Can Earnings Save Stocks?.... And Gold Glistens To New Highs 4/12/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast trade. Gold hitting another record today as investors flock to the safety of that trade. How much higher can prices go? And later, chips get checked on a warning from China. Starbucks shares go decaffeinated. And Netflix on deck to report a look at the charts and an options trade on the streamer ahead of its earnings. I'm Melissa Lecombe, D-Lar from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Bono and Eisen, Carter Wirth, and Steve Brasso. And we start off with today's big Friday fade. Stocks closing out the week with a sharp sell-off, the Dow dropping nearly 500 points.

0:49The S &P and Nasdaq both falling around one and a half percent. This adding to the stormy start to April, the major indices all on pace to break five month winning streaks. Volatility surging, passing the 19 handle today. It was at 13 at the start of the month. Well, rates spiked after this week's hot inflation data. The 10 year yield soaring back above four and a half percent before pulling back a little bit today. The latest cloud over stocks, banks striking a cautious tone as results start to come in. J.P. Morgan CEO Jamie Dimon warning of the triple threat from inflation, war, and Fed policy.

1:21And BlackRock's Larry Fink saying the central bank may miss its inflation target. The KBE on track for its worst month since the collapse of SVB last March. All of this as Q1 earnings season gets started and investors braced for a potential attack on Israel by Iran. So can the market rally get back on track or is this just the start of a bigger sell-off to come? Tim, what do you say? I think it really is the geopolitical climate that is part of where we close the week. And we've said this, and if, you know, those boxes you check when you're filling out the survey, what keeps you up most at night, it's not necessarily 21 times forward on the S &P.

1:57It's geopolitics. And I'll leave aside, you know, really the analysis politically and obviously socially of Iran potentially invading Israel. But what that means for a flight to quality, look at the dollar move. The dollars rallied two and a half percent in the last three days if you take the intraday low to intraday high. The price in oil and oil prices, Iran and Israel, means oil higher for longer. You know, we talk about interest rates higher for longer. So it was a day, it was as bad of a day as markets have seen since January. You brought up the VIX. It's the fact that the VIX is now up more year to date than semiconductors.

2:29And I'm sure Carter's got a view on where semis, which have been such leadership. I mean, you know, you look at a day like today and you look at where they are now. They're down about 5 percent over the last month relative to the S &P, which they've led for the last two and a half years. So a very big market day. And I think geopolitics led the charge. I mean, the VIX has been sleepy for so long, Bono. And to see it surge like this on a Friday seems even more unusual. Yeah, that move from 13 to 18 has been pretty aggressive there. And it's been to me a little over long overdue. We've waited to see like how long this malaise is going to work, how long we can continue to grind high on.

3:04And yes, some improvement in earnings, but real legitimate price to earnings expansion. And I think it's just a matter of time. Frankly, to answer your question, do I think this is the beginning of a trend or the start of a counter trend? Listen, I think at least as things stand right now, it's a relatively healthy situation for us to see some increase in protection buying, some increase in volatility, being that the narrative around rates being stable has started to shift and you start to see that push out from June to September. So seeing nothing in light of the geopolitical risks that Tim mentioned and the other things that I'm mentioning, I think this makes sense and probably sets up for more of a healthy market.

3:40I mean, look, we've come a long way, right? Everybody knows this. And everyone has been waiting, watching. At what point does the thing pause? And we know from that October low to present, we're talking about a six-month move. So there are only three time frames. There's minor, intermediate, and major. And this is an intermediate move that's mature, six months in the making, S &P up 28 percent. But it's not just the S &P, and it's not AI. Caterpillar is up 60. American Express is up 60. So old rural companies that have no AI in them have appreciated to such an extent and to such levels that you're due for what would be something corrective.

4:12It's why it's part of the word. Etymology says it's incorrect if you keep going like this. We're in the process of correcting. I always feel smarter when you're on the desk, Carter. Why do you feel smart? I feel more dumb whenever he's on the desk. Etymology. I mean, that's probably the first word that first time it's ever been used on our show. I always order that. This is actually a better set up ahead of earnings, right, to have some sort of sell off as opposed to having a rally into earnings season. Yeah. And I think that's what happened with J.P. Morgan, where the setup for J.P. Morgan was was so pristine, where where they were the head of all the head of all financials and they ran into earnings where they were just jumping hurdles left and right.

4:55So I think you're right. You want to have a pullback. This was a confluence of events. It's on a Friday. People de-risk on a Friday. You have Iran coming up. We have Ukraine, Russia. Everyone has forgotten about that. We have China supporting Russia in Ukraine. We've become none of that. this is definitely a more sensitive issue. If this escalates to a point where it involves the entire region, then it's something to really concentrate on. But when we're just talking, we're taking that out of it. Let's see where we are on Monday. Let's see. Hopefully nothing escalates this weekend and we can get back to just looking at the market in a prism or through that prism.

5:40But if it does escalate, oil, semiconductors, because now people start talking about everything. People start talking about China, Taiwan on the back of this as well, because there's going to be an awful lot of things going on. But I think you're right. If the market can pull back, the 50-day moving average in the S &P is 51.11. We got there, bounced a little bit. And at this point, that's the level where Carter's talking about, do you check it? Do you break that level? And then people will start talking about, okay, where are the next levels below 5 ,000? If we break 5 ,000 to the downside, that catches everyone's attention.

6:19We're in a political year. I still think the market's okay. I mean, let's talk about J.P. Morgan, since that's, you know, you talk about somebody who does movie rentals or sneakers. J.P. Morgan's a different animal, right? And it dropped hard today. Because why? It's maybe about the earnings, but maybe it's because it was up 50 percent when the S &P is up 20 percent from the same low to the present. Or, Tim, you speak about valuation. What's probably priced the tangible book? It's probably near the top. Yeah, it's probably around one and a half. And the other thing we heard about about J.P. Morgan is that their net interest income, which I thought they were going to tell us is actually still a pretty robust environment.

6:52Higher rates is good for them. And it is. But they have higher funding costs. And this is what we heard from other banks. So higher rates also extract a price. And I think getting back to rates, this was also let's talk about the other big elephant in the room this week. It was rates. It was it was the third consecutive dud on a CPI number, which puts the Fed obviously on hold. Every Fed governor and their brother was out there after Jerome Powell kind of backtracking in terms of what they have to do this year or maybe not certainly putting it on pause. So we got to a place where now September, by the end of this week, this is not where we started.

7:27We are firmly in September consensus. Whether that happens or not, I don't know. But if you're getting to a place where if at some point in the next poor inflation print we get to a sense where the Fed's next pivot is maybe a rate hike or two, and I realize that's an absurd thing to say, but you can be sure equities haven't priced that in. Equities, we question whether they priced in zero cuts. I don't think they have. Do you think they have? Have they priced in zero? I don't think they've priced in zero yet. And I think that will be the next step. No doubt. Right? I mean, we're not that far away from pricing in zero.

8:02When a lot of banks on the street are going to just one in December, that can easily be pushed out to 2025. Yeah, I don't think you're at 21, 20, 21 times forward earnings, assuming that there weren't going to be any rate cuts. And I don't think that's sustainable if this hire for longer narrative actually sees the follow through that it's looking more and more likely that that actually will be the case. And the last thing I'll say is I really think the last thing that the consumer or the Federal Reserve really wants to see is sustained commodity prices. Now, we don't, you know, that's stripped out in terms of the CPIX, and we're already talking about some of the inflationary pressures around there, at least from a consumer standpoint and their ability to continue to prop this economy up.

8:39If we really start to see that trickle down effect in the gas prices, prices at the pump, particularly when we're not seeing the relief in housing, I really don't think that bodes well. You know, so to Tim's point, this is the first time since 2021 that JP Morgan has seen net interest income shrink or come in a little bit. So that caught the market off guard. But let's remember, yesterday the market was up. It was dealing with rates. Today the market's down. This to me is, if you have to give a percentage because that's what we're all paid to do, 80 % of this was geopolitical. So it was just risk taking off the table.

9:12Monday, Tuesday, let's see how it shakes out. But I don't think that this is going to be a year without any rate cuts. I do believe we're still going to get three rate cuts this year. So if there's no attack, Monday are we up? I mean, is that that that's your thesis? If there's an ongoing dialogue, we don't know what that dialogue if we're in the same place we are right now. But yes, if there's no attack and the dialogue gets better and the rhetoric is better and softer, then the market rips higher. I think the single biggest data point is the J.P. Morgan drop in gap because that's not geopolitics.

9:43That is that this is a rich market and you've got to be priced for perfection and then still beat and raise and guide. And if you don't, you're going to get. We've seen it. Philip Van Heusen, Lululemon. Right. We've seen drop and gap after drop and gap. I'm more worried about mega cap tech. Mega cap tech is where this market is led. That's got the biggest concentration. The S &P will go where mega cap tech goes as long as earnings are good there. The retirement, though, ahead of earnings season, you know, in light of these gaps because of run-ups into earnings, in light of the geopolitical, is mega cap tech still defensive?

10:17I think it is. And, again, you know, we heard some interesting comments from Andy Jassy on the network yesterday that indicate that there's also more earnings power possibly in these names from investments that they've made. But I think we've seen time and time again mega cap tech being defensive. Carter's absolutely right. That move in J.P. Morgan was extraordinary. It is interesting, though, on a day the inferior bank in Citi drops 1.5 percent, and Citi, which rallied 63 percent off that October pivot as well. So cheaper quality and maybe less crowded for sure, and that partially explains it.

10:48Yeah, particularly if you're going to juxtapose the moves between J.P. Morgan and Citigroup, I don't think either net interest guidance was particularly rosy. I think J.P. Morgan, as you mentioned, I think you said 1.5. I think it trades at 1.6 times book. I think Citi's trading at about 0.6 times book. So just from a valuation standpoint, I tend to agree with Carter here in terms of the fact that we are in a situation where this next earnings cycle and the subsequent one are going to be paramount. Because we're no longer here saying that funding conditions, financing conditions are going to ease.

11:21This is really going to be about is the E portion of price to earnings sustainable and leading us to growth going forward. If not, I do not think we can sit here at 20 and a half, 21 times forward earnings in the foreseeable future. Let's talk now more about the arising tensions in the Middle East. The Wall Street Journal reporting that the U.S. is moving warships to the shores of Israel amid a warning that an Iranian attack is imminent. President Biden a short time ago warning Iran against any move saying, quote, don't. This is Brent oil is back above$90 a barrel and WTI topping$87 today. So how will this all shake out?

11:56Let's ask former NATO Supreme Allied Commander General Wesley Clark. General, great to have you with us. Thank you. What do you what do you think is going to happen? Because it seems that Iran doesn't want this to get out of hand. Nobody wants this to get out of hand. And yet these things tend to. Well, obviously, we've picked up indications that Iran is making preparations to do something. Now, that's at the military level. There's a bluster at the political level. But does Iran really want a confrontation directly with Israel? Iran's moving toward atomic or nuclear weapons capacity. Some people say they've already got a couple.

12:36Others say maybe another three or four months. If Iran strikes Israel, Israel is going to go right back at that nuclear capacity, everything they've identified. And the Ayatollah is going to lose everything that they've worked for. Besides, Iran's kind of a basket case internally. They're taking away people's social security. There's high inflation. Some of the soldiers, not the Revolutionary Guards, but ordinary soldiers are refusing to work because they're not getting paid. So the Mullahs are in no position to start a big war. On the other hand, Israel would probably welcome a chance to go in and take out the Iranian nuclear facilities because they know that once that comes in, it's an entirely different game in the Middle East.

13:28The United States doesn't want the escalation. The United States would like Israel to trust it. But Israel is not going to trust the United States if Iran strikes. Can't. Because look at what's happening in Gaza right now with the pressure between the United States and Israel. But, you know, bottom line on this is if Iran does something, my instinct is that it's going to be something relatively minor, something indirect, something the Iranians can, the Mullahs can cheer about, but not something that can be directly attributed to Iran. Iran, maybe a strike on an embassy somewhere by some unknown terrorist group, something like that.

14:07If they really strike Israel, you will have escalation and Iran will definitely be the loser. General Clark, it's Tim Seymour. It's an honor to have you here. Just refresh for us then again, U.S. strategy here, especially as it relates to our relationship with Israel. It's getting more complicated. Obviously, Iran brings a different element. As you said, the U.S. doesn't want to see this. Nobody wants to see this. Can you refresh for us your perspective on the strategy on Israel in the Middle East? So for the United States, the idea is to continue to reassure Israel. We've got your back. You don't have to do anything.

14:44Let's get this situation in Gaza settled. Don't go into South Lebanon. Don't make the problem any bigger. That's the American perspective. And for the Israeli perspective, well, they see it as sort of existential crisis. They cannot let Hamas come out of this as a winner. They've still got a problem in South Lebanon with the Iranians, and the clock is ticking on an Iranian nuclear capacity, which changes everything. So Israel sees it very differently than the United States does at this point. And yet Israel knows it must have U.S. support. It must have the friendship of Washington. Yeah, and President Biden said just this afternoon that the U.S.

15:26is devoted to Israel's defense. General, I'm wondering, you know, if Iran really does attack in a small way, as you hope or anticipate, does that mean that Israel does not go after Iranian nuclear assets? Probably won't go after the Iranian nuclear assets unless there's a direct strike on Israel or direct attributable to Iran strike on an embassy in the region. In other words, if Iran uses a missile and gets through or something. But, you know, the Houthis are already firing missiles and drones at Israel, and Israel's taking them all out. So if you're the Iranians, the military or the Revolutionary Guards may be thirsting to go after Israel.

16:13But if you've got any common sense about it, you say, not so smart, not so smart, let's don't do this. You know, Iran has to feel like they're kind of winning right now. They've got the United States and Israel at odds. Hamas has survived. You've got the whole world down on the Israelis for what's going on in Gaza. This was part of the plan. This was the plan from the beginning for Hamas to draw the Israelis in and then accuse them of creating a humanitarian catastrophe. That's what the world sort of sees right now. And so if you're the Iranians, why shake the tree? Let it play out. So that's that's me trying to think like the mullahs might think.

16:56But if I were the mullahs, I'd be very worried about what's happening inside Iran with the people, the economy. I'd look at the United States. I'd say, look, we're running. Why do this? Find a way to do something so we can maintain face. But don't we get into a big escalation with Israel right now. Wait till we get our nuclear capacity. Do you think by Monday we'll have much more clarity about the situation between Iran and Israel? Well, we will if Iran does something minor. But I think this could drag for a few days. There's no pressure on the Iranians necessarily that I see to go and finish this for the news cycle or the weekend or whatever.

17:39There's no pressure at all. So if they think they've got pressure between the United States and Israel, they've got friction between the United States and Israel, they've got greater pressure for the United States to force Israel to do a ceasefire in Gaza, they'll let it play out. One thing we've seen about the MOLAs all this time is that they've got patience. They're smart. They're conniving. They're sly. They work indirectly. So I don't know that we'll have clarity by Monday. General Clark, thank you so much for joining us. We do appreciate your time. Thank you. General Wesley Clark. So if this is drawn out, do we see a continued flight to the safety trades that we saw in today's session?

18:19Do we see a bid for bonds? Do we see a bid for the dollar? Do we see a bid for gold? Do we see that continue? I think you see all of that continue. I think you see oil trade up. And it's not going to matter. The U.S. is self-sufficient in oil, but it's just the perception is reality. So you see all of the risk off or risk on trades still happen and be precipitously happening throughout the entire market this whole week. But hopefully we get something more than just rhetoric for the next two days. We get something that has some closure involved in it or else you're just going to see gold run, oil run and the S &P slide.

18:52Trends in the dollar and rates and oil are we've had them all year. I mean, it's been a trend higher. So this news is part of a bigger mosaic of geopolitics. And no, it doesn't end no matter what happens. Coming up, semis close out the week deep in the red. Shares of AMD and Intel getting hit on fresh reports that China is looking to phase out chips from foreign companies. A fallout across tech after the break. Plus, a retail route, the XRT retail ETF closing in on a 10 percent drop this month. And we're not even halfway through April. Is this a sign the consumer is finally cracking? We will debate that.

19:28This is Fast Money with Melissa Lee, right here on CNBC.

19:39Welcome back to Fast Money. U.S. chipmakers Intel and AMD down today on reports that China is cracking down on the use of foreign chips. The Wall Street Journal reporting that China is ordering its major telecom carriers to stop using non-Chinese core processors by 2027. China is Intel's biggest market, accounting for 27 percent of its revenue last year. AMD also owes 15 percent of its 2023 sales to the Chinese market. What do the charts look like, Carter? Well, we know that semis were a great leader, of course, and now they've been under pressure before the market got under pressure. It's also worth noting, and this is the thing that's so confounding, semis only just in the past eight weeks were able to get back to their relative highs in the dot-com peak.

20:23So it took 24 years to simply break even to the S &B, despite all of this tremendous outperformance. And they're way behind the cues. Anyway, I think you want to be not embracing the weakness. You can buy a dip or you can stay away from it. I would stay away from it. It always surprises me to hear these reports about China looking to take out American semis. You always sort of assume that maybe they didn't allow it in the first place. And yet here we are. They do exist in some of the infrastructure. They are going to order these carriers to take them out. And what does that mean? And at some point do we start thinking, let's take the China market out.

20:57What are these stocks worth without a China market or a substantially smaller China market? I think you definitely think along those lines, right? We talked about that with Apple previously. We've talked about that as it pertains to Nike. And I think you really start starting. And we also mentioned in terms of Taiwan Semi, some of the geopolitical risks there. So I think it only makes sense that we start to factor this in and start stripping out some of that revenue or at least discounting it by some increasing margin. Listen, I think in terms of the Intel story, I think the bullish case there is really about kind of like the reshoring of manufacturing, foundry type of business.

21:31I think, you know, valuation as well, although you've started to see that creep up from low teens to now mid 20s. But I think the bull case there is really about them completely reinventing themselves and where they fit in terms of semiconductors. AMD, I do think, has gotten caught up a bit more in terms of the AI revolution and a lot of the more domestic issues that are going on. So I do worry there. I think that one trades around 45, 46 time forward. And so I wouldn't be surprised to see a little bit more air kind of come out of that balloon there, particularly as you start siphoning off what I believe is mid-teens in terms of revenue generation out of China.

22:06That bullish part of the story for Intel, though, in terms of the foundries, I mean, they just said that they're going to have losses associated with the foundries. Yeah, that wasn't bullish. That wasn't bullish either. So at what point do you say, you know what, this is going to take too long, this turnaround? I think they provided at least initial details on their product release and their, you know, their foundry, their resegmentation essentially in P &L. And they told you that it isn't going to be pretty anytime soon. And that was April 3rd. I think it was April 2nd, maybe after the close.

22:34Since then, the stock's down 25 percent. We joked. I joked, kind of, you know, laughed at myself possibly. you know, I've traded Intel around. I've certainly been long on this move. And I and I, you know, I think at this point you've taken out a lot of that bad news. But I'm sure Carter will point out that if we get more pullback in the market, maybe semis will lead that. I think they're all going to suffer. And they're still up 26, 27 percent year to date as a group. Higher rates will send them lower. You know, if you look at this, Carter started off Qualcomm, 59 percent of their revenue from China or thereabouts.

23:08Broadcom, 45 percent. Marvell, 48 percent. Texan, 48 percent. So you flashed up Intel in the beginning of the story. That seems like it's pretty light compared to all these other ones. And I think they got a pass because when you saw the story, they mentioned Intel, AMD. These are the ones you have to be concerned with more. All right. There's a lot more fast money to come. Here's what's coming up next. Cracks in the consumer. Is the retail trade about to wreak havoc on investors? The chart careening toward precarious levels and where it's headed next coming up. Plus, gold's gleaming gains, the precious metal hitting another all-time high today.

23:43What's fueling the record rally and how long can the good times roll? We'll shine a light on that and much more next. You're watching Fast Money live from the NASDAQ market site in Times Square. We're back right after this.