Big Tech’s Big Day… And Second Half Energy Playbook 7/5/24

0:02Indeed, it does. John, thanks. And live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast money. And here's what's on tap tonight. More new records. The Nasdaq and the S &P, both setting all-time high closes as slowing jobs growth, seems to quell investor concerns about the Fed. How much longer can the run keep going and who will lead the pack? Plus, it may be July 5th, but Macy's shares still seeing fireworks. The stock jumping as much as 14 % on reports of a sweetened buyout bid. Can a deal get done? And is there even more deal-making in store for the retail sector?

0:38And later, Novo Nordisk shares shrug off new concerns over potential side effects. Bitcoin breaks down, but where's the crypto going next? And we're counting down to Q2 earnings with a little old-fashioned options action. Here to play how to play Delta and the big banks ahead of their reports. Good evening, everybody. I'm Tyler Matheson. In tonight for Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, or really not on the desk tonight, Tim Seymour, Mike Coe, and Carter Worth. I'm here, gentlemen, all by myself. Is it something I said? I'm sorry you stayed away. We'll get back to you in just a sec.

1:17We're going to settle it in just a moment. We're going to start, however, with a big day for big tech. The old guard stocks staging a strong rally today with Meta, Alphabet, Apple, Microsoft, Amazon, all, all of them closing at all-time highs. The moves coming even as payroll growth slowed in June and the unemployment rate surprisingly rose, hitting its highest level in two and a half years. One notable name not joining the party, however, today, NVIDIA down nearly 2 percent today. It is still more than 10 percent off its record that it hit just about two weeks ago. So what do you make of today's action?

1:56And did the jobs report do enough to boost hopes for rate cuts sometime later this year? Tim, figure it all out for us. Tyler, very, very sad. And I wish I was there holding your hand right now. Me too. But let's just say we're doing that TV watch. Yes, I know. It's amazing what we've talked about in terms of concentration in this market. And yet when NVIDIA is no longer driving the market, but we have the at least five or six of the magnificent seven otherwise, including Tesla, who I think we're going to talk about. is this the kind of breadth, ha-ha, that you want to see from the market? What's amazing is that the NASDAQ, I'm sure Carter's got a view on this too, but you're talking about a fresh bull market from April 22nd.

2:39It's up 20 % through today. It's outperformed the S &P, the kind of leadership that in the past you've wanted. And on a day when you got a payroll number that really did have, I won't use the G word or the Goldilocks word, But I will point out that there's a dynamic here when you revised lower$110 ,000 the two previous months. You saw the unemployment move higher. You saw the participation rate move higher. And you actually saw wage gains come down a bit. It's everything that the Fed wanted. And it's everything that the equity markets seemingly have already priced in. And yet today was an opportunity to do that.

3:14And that's what they do. So I'm not too put off by this kind of price action. Certainly when it comes to the markets, there is relative value within semis. But today is a day that I think is very interesting because the macro was so good. Carter, Tim won't use the G word. I will Goldilocks. What's what's wrong with gold? I mean, it certainly seems like we're in a sweet spot here. The economy is growing, but maybe slowing a little bit. Inflation seems to be moving toward the two percent target, maybe. But we seem to be getting getting to that point without inducing a recession for now, at least.

3:51Carter, I mean, If the big thing is 10-year money, right, which is the big subject, it is in that sense goalie locks. We are not higher for longer, nor are we down at 3%, 2 % recession. Something's wrong. We are sitting here in this very benign rate environment, which is allowing for a multiple expansion, just as also there is meaningful earnings growth. But I think the most important development this week of all, really, is that the equal weight NASDAQ 100, because we know the QQQ, the Nasdaq 100, is making new highs every day, every week, month over month. But the equal weight Nasdaq 100 just today exceeded its high from March 21st.

4:30So three months later, finally, and this speaks to breadth within the most concentrated area of the market, the equal weight Nasdaq 100 making a new multibime today, not since March. And so to some extent you are seeing an improvement there. It's lagging the actual aggregate, but that's an important milestone to have accomplished today. And I think, Mike, the sort of the same can be said in a way, not the same for the S &P, where the index itself is doing much better than the average stock has been doing for the year so far. Well, yeah, that's right, of course, because I mean, The S &P has been propelled largely by its largest constituent stocks.

5:12You mentioned one of the ones that has fallen off a little bit, and that being Nvidia. But, of course, when you have the mega caps sort of leading the way, they can really move the index significantly. And actually, that speaks to something else. I think it sort of is the fundamental backdrop to the things that Carter is talking about, which is that there are a lot of stocks that didn't really participate. And what that means is there are a lot of stocks that don't have the same hit evaluations, that some of the mega caps do. And just going back to the payroll number for just a second too, I mean, obviously those who are looking for some sort of positive action from the Fed, positive meaning that they are going to bring rates down or ease on the monetary side, that of course is supported a little bit by the fact that out of those 206 ,000 jobs, you know, we're talking about 82 ,000 from the healthcare space, 70 ,000 in state and local government added jobs and actually a decline on the manufacturing side.

6:05So if anybody is looking for information that along with maybe a declining pace of wage increases could be supportive of Fed action. I think that's it. Let's kick around the Fed a little bit because, Tim, the market has done just fine so far this year without an interest rate cut from the Fed. When interest rate cuts were all anybody was talking about in late 2023, everybody expected them to be well on a path to multiple rate cuts by this point. It hasn't happened. The market's doing fine. Does the market need now an interest rate cut to move sort of next level? I'm not sure it does. And there's there's two dynamics that I think we need to focus on.

6:50One is be careful that it's nice to see the unemployment rate come up. I think the Fed's targets probably four point two percent. But what happens when inflation is higher than the Fed's target employment target? So, again, they've got this dual mandate, but they don't always meet in the middle. And you have a sense here where I think inflation is going to stay higher and maybe force the Fed to stay longer. But if we're then bringing it back to the market, a market that we like to at least compare to 1999 for those people that think we're bubblicious, you know, the cost of capital is 175 basis points cheaper than it was in 1999.

7:25So this is a market that isn't necessarily, I know on a relative basis to where we were, rates are significantly higher and they haven't come down. But the higher for longer dynamic doesn't have to be awful for equities. And I think if you think about the market overall, and again, metrics that at least are worth comparing, on a price-free cash flow, we're two standard deviations cheaper than where we were in 1999. I know and we're going to hear more and more about this as we get into earnings season. The reality is that the tech sector is going to grow earnings 23 percent. Energy is probably 13.

7:58And then you're going to have some other big sectors that might even be negative. But if we're talking about the indices and on some level, the passive investor and the retail investor is not only invested across the S &P and the NASDAQ, but effectively the weightings that they have in many cases are in line with the index. And that's something that right now I think you have some room to run. The resiliency of the economy coming into this that everybody, I mean, everybody has underestimated what the economy could do through this period of Fed raising rates. And it's not just because we came out of this period where there was a lot of savings.

8:31So, you know, we're mid-cycle at best. Carter, let me turn back to you. And I think I'm going to paraphrase you accurately. And you seem to be heartened by the idea that the equal weight NASDAQ 100 had gone to a significant level just today. You seem to be heartened by that. Tell me why you are heartened by that, if I've got you right. And number two, what is the implication for the investor? In other words, where should they be putting incremental dollars now in light of what you seem to say is a broadening out of the market? Tyler, no one's hearted me in a while. That was very nice of you to heart me.

9:13I know you said heartened. Listen, I think as we were speaking of the semis not participating and yet the big five Apple Nasdaq is also making new highs that the equal weight Nasdaq is the whole issue is the equal weight S &P is still not a new high. The S &P 400 million cap is still not a new high. The Russell is not. The New York Stock Exchange Composite and many sectors. But within the most loved area of the market, there's even the issue of a divergence between sort of the median stock, if you will, or average stock and the aggregate. And so this week, at least, that most popular of areas of the market, the QQQ, the Nasdaq 100, its equal weight thing was able to get above a high not seen since March.

9:54And again, we're now in July. And so to some extent, there's been a little bit of broadening in that area of the market. Heartening, I'm not sure, but I think it is the single most important development of the week, because making a new high in something that is one man, one vote, each stock 1%, is much harder to do when you have such incredible concentration at the top. Right. All right. Meanwhile, let's move on. A new read from Charles Schwab's Trading Activity Index shows that retail investors expect volatility to increase in July. So let's bring in Charles Schwab's Joe Mazzola to discuss. Welcome, Joe.

10:33Good to have you with us. So investors are looking for more volatility in July. It certainly has not apparently, as you report, affected their appetite for equities. They're still buyers. That's an important point. And we're going to look at this from two different lenses, the behavioral and the attitudinal. So the Schwab Trading Activity Index report that you're mentioning, that's behavioral. So basically, you saw a lot of buying activity in June. A lot of it was concentrated in some of the AI named or AI themed names that you guys were just mentioning. A lot of it tech heavy. Interestingly enough, though, Tyler, is that when they talk about the volatility, there's concern around some of the valuations in AI moving forward into July.

11:20And so what we're hearing from our clients is that they're going to stay long. They're definitely more bullish than bearish, but they're moving a little bit more towards a neutral stance. And I think that makes sense, not just from an evaluation standpoint, but just from some of the other activity that we've seen in the market as well, too, some of that divergence that you guys were mentioning. But am I right or am I not right that a lot of the money that you're seeing come inbound is still going into names that have AI attached to them? No, no, you're absolutely right. And I think that there are some names that still present a little bit of value at that point.

11:57But I also think it's important. One of the things that we've been talking about with investors is if you're going to look at some of those names, what could be maybe an exit strategy or a different way to maybe augment some of those returns? Some of the things that we've been pointing out is just kind of looking from the options market, something like call skew, looking at some of the skews on some of these names are really, really elevated, meaning just something as simple as a covered call as a way to maybe soften some of that downside should you get a pullback or use that as a way to reduce some of those shares if they continue to rally through earnings.

12:33I think that's important. And I think tech as a whole, when you're looking at earnings in the next month or so, it's a big driver for the markets. Tim, you want to jump in? Hey, Joe, it's Tim. Thanks for joining us. Yeah, real quick, Joe, I guess my question for you is, is, you know, here we are talking about call skew, et cetera. How about taking out protection on this market? And again, a volatility that to me is risk adjusted returns. We were talking before you came on about the market and comparisons to 1999, 2000. The reality is that risk adjusted returns, again, are so much better today than they were back then.

13:07But the reality of geopolitics around the world and an election cycle here, that's something I'm hearing from clients. It's something that I think people are starting to feel like it's been a pretty good run. What are you seeing in terms of that interest in taking out protection, or how is it being carried out? Yeah, I mean, you're still looking at a VIX that is between 12 and 13, so we haven't seen a big push-up in some of that downside to hedging. But you have noticed a little bit of a rotation into maybe some of those SPX hedging products just in the last couple weeks, just really starting to see maybe some of that activity pick up a little bit.

13:44I don't think enough to really move the needle. But it's absolutely something that I think investors should be looking at, given the fact that, you know, we're at 15, 16 percent already in the S &P 500 this year. And if you kind of look forward on the VIX curve, where are we predicting volatility? Well, we're predicting volatility in October. And that makes sense, kind of given what's happening in the presidential race. Some of that is starting to pull back a little bit. But I would say that it's not just the presidential race. You need to really kind of keep an eye on what's happening in the legislative branches as well, too.

14:13And from an investor perspective, if you get levels like this where protection is relatively cheap, it makes sense to take advantage of that. Joe, thank you very much. Wish you a happy, good weekend. Thanks a lot. Thank you. Joe Mazzolo. Let's trade it, guys. Mike, does anything come to mind here? He talked about covered calls. Way to go. Way to protect your downside or what? You know, a couple of things occur to me. First of all, you know, Tim was referencing 1999 a couple of times. And actually, this year probably feels most like that year compared to any other in my investment career. And of course, that could be used as a dirty word, I suppose, from an investor's perspective.

14:50But really, the market continued to rally until March of 2000. I expect that's likely what this one is going to do. One other quick point about volatility, and that is that when we did reach the market zenith from 99 into 2000, one of the interesting things we saw was that volatility, rather than continuing to fall, the VIX sort of continuing to drop, actually went the other way. When the market sort of reaches a limit, you start to see volatility tick up. And we're not seeing that. So I don't think there's a whole reason, a whole lot really to be concerned about here. Selling calls when they're not that expensive.

15:21I mean, Joe was just talking about some of the mega cap stocks that you might see some call skew. That might make some sense in those names. But I generally think that it would probably be cheaper just to buy some downside puts if hedging is what you're interested in. All right. Carter, you get the last word in this segment. Does a trade come to mind? Well, I mean, just what we've heard, I mean, always if you have the ability to have the stock called away from you for tax purposes, it's always a good technique to sell costs. I mean, it's as simple as that. Now, some people don't want the tax of that.

15:52And then you have to roll it forward. There are other measures to take. But it is the single most sort of quiet way to have a bit of caution. All right, Carter, gentlemen, thank you very much. We'll be back with you guys in just a second. And meanwhile, coming up, Macy's in the shop window, a pair of suitors upping their bid to take the retailer private. We'll go inside the numbers next. Plus, Novo Nordisk shares jumping today, even as its flagship GLP-1 drugs are tied to a rare eye disease. The implications for the obesity trade right after this. You're watching Fast Money here on CNBC. We'll be right back.

16:41Welcome back to Fast Money, everybody. Macy's shares soaring today after the Wall Street Journal reported that Arkhouse Management and Brigade Capital have boosted their take private offer for the retailer to$24.80 a share, a deal that would be valued at about$7 billion. This latest offer represents about a 26 percent premium over where Macy's shares closed today, 1964. That was a very good year, 1964. Tim, your thoughts on this deal, which has been been talked about. I mean, I can't really think of a time when Macy's wasn't in place somehow. Well, that's because the sum of the parts here, Ty, are something that have been interesting, whether it's been the real estate dynamic.

17:22And if you look also just at how the company's been run, capital allocation has been very, I would say, efficient, very cautious. It's the kind of scenario that makes private equity very happy. They're talking about store closures. They're talking about consolidation. They're talking about, you know, from an operational perspective, what's made equity analysts and investors happy is not only a digital profile that's really continued to grow, but also inventory management that's made efficiencies and gross margins very interesting. It's the kind of a story that it should not be a surprise that there are people that recognize that there's intrinsic value here.

17:57And again, if you started to look at some of the bonds, you know, some type of a leverage buyout is something that's interesting. So the market cap today on close is about$5.4 billion,$6.9 billion, as you noted, is kind of the bid out there. It's the second time they've raised the bid. So it shows that I think Macy's is in a different light than possibly even someone like a Nordstrom's. And I think overall retail, it's a very different story. I think this really is one of those cases of really idiosyncratic dynamics with Macy's that make it attractive. Quickly, how significant in a deal, if there is to be one, Tim, would the real estate be?

18:39I think very significant. I think the assets here are part of what gives private equity a lot of comfort in looking at the balance sheet and where they have, again, pieces that add up to more than the whole. And again, it's a company that I think at two to three times leverage is still generating more than$500 million a year in free cash flow. Mike, you noticed a fair amount of options action in Macy's today. Tell us what you saw. Yeah, I mean, we saw about six times, actually, the average daily call volume in this thing. And it was the 20 and 21 strike calls that were most active. The August 20s were the single most active contract.

19:15Those were trading for a little over$1.30 a contract. And kind of to Tim's point here, I mean, this was a company that, ignoring all of the takeover talk, was forecast to generate about a billion dollars in free cash flow next year on a$10 billion enterprise value. So it is certainly within the realm of possibility that a company could pay more than that to acquire the company if they're generating that kind of cash. Carter, any thoughts here on Macy's? I mean, I thought the price action was sort of feeble, frankly. I mean, it didn't hold its gains close in the bottom half of the range on the day and nowhere near the prospective takeout price.

19:50I mean, this is a tough business, right? You're talking about a stock that's trading the same level it was 30 years ago, literally in the summer of 1996. You know, and the market cap, it's like$5 billion. William Sonoma is$18 billion. They sell spatula and blenders. I mean, what did Macy's do wrong? Yeah, that's a great point. They sell spatulas and blenders. I love that. Carter, thanks. There's a lot more fast to come. Here's what's coming up next. A new concern over potential side effects from Novo Nordisk's Wegovi and Ozempic. So why is the stock rising? The latest twist in the weight loss revolution and the skinny on what it means for big pharma.

20:30Next. Plus crude oil in cruise control. Texas tea locking in four straight weeks of gains. And our next guest says barrel could wreak havoc on production and prices at the pump. You're watching Fast Money live from the NASDAQ market side in Times Square. We're back right after this.

20:53Welcome back to Fast Money, everybody. Shares of Novo Nordisk higher today. Despite a new study from Harvard linking its blockbuster drugs Ozempic and Wagovi to a rare eye disease, The study, released on Wednesday, found that patients with type 2 diabetes are more likely to develop a condition that can cause blindness after being prescribed semaglutides. Those are the key drugs in Ozempic. But Wall Street shaken off the concerns. Deutsche Bank analysts saying that the quality of the evidence is, quote, very low and that the results will likely just result in an updated label on the drugs. Mike, does this pose concerns for you?

21:32the stock inching up higher today by 2 % despite this report from Wednesday? Not particularly. I mean, first of all, the issues of potential eye conditions that related to the use of these drugs has actually been known, I think, for well over a year, actually. And, you know, beyond that, I think the operative word here is rare. Also, understanding the condition is not necessarily causal, but just that there is some correlation for people affected with type 2 diabetes. And take a look at the price action of the stock. I will say that both of these two, I'm talking about Novo, the ADR, and Lilly both had above average call volume today.

22:10It seems that investors had already digested this as a concern and are not that concerned about it. Tim, any thoughts here? I tell you what, I don't know how many people I've stood next to at a barbecue eating a fatty piece of brisket that said, I'm taking a shot today or tomorrow, you know, for Ozempic or I mean, it's you know, that's really the story here. Look at the week we had with the Biden op ed and the pushback on pricing, the you know, the effective Medicare negotiations, maybe going from 10 to 50. This has been a runaway train in terms of Novo and Lilly. Yet in the fact that Lilly also earlier this week had the Kasunla news or their Alzheimer's early stage, at least approvals by the FDA also have been expected.

22:58But if you look at the way these stocks are trading, they're actually significantly, I think, more defensive than many of the names that we talk about in the AI space where there's a lot of comparisons. The one thing that outside of valuation that should have you concerned about both these names is the competitive landscape. Right now, it is more or less a two horse race with a lot of biotech around it that I do think is also going to continue to get absorbed. But I worry about competition. I worry less about the valuations right now, and I think the stocks reflect that. It's interesting, even though Harvard researchers say that further research is needed to assess whether the semaglutide is not just merely correlated with the condition, but is causative to the condition.

23:42They're not sure about that yet, but we shall see. So let's leave that one there for now. And meantime, coming up, crude cruising to the tune of four straight weeks of gains. And with our next guest predicting a major hit in production because of the first big storm of the season, we'll dig in on what's next for prices at the pump. Plus, a Bitcoin bummer, the cryptocurrency crashing to its lowest level in five months. We're going to take a closer look at the washout and see whether the technicals point to any relief in sight right after this. Missed a moment of fast? Catch us anytime on the go.

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24:27Welcome back to Fast Money, everybody. Stocks closing out the holiday short and week in the green. The Dow gained about 65 points, earning its second positive week out of the past three. S &P 500 and the Nasdaq both fresh record highs today as they each notch a four-day win streak. Meanwhile, the semiconductor stock Arm Holdings popping nearly 8 % and closing at its highest since going public last September. The stock up more than 140 % this year. Sharp reversal for First Solar, erasing an early boost from a positive note from TD Cowan and finishing the day well in the red off about 4%. And finally, Tesla shares revving up again.