Big Week For The Consumer… And Pulling Money Out Of China 8/12/24

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. Consumer countdown. The major retailers start to report this week. Whether results show the consumer is unbreakable or starting to lose real steam. We'll go inside the numbers. Plus, mining for profits. It's not just the price of gold that's ripping to record highs. The miners are shining bright too. Who's the best of the bunch? We'll drill down for answers. And later, inside the turbulence at JetBlue, nailing the traders down on Home Depot ahead of earnings. And the chart master is here to tell us why it's time to sell Cisco.

0:33I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Dan Nathan, Guy Adami, and Karen Feinerman. We start off with a big week for the American consumer. Economic data on producer and end-user price inflation, as well as retail sales, not to mention earnings from Home Depot and Walmart, all on the calendar this week. What kind of picture will they paint for the state of spending? Discretionary stocks, after all, have been struggling all year. It is the only S &P sector that is down so far in 2024. Leading the losses, Lululemon, which has been more than cut in half since January.

1:06Ulta, Etsy, Nike, Bed, Bath & Body, all working. Bed, Bath & Body Works. Things we care a lot about. A bankrupt retailer with the one that exists. Potpourri, guys, Santa Candles. They lost a third of their value. That's the bottom line. Can this week's reports help the group rebound? Guy, what do you think? I don't know. I don't think so. I mean, and to me, it's to be more about the commentary. And the commentary we've heard from retailers for the last couple of quarters is things are slowing down. The consumer is being more rational in terms of his and her spending. And it's manifesting itself in a number of different ways.

1:44And you mentioned those five or six stocks. I mean, look, Lululemon is Lululemon specifically without question. But then you start connecting the dots and say, wait a second. Obviously, discretionary is sort of going by the wayside to a certain extent. And then the retailers that win are the retailers that have been winning all along. Walmart wins, Costco wins, and maybe you throw a TJX. And after that, it's completely hit or miss. So, yeah, I want to hear from Home Depot. They got their inventories in order. I think they were down 11.6 % year over year last quarter, which suggests margins should be better.

2:12But the bogey for me for margins is about 14.1 % on the operating side. Short of that, I think the stock continues to sell off. Yeah, you know, it's interesting. We're going to get Walmart, which is a consumer staple, and then Home Depot is very much of a discretionary, right? And so if you think about just some of the pressures that we're seeing on the housing market, despite mortgage rates coming in, I mean, I think that I don't mean a shoe to drop, but I think that sort of weakness. I think if we had weakness in the stock market, then you start seeing a negative wealth effect. And that's the thing I think could weigh on consumers also.

2:44Well, it's just interesting that bulletproof stocks are no longer bulletproof and consumer discretionary. I mean, how long back? Lulu, we've spent a lot of time, but it wasn't that far back. But Ulta, Karen's Ulta. I'm sure she's got a view. And by the way, she's probably traded it perfectly because that's what Karen does. But, you know, if you think about these consumer stories where it's such a strong brand, they're in a space where you certainly in health and beauty, you've had really strong dynamics. At Leisure, historically, you've had really strong dynamics. So you have some macro that's deteriorating in subsectors that actually have gotten a little bit crowded, a little tired.

3:12And then you have companies that I just think are not going to hold the margins that they've had. Promotion, what we've seen, whether we heard this from Target, whether we're going to hear from Walmart, who pretty much controls price, I think is part of this story. I think it's a margin story, and I also think it's a consumer story. The characterization of those particular stocks being bulletproof, though, has that really been since the last recession? I mean, are we talking about the period where we have had 0 % rates, and so therefore things were good, and so they were seen as sort of bulletproof?

3:41Well, I think if you look at where discretionary spends and you're not in the ultra-high luxury, you certainly saw a whole lot in athleisure and in health and beauty. And in those two brands, companies that were doing fantastic things, Not only in terms of with their brand, they were innovating, they were out there on digital, they were out there on DTC. I just think that's not really the story right now. And I think we've seen it in bits and pieces in the restaurant space and in fast casual. I think you're going to see a lot more of it. So while the market is a discounting mechanism, we've seen a lot of consumer discretionary names that have actually already given up a lot.

4:13I still think that there is another shoe to drop, and I think it's probably coming in the fourth quarter. I mean, Walmart's going to be a real tell, Karen. I mean, you almost think if Walmart does really well, then maybe that is a bad sign for the overall economy, for the consumer, because they might be doing well off the back of consumer woes. Right. Well, you talk about bulletproof ones. I think Walmart should sort of be in the bulletproof space because they have really done a great job. If you go back to, remember, the inventory apocalypse from a couple of years ago, they've really been able to right the ship.

4:45But I think that, yeah, you could make the case if Walmart does well, they've taken share from others. And I believe that's likely. But I also want to see how does Walmart do well, right? We know the grocery business is really good. But we want to see that higher margin business, the general merchandise business. If that does well, I actually think that bodes well for Target, which I don't own, to see a little bit of life in the consumer. I do think, though, that we know that May and June are bad. I really want to hear how July is, and we're right in the middle of back to school. I want to hear how that is.

5:18But some of these names, I mean, there has been so much pressure on the stocks of consumer spending. If you look at a name like Lulu, which I now own, but a little higher than here, but not a lot higher than here. But I think it's trading under 17-ish times earnings for a company with a great balance sheet. I think that a lot of really mediocre news is priced into that. Ulta, which has been not a great one at all. Thanks, Tim, for saying I traded it well. I can tell you this one, definitely not because I'm long. But this one now is under 13 times earnings. I didn't like what we saw from Elf last week.

6:00But I don't know. I feel like if you wanted to get out before things got bad in retail, I think it's a bit late. Certainly for the ones that have a good balance sheet and can survive. Too early, though, to get in. Too early to get in on some of them, some of the dogs that we've been talking about. If you're really concerned about the consumer right now, I would say it is too early. And, you know, this brings me back to the change in basically what we're seeing in consumer. And Guy's been calling for the unemployment rate since it was 3.3 or something like that to get up over 4. And it's kind of happening kind of quickly.

6:31I go back to 2018. And I know the Fed was raising interest rates back then. But if you think of some of the concerns at the time, we had an impending government shutdown. We had trade tensions with China. We had global growth scares. You know, a lot of things that we could just throw into what's going on right now when you think of some of the uncertainty. And the stock market got nailed. It was down how much, Guy, in that fourth quarter? 19.9 percent. Yeah. And then the Fed had to pivot, right, to get things back going again. And they got a lot more, a lot easier. So, again, I find this period close to that.

7:02But yet the sell off that we had in the stock market just didn't seem like enough because we had one day where people were calling for a surprise rate cut just to get things back on track. And that's how it really took. The S &P is flat week over week. The yield on the 10 years flat, you know, in that same period, too. Yeah. I mean, if you believe that it was deleveraging behind last week's sell off, then it wasn't really a growth scare. I agree with that. Right. And so, well, well, deleveraging triggered by a growth scare, though. I mean, I think a lot of this was very technical. I do think it was on a low volume day.

7:35But there's no question that one of the linchpins that was pulled out was at least a sense that the labor market, of which the Fed is targeting more than inflation, let's be clear. I mean, that's really their bogey, is something that's weakening fast. So, you know, but bringing it back to companies that Williams-Sonoma is a company we talk about all the time, not just because a couple of their products guy, but because it's a case where this is a company that's not expensive. It's up 40 % this year after having a great run last year. This is a case where, again, discretionary spend as it related to the home and nesting and trends that at least were very much COVID trends, I think for some of these companies, it's about as good as it's ever going to get.

8:13And on margin, it's about as good as it's ever going to get. That's my focus here. Some of these names have not turned. It doesn't make them bad companies. It doesn't make them broken. It just means I don't think they should trade here. It's interesting. Deleveraging on the back. Tim's right. But the growth scare that's out there that hasn't happened yet that I think the market is now saying there's an inevitability to this on the back of an unemployment rate, which I still think is going to sort of stair step to four point eight percent by the end of the year, which the market won't like. But, you know, again, in this environment, one would think dollar stores, for example, would be doing well.

8:44They're not. I mean, look at Dollar Gen, Dollar Tree do not trade well at all. The ones that are trading well actually do make sense. and I come back to it. Costco actually sold off. It's back on its source. But Walmart, we've talked about now for years. On the other side of the equation, TJX. And if you're middled right now, you're no man's land. And by the way, that includes Target, who I think is still struggling. Well, what does that, does that tell you, Karen, that it is the story of a barbell approach in terms of the consumer? Or does that tell you that is the way the stock market perceives the consumer at this point?

9:15Well, tell me what the barbell is. I'm a little bit confused. Because actually high-end is, like a big. High end versus low end. But high end has been showing a lot of cracks at the very highest end as well. Yeah, so that part of the barbell definitely hasn't really worked. I do think that for that really lower end consumer, that's the one who gets most hurt by inflation, right? Any hike to prices is a really, you know, a ding to their disposable income. For the higher end consumer or even the middle consumer, they're not going to get hurt as much. So the dollar store stuff sort of makes sense to me.

9:52I just think there is a lot of bad news surrounding the consumer. The economy is really not bad, but I do think that there is more pessimism in this space. There's a lot of ones that are really doing well. Interesting article in the Journalist Weekend about fall fashion, you know, who's doing well, Abercrombie and Gap, and names we hadn't considered before that are still, I think, attractive here. And I think the market's just throwing out every baby with the bath water or the bath and body water or whatever you call it. That one I don't know in particular. But I don't know. Stay in longsum retail, including names like TJX.

10:32Right. Our next guest says he likes discretionary and energy names heading into this week's inflation reports, but he's cautious on the broader markets as we head into September. Leidenberg Thalman Asset Management CEO Phil Blancato joins us now to break down why he thinks volatility could persist into the fall. Hey, Phil. Nice to see you. Thank you, Brad. So it's just seasonality. September is usually not great. We've got to forget that the starting point of the markets is always history. And you all lay down all the reasons why the labor market is weakening, and it has weakened. It's not as terrible as the headlines make it out to be.

11:02You had 400 ,000 people come back to the labor market, which pushed up the rate a little bit. But the reality is it's harder to find a job than when we were. Seasonality, going back to the beginning of this thing, has always had a tremendous impact. September is far and away the worst month of the year. And we have a market that's looking for a reason to sell off, whether it's the election, the emotions around it, behavioral finance, or more importantly, a relatively decent earnings season. I'll call it that way because if you strip out the MAG-7, the other ones did okay. There's only 22 stocks beating the S &P on a year-to-date basis after the MAG-7.

11:32So it tells you you've got this fragile market that if you're not careful, the slightest change, So I just narrowed it in mind. I'm going to challenge you all on this one. I'm not convinced the Fed cuts in September. I don't think they're there. I know I'm probably the only guy on the street saying that. You don't think the Fed cuts at all in September. Show me where the real reason is to cut. The labor market hasn't weakened enough to make them take notice. They have not met their price point. Their trend is their friend. But if you look at just the PMI data, what we're going to get this week on CPI, and what we're going to get on just pure manufacturing and service sectors, they're softer, but they're not there yet.

12:03And I think somehow we've completely forgotten this narrative that they don't like to cut in front of an election. And there's some degree of truth to that. But going further, I don't believe that they've met their narrative. And if their narrative truly is below trend inflation, they're not there yet. And look at the consumer spending debt. The people who make less than$100 ,000 a year have been smarter about where they're spending debt. We saw month-over-month credit card use only go up marginally. So it tells me that the reason why I like Amazon as a stock right now, the smarter consumer is coming to light.

12:33And if we get even a modest hint that CPI is not as weak as it's intended to be, I think the comments made this weekend echo where I'm coming from. And by the way, what happens to this market if they don't cut in September? Can you imagine the free from? Well, I was going to ask you, what do you think will happen? I mean, because the notion here is that the Fed is going to cut in September because it's got a dual mandate. And it highlighted the risk to the other side of the dual mandate in the last press conference. That is employment. And so they have to move in order to preserve the jobs market at this point.

13:02But you don't think that happens? So what is the impact then? So the impact is they don't cut in September and we get a significant sell-off. We have a scenario of the markets from waiting with bated breath for this opportunity to see a raise cut by the small caps, a sector I like, just not yet, or these other areas of the market besides the MAG-7 that are anxiously waiting for the Fed to reduce interest rates. And you have this scenario where, in fact, if it doesn't happen, it'll be a bloodbath. Not to mention seasonality. No, Phil mentions consumer revolving credit, I think, was down$1.7 billion.

13:30I mean, that's the largest decrease we've seen since, I think, the summer of 21. So I'm glad you pointed it out, which, again, depending on where you look, it's either a great thing or a bad thing. With that said, I agree on the Fed, but have they painted themselves in – they backed themselves in a bit of a corner in terms of September, I would think. And if they didn't move, I'm not quite sure, to your point, what the market would – how we react to that. What they're going to need is a weaker job number. So I'm going to – let's go at the job number for a second. If you look at truckers, we can't find enough people.

13:58But you look at people in restaurants, that sign that says I need help has really come down. When 400 people come into the labor force and it pushes the participation rate up, and suddenly you look at 25 to 50 or 4-year-olds, which is the highest participation rate of our lifetime, wait a minute, time out. I'd argue the labor force hasn't weakened enough. I know Powell said he wanted 4.5 to 5. And certainly you're in that target range. But I'd argue because of folks being dragged back in because of three, four years of higher inflation. So I think you need sustained real data, i.e. wages. Wages are still higher than inflation.

14:33I'd argue, here's, I'll take the other side of so much of the Wall Street argument. I think this battle of inflation, more importantly than wages, has been the greatest economic impact we've had in decades. Here's why. The people make less than$100 ,000 a year, guess what? They survived this battle of inflation, and they finally got a real, the guy who makes$50 ,000 a year in Washington Dishes and New York City probably makes$65 ,000 now. That change, I think, will be profound for the strength of the U.S. consumer for a while to come. And I don't think we're willing to take credence of that. And I think that's why they don't cut.

14:59Phil, it sounds like, though, you've got some some some tactical sequencing of the market. And if your your call is that there's no cut in September that actually that and you've kind of laid that over seasonal historic volatility. Sounds like you're expecting a pretty nasty September. How are you? How are you trading that for, again, a consumer? I mean, ultimately, no cut to me is is perversely what we want. I know just because you want to say none of us agree with you. None of us agree with you. But ultimately, and we may. I don't mean that. I don't mean that. No, no, no, no. And I don't either, because it's an interesting call.

15:30Because actually, I think for the market, we'd love to believe that the Fed has an economy that's strong enough just to see the labor force come down. That is the perfect, perfect, perfect landing. Isn't that the definition of a soft landing? We think so. So how are you playing this? Because you clearly seem to be positioning, scooping up some great companies you like. You think the consumer is strong. Are you just saying, I'm sitting out September and you're jumping in? So number one trade, I've been begging and pleading. We've done this in all our portfolios today. We manage quite a bit of money.

15:57We have gone exceptionally long duration. We love the bond market. We are north of 10 years in duration and significantly taking up not only the yield play, but I want that price. I want back what I lost in 2016. So that's the first trade. The second trade is you've got to start selling some of those MAG7 stocks. The greatest appreciation in those names is going to cause volatility in your portfolio. They're defensive in nature. Don't get me wrong. Except for Amazon. Here's why. of all those stocks, which one is the greatest consumer play? I'd argue it's a discretionary play. Why? When we go back to school season, you're talking at$40 billion expectations starting back to school.

16:30It's already started. Where's that money going to be spent? It's going to be spent on Amazon. And for me, Amazon's a twofold play. Not only are the profits now over 7%, but you're talking about a company that I'm going to guess you're going to start hearing, but early next year, they're going to spin off their cloud computing. Why? Because that company's tremendous. Spotify, Netflix, so on. So you take that piece out, which would be you'll get shares in that company. But for now, on a consumer that's more frugal play, more so than a dollar general's of the world, that's your opportunity as a margin.

16:54Well, I'll mention this. I mean, AWS relative to Microsoft Azure and Google Cloud had great numbers. I mean, when you think about that relative basis. Let me ask you this, though. You know, you mentioned this before about the MAG-7 earnings versus the rest here. So I think in Q2, 7.5 % growth for the 493, 35 % for the MAG-7, but that's down from 50-some percent. 75. Right. Right. I mean, at some point. So is that an important equation to you? Do you expect the other 493 to play a little catch up here? We I have to as a money manager get accustomed with large cap tech stocks being defensive. I've never been able to say that in my career.

17:31So they are. But when they trade like large cap tech, they're going to have to give some back. And to your point, as these companies are priced so far to perfection, you have a scenario. One is that sort of the Tesla mentality made so much money. I'm going to sell it before I get punished like I did in the Tesla. Or more importantly, I've made all this money. And now because I'm seeing an earnings correction, you see a flood to the axis. And that's what happened last week. We saw this flood to the axis. NVIDIA should trade at 130. It's going to probably trade at 130 at some point because of the euphoria around the small investor who can finally buy it.

18:05But for today's math, that earnings correction tells me the stock is probably trading in a range that starts to make some sense to me. I like it better below 100 than I do 109 as of today. But as these earnings recede, and it's because we do have a slowing of the U.S. economy and certainly a slowing of the global economy, nothing spectacular at all. That's got to come in from a price pressure standpoint. And we saw a little of that in Microsoft. We certainly saw a little of that in NVIDIA and some of the data around who's buying their product. So it's a capitulation for now. Long term, they are defensive.

18:33They are the leaders of the economic growth globally. But in the short term, there's just been too much money made to think that it's going to be perpetually up. And that's my concern. and sell it before you take a punishment there that you didn't have to take, or at least a portion of it. Phil, thanks for coming by. Maybe you'll come back, maybe the day of the next Fed decision. Phil Blancato. Karen, what do you think? A couple of provocative forecasts here. Yeah, I love that. No rate cut in September, and AWS gets spun off. Well, I don't think that happens, actually, the AWS. I think the no rate cut is more likely.

19:08However, I just remember sort of the throwaway line that Powell said at the last conference was, what difference would it make if we had cut 25 basis points? So I feel like he did kind of back himself in a quarter, and he doesn't think 25 basis points is really changing anything, so he might as well give it is what I think. But I love the non-consensus call, and he backed it up with some interesting data. Think of the tumult on Wall Street if he did not move. Think of all the economists that tripped all over themselves to move to 50 basis point. Or your friend, Mr. Siegel. Well, I mean, I know he's watching right now, but he backtracked that.

19:45So quickly. Based on a jobless claims number. We should get him in here and talk about it. Just why not have a kumbaya? Just sort of race it around, talk about it. No, but he wasn't the only one. I mean, there was a parade of people calling for whatever. And I think, listen, to Phil's point, the numbers suggest that they should just sort of status quo to the end of the year. for a myriad of different reasons. Nothing is really breaking. Nothing is that bad, in my opinion, to necessitate a rate cut. Well, you know, it's interesting. I think you made this point last week. You have the two-year that's gone from 5 % and was as low as 3.8 % last week.

20:20And maybe the bond market has probably done a little bit of what the Fed wanted to do anyway. Well, I think the bottom line here is the message is there are great companies to buy. And if you're thinking at 6, 9, 12 months, some of these names that have discounted, Some of the consumer dynamics here are fine. But ultimately, that's really where there's plenty of opportunity being set up here. Coming up, glistening gold, the precious metals settling above the$2 ,500 mark for the first time ever and bringing mining stocks along for the ride. How much higher can this trade run? That's next. Plus, a big moving.

20:53The top spot in the S &P 500 today. What is behind that surge? What it means for the rest of the regionals when fast money returns. Back in tune.