson issued a rare sell rating on the stock, slashed its price target, saying Apple could fall another 18 % from here. The biggest concern there are tariffs. And with President-elect Donald Trump just a few more days from returning to office, Could that threat just be starting? I guess at the heart of this whole thing is, is there more pain ahead? You know, there's an interesting word in the English language, swashbuckler. Are you familiar with this? It's usually associated with pirates, I believe. Yeah, yeah.

1:47Thank you. And I think for Moffat Nathanson, for example, to make a call like that in the midst of what was it, that's pretty much a swashbuckling move, going against it and sort of being out there, right? And I sort of admire it. I'll say this, where we traded down to today, right to the moving average. But we've seen moves of this magnitude before. And I think finally, some of the China concerns that I've had, and they've been incorrect to have, but are starting to come to fruition. I think valuation is coming to the forefront as well. So you get through this level, then I think the November low of$2.20 is in play.

2:18And it feels as though it's going to continue to trend towards those levels. Seems like there are a lot more question marks about the upgrade cycle and the strength of that upgrade cycle based on AI offerings, seeing that there are very few AI offerings that are actually compelling enough for people to pay a lot more money for a new phone bottom. So that plus the possibility of Apple not necessarily falling into the crosshairs of tariffs that we put on China, but retaliatory tariffs that China will take on U.S. companies. Well, it would make sense. I mean, they're one of the largest operators.

2:47And if you look at that whole greater east region, it's about 16 percent of revenue. So the implications are significant here. And from a top line standpoint, you know, again, you still do have that service business. You have a significant install base. And as guys pointed out numerous times, when you just talk about the passive income flows, the passive ETF flows, Apple is always going to be a significant portion. The real question is, do you want to be overrate versus the S &P? Do you want to be adding Apple as a singular equity holding versus the rest of your portfolio? And I think right now, going into a situation where, one, the AI super cycle is not even a factor in China.

3:25So that there is already a reason for them to look for local competitors. But in terms of them offering something that's a compelling reason for you to pay and upgrade now doesn't really seem to be there. And so I would be hesitant to add. But I do think, as guys mentioned, there is a floor to the price in the short term. Yeah, I think you're buying weakness in Apple. And I think there's nothing about the China market share loss that we haven't been hearing about for a long time. This doesn't just happen in the fourth quarter. So they were number one, actually, but they were their sales year over year were down 25 percent for the fourth quarter.

3:59So the issue is absolutely partly the headlines from U.S., China. Are we getting worse? Are we ratcheting up? But I mean, I would have thought in the days of when we were really putting the screws to Huawei or Xiaomi that China would have already gone after Apple. We know they play the long game. I guess I look at the price of Apple and I understand that the valuation isn't terribly cheap. But when I at least hear about people say, well, look, there's not going to be a real upgrade cycle and there's no real AI, I don't see that in the price. I don't think there's any really AI dynamic in the price.

4:35And I think people will continue to refresh and upgrade Apple. The hardest part about this trade are not the headlines today. It's that Apple trades at 33, 34 times forward. And depending on where you believe you should put a multiple on their services business and depending on what you think is really the outlook. But let's also not forget, if you think about the ASP and the Apple phone, it's gone higher. The gross margins have actually held their ground, which is nice. When you think about China, that's, you know, that ASP is getting harder and harder for a lot of people. And the domestic competition, they're very good phones.

5:07They're very good phones, and they're significantly cheaper, and there is a buy local mentality there. So the move in Apple from June, from WWDC to now, which is higher, about$20-something, that does not, you think, include any AI? I think it's a combination of people really looking at the consistency of the business. The overall dynamics around the software services business is something I don't think so, especially when I look at the price of the stock going back two and a half years, is largely within a 10 percent range from where it peaked out in probably early 20 or late 21. Mike, you agree?

5:43No, not really. Nice. Look, one of the reasons we talk about the valuation expansion that we've seen in the S &P is because some of its largest constituents, including Apple, are some of the names that have seen that valuation expansion. This name, you know, Apple has not grown the top line as fast as the S &P in general has over the course of the last three years. It has not grown earnings as quickly as the S &P has over the course of the last three years. And yet it trades at a premium to it. In fact, because it represents 7 percent of the S &P, that's one of the reasons that you've seen multiple expansion in that broader index.

6:19So, you know, look, it would have to be doing a whole lot more. I think there is good news priced into it. You can see that at over 30 times forward earnings. Then clearly there's some good news baked in that the last three years don't reflect. Yeah. No, it's it is a valuation thing. And again, in the passive investing world, as Bonwin just said, I mean, nobody cares about valuation. And Apple wins to that without question. But when valuation is sort of at the forefront, and to Tim's point, when you're trading either side of 30 times next year's numbers, with revenue growth maybe 8 % or so, with margins that Tim pointed out as well, they haven't been deteriorating.

6:56They haven't been expanding either. I think you're making your bet that overall revenue will continue to grow and services as a percentage will continue to grow and get closer to sort of 27 % or 28%, and then maybe you can justify that valuation. But short of that, you know, it feels like we're in another one of these cycles where we've seen it before. You know, Apple can go down 25 % or 30%. But again, if it's not really today's news on China and it's the valuation, then we could have been having this conversation for the last three years. Are you worried about China if you're Apple? It's really not only the story of the day, but I think it's the only real story.

7:30Because we've known about slowing iPhone sales for a long time. We know there's no real innovation. OK, so whatever. Bottom line is, this is one of the best companies in the world. Their capital markets dynamics, the free cash flow generation. This is a bank. This is a this is something you can go to the bank on. And you can't tell me there's that kind of a competitive threat in the U.S. There's nobody even close anywhere else in the world. So greater China, which is China, Taiwan, Hong Kong, et cetera. I mean, I think this is this is the only place you worry about it. So let me ask this question.

7:58You mentioned it could go down 20, 25 percent because the valuation is so high right now. Let's say the overall market goes down that much. Is Apple a better place to be? Will it go down relatively less than the broader market? Or will it see a big tumble? Sorry, you didn't ask me. No, no. I'm just like, I felt the need. But that's a great question. Relatively defensive stock. That's the question. From high to low or from here? From here. I mean, it's already down 12 % versus an S &P that's relatively flat. Sounds like bombers on my side. So, I mean, to an extent, it's de-risk. But like we have to look at the whole move, like for us to pick one year or a year to date.

8:35It's kind of like an arbitrary moment in time that we're kind of picking. I think what you're seeing right now is that you can see Apple have some exorbitant beta to the market. So I think now, being that it's already off 12 percent. Sure. I think you expect Apple to outperform. We have to ask. We can't go back in time. We can't go. I mean, it's today, Mike. It is today where people are making the decision. Right. They're watching the show. They're making a decision or they have it in their portfolio. And it's today that they're making the decision. Do they continue to hold Apple because it's a relatively defensive stock?

9:08I'm concerned about the valuation of the overall S &P 500. I think we're going to hit a volatile time in the markets and want to be in a relatively defensive play. OK, so I know. And I also take issue with the idea that it is. No, I mean, it is not a safer place than the S &P. The options markets can tell you this. It's got a 27 percent implied volatility, which is about double that of SPY. So you're buying a stock that is more expensive than the market is generally, and it is more volatile than the market is generally. I would like to understand. Someone please explain to me how that is safer.

9:39It isn't. Mike is like exorcised. I love how he's in my grill. Everybody's in your grill. You don't have to agree. No, I'm not in his grill. I'm good with that. That's what we're supposed to do here. So can you address Mike's concerns more? Mike, could you reiterate those concerns? I mean, I heard you on valuation. I hear you on implied vol. So you're saying it's twice as much as the S &P. So you're saying that actually in a downdraft in the S &P, you think Apple's going to underperform. Well, it is more volatile. And I think that's the point that Bono was making. And the options market is implying that it will continue to be more volatile than the S &P is over the next 30 and 90 days.

10:15So, you know, we look at risk adjusted returns when we're trying to establish if you want to get into something that is lower risk, you're typically looking for lower volatility. This doesn't have lower volatility than the S &P does. Sounds like a good point. Well, that's fine. I think if I look at U.S., China, Japan, and that they essentially are 70 percent of the Apple store services revenue. And that's up 12 percent year over year. I mean, there's a number of data points that, to me, tell me their business isn't falling apart. And the higher margin part of their business is fine. Again, in a downdraft, Apple's proven to be defensive.

10:49And the stock's done nothing over the last three years. Don't you think it's going to be NVIDIA? Don't you think it's going to be Amazon? I mean, those are the stocks that are going to sell off. As I mentioned earlier, an exercised Mike was mentioning derivatives. It would be great on a show like that, given that we had somebody that could speak to, like a Mandy Shue, for example. Ah, your wish is a pocket man. One of Wall Street's top volatility experts, thanks to regime changes underway in the broader market, Mandy Hsu is CBO's head of derivatives market intelligence and the aforementioned derivatives expert.

11:22Mandy, welcome back. Thank you for the intro. Great to have you. So how are investors bracing themselves for the next, I don't know, couple months? Yeah, so I think one notable shift that we've observed in the options market is that there is now more fear and more downside risk being priced into the options market. And this is specifically looking at S &P index options. Now, puts always trade more expensive than calls, but we were in a regime for the past two plus years where there was a lot of demand for those upside calls. People were playing that catch up. Right. And we weren't seeing a lot of fear in the options market.

11:54That has shifted over the past four months. We are now seeing a return to a more normal environment where now people are actually concerned about downside risk in the market. And that's something that we haven't been in for the past two plus years. Are you seeing that more in certain sectors? I mean, we were just having a very heated discussion about Apple in particular. I don't know if you can address individual stocks or just big tech broadly and the desire to protect against downside there. Yeah. So what is notable in this environment is that investors are still expecting a lot of dispersion.

12:22So whether that means, you know, we get a rotation out of tech into other sectors or vice versa, that certainly is kind of how they're positioned for. Now, the risk is we get a sell off where it's not a rotation, but everything sells out. We haven't really seen that, and that's not what the market is pricing in. But if we do get that, then you can really start to see the VIX start to move higher. So, Manny, can you speak a little bit about TLT volatility? I mean, we've seen quite a bit of rate volatility, and it seemed like we would see a lockstep move in rate pickup and expected rate cuts. And as you pointed out, we're not seeing the same tick up in TLT volatility when we are seeing some of these movements in the longer term rates.

13:03Can you explain that dynamic a bit? Sure. So what's been notable is that we've obviously been in a big bonds market sell-off. If you look at TLT options, which is one of the most traded bond market options, we're not really seeing a rush for protection in TLT options. And that is in sharp contrast with the last couple of sell-offs that we've seen in TLT, where as bonds have sold off, people have bought puts to protect against further losses. This time around, there's actually been more demand for those calls. So the biggest pickup in option activity has actually come from the call side. So I would say that's kind of a difference from what we're seeing in equities.

13:36In the bond market, at least, investors are actually saying maybe this is the top in terms of yield, or at least there's not that fear of additional accelerated sell-off in the bond market. Mandy, over the last, let's call it since August, volatility events have been one-day events. August 5th, December 18th, December 27th. Is there any indication that those vol events could last longer in 2025? Certainly. I think the catalyst to get a more sustained increase in volatility would have to be a shift in the economic backdrop and economic outlook. Right. So I would say so far, the broader U.S. economy has been doing relatively well, certainly compared to other major economies.

14:13But if we start to see, you know, persistent inflation, a more aggressive Fed tariff starting to impact the economy and really the outlook start to get murkier, That is when you typically see volatility pick up on a more sustained basis, similar to what we saw in 2022, for example. Mandy, so therefore, where are you seeing concentrations either on the calendar? Where are people protecting against? Are there certain places or certain events out there that you think are coming to light, at least in terms of anxiety or asset class, maybe outside of equities? And you talked about how fixed income maybe got a little overdone.

14:44How about in currencies? How about in oil? Because we have seen big moves in the dollar. We've actually seen a surprisingly good move in oil, even with a higher dial. Yeah, that's a good point. We are seeing more volatility risk premium or more fear being priced into the other asset classes. So FX, you mentioned, big pickup in volatility in that asset class, certainly in oil. And then within equities, we're seeing more volatility risk premium in the other regions. So I think the story of U.S. exceptionalism, right, people are still looking to the other regions for more downside. So China, we talked about that.

15:18You guys talked about that earlier. Europe, I think those are the countries that are kind of very, regions that are very exposed to potential changes in trade policy. So just quick on the dollar, are traders positioning for a stronger dollar, even stronger from here? That, I didn't look at the skew, but in terms of volatility, just expectations of more volatility. Okay. Mandy, great to see you. Thank you so much. Mandy Hsu, SIBO. Mike Koh, where do you fall on the volatility? What events, dates on the calendar have you concerned the most? Well, I think obviously we have to look out to the next FOMC meeting.

15:52That's going to, I think, be an important one. You know, net of the inflation data we just got, I think that there's, you know, more uncertainty about whether they could actually act sooner than some had probably believed even 10 days ago. So I think that is obviously one of the spots where we can look. And of course, there's going to be more volatility right now. We're right in the beginning of the earnings season. And there's two things that are going to happen in that environment. One is you're going to see individual stocks move around much more. And of course, that can contribute to broader market volatility.

16:22And there's going to be greater dispersion in the returns of individual stocks. So more stock picking is really in place when you're going around earnings. And that's not just unique to 2025 first quarter. I mean, it's a standard characteristic. It's a seasonal issue, and we get it four times a year. All right. Well, on Capitol Hill, lawmakers-grilling Treasury Secretary nominee Scott Besant today. Besant in D.C. for his highly anticipated confirmation hearing. CNBC's Megan Casella's got the highlights. Megan. Melissa, it was really our first time hearing from Besant on policy, and he kept himself fairly measured, fairly balanced throughout.

16:57Tax cuts really dominated the day. Besant warned that not extending the 2017 cuts would bring economic calamity born, he said, by the middle class. He also embraced the use of tariffs as a negotiating tool and as a revenue raiser. He suggested he'd even support a tariff on carbon. And he said several times he does not believe that tariffs would raise consumer prices. He also vowed to cut spending, but without touching Social Security or Medicare. And he spoke a lot about sanctions. He both said that he would support stronger sanctions on Russia, but he also said that Trump believes that the U.S.

17:29has gone too far on sanctions and that it has driven countries away from using the U.S. dollar. And then finally, he did touch on the independence of the Federal Reserve. Take a listen. You think that there should be independence? I think on monetary policy decisions, the FOMC should be independent. And Melissa, Besant had initially suggested that a shadow Fed chair should be nominated to sort of limit Jay Powell's influence, but clearly today backing off that stance. All right. Megan, thank you. Megan Casella. Seemed like there are no big surprises, which is a great thing for Wall Street. Independent Fed is one of the greatest things about this country.

18:08I know most people probably don't even think about that on a day to day basis. But when you walk around with that blue passport in your pocket, part of it is our central bank, the ability to navigate monetary policy, because otherwise interest rates are extremely, extremely political. The other thing about sanctions, backing off of sanctions, not being as aggressive because people lose confidence in the dollar. That's a fascinating thought. And people would think that would not be Trump's angle on some level. If you think about how a lot of people would associate tariffs and sanctions, they're very different things.

18:37That's fascinating. I think when he it seems as though the bond market took a leg higher, yields went lower on the back of some of his commentary, maybe justified. And again, I said last night I thought that was an inspired pick for Treasury. Also saying I think Tim agrees with this. I think this bond rally is going to be somewhat short lived. And I'll say what I said last night. We're one bad auction away from being right back to four point eight. Coming up, Taiwan, Saimi's big jump. Investors piling in after strong results. How demand for A.I. is fueling profits to record highs. and whether there's more room to run in this name.

19:10Plus, hitting the bullseye, sort of. Target holiday sales blowing past expectations. The profits seem to be a different story. How the numbers stacked up and what investors thought about the results. Don't go anywhere fast when he's back in two.

19:25This is Fast Money with Melissa Lee right here on CNBC.

19:37Welcome back to Fast Money. Shares at Taiwan Semi up nearly 4 % after a big earnings beat. The NVIDIA supplier showing no signs of slowdown in the AI spending boom. Net profits up 57 % year over year, hitting a new record high. New record, yes, it's high performance computing division, which includes AI and 5G, continuing to drive sales. Taiwan Semi's CFO telling analysts on the call that after tripling in 2024, revenue from AI is expected to double this year. But can the company keep delivering on such high expectations? How are you feeling about Taiwan Semi? A lot better than I'm feeling about Apple, frankly.

20:12At 23 and a half times, you're talking about 57 percent earnings growth, 39 percent revenue growth. And yes, I understand that there's concern around AI. But would you rather be AI, AI adjacent and have that exposure or would you rather be exposed to automobiles or smartphones? And that's perhaps part of the reason why we saw some of the Apple sell off today is that they were indicating that they are seeing weakness in some of these other tertiary markets. So I think this is a situation where management has aligned with a secular trend. And at least for the interim, it's probably positive. But are we immune from China tensions with Taiwan Semi?

20:47Here we go. Here we go. Definitely not. But I'll say this. We like to play a lot of games on this. So many. I can't even keep track. We should have a catalog of games. You know, somebody out there probably does. But one of the games we play is, Mel, if you had told me last night that Taiwan Semi would come out with the numbers that they did, with the commentary around AI, where is NVIDIA going to trade given the sell-off we've seen since June? I would have said, oh, my God, the stock's going to be up 4.5%, 5%. It was at one point. At one point, Tim. But look where it closed. Look at that. Look where it closed.

21:21I teed that one right up for you. You did. So that I find really interesting against the backdrop of the aforementioned twice in one night Taiwan Selling. It tells me, Mike, that NVIDIA might be running up against some resistance. But where does that leave me on Taiwan Semi? Where does it leave you on Taiwan Semi? Yeah, I mean, to Bonwin's point, obviously, I think Taiwan Semi is more attractive on a growth at a reasonable price, if we'll call it that. Of course, there has been some volatility in their operating results over the course of the last several years. So at 23 and a half times, I think the, you know, the 10 year average multiple on a forward basis is probably closer to 17.