Countdown to Bank Earnings, and Is There More Downside for Boeing? Description 1/10/24

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. Bracing for the banks. After a strong finish of 2023, the financials seem to be stuck in neutral. Will earnings season unleash a wave of buying or is a pullback ahead? Will handicap the result? Plus, it can never happen again. Those were the words from Boeing CEO Dave Calhoun to our own Phil LeBeau today. So the question now is how long will the Max 9 be grounded and how much will the impact be on the stock? And later going nuclear, why uranium and uranium stocks have been surging, heading back to the future in Japan and why that's a good thing.

0:36And are Steve and Courtney are ready to unveil their acronyms? One of the traders is scheming. The other is hoping for a wage hike. Those are hints. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Steve Grasso, and Guy Adami. We start off with a countdown to the big bank earnings. JPMorgan, Citi, and Bank of America kicked the season into high gear on Friday, and the sector has been on a tear heading into the reports. JPM is up more than 20 % in the past year. trading just off an all-time high. Meantime, Citigroup filing an AK in just the last half hour to give insight into what we could hear from them.

1:10The company is saying it recorded a$1.7 billion charge in the fourth quarter due to an FDIC assessment and an additional$780 million charge from restructuring, which includes severance packages. So what else can we expect to hear from these reports? Guy, the bar was set high with his runs. Really high. We'll throw up a JP Morgan tried to go back a few years, you'll see to your point, we're trading at prior all-time highs. We're also trading at about 170 percent-ish of book value, north of two times tangible book, which for JP Morgan gets a little bit extended in terms of valuation. People will look at it at price to earnings.

1:47I don't look at it that way. I look at it just in terms of price to book and tangible book. Given the run-up we've had, I think they really got to knock the cover off the ball to get this move going to the upside, given all sort of the headwinds that all these banks face, not least of which J.P. Morgan. True. And banks historically, I mean, the last five or six quarters going into their numbers have really been on the skids. And so it is a little uncomfortable to see this, even though as a bank investor and a couple of the money center banks, I'm happy that the market is willing to put a bigger multiple either on their tangible book value, which I think is really probably the most appropriate.

2:21Guy's right. J.P. Morgan trades at a premium to the Group and Citibank, which at one point was around 0.55 priced a tangible book and just got too cheap. And you talk about that restructuring and some of those costs. The story with Citi is really one where I think we're trying to think of this bank in a new era, in a new light, in a bank that's thinking about efficiencies, a bank that's thinking about productivity. And I think that's a multiple that actually can go higher. I think we expect to hear that their capital markets business probably, at least for this cycle, hit a bottom either last quarter or the quarter before that actually there's some resurgence in M &A and origination and some of the dynamics on the banking side.

2:59FIC, I have a feeling it's going to probably be strong. But for Citibank, it's been about this sprawling kind of presence globally that at times has been its own biggest nightmare. And I think this is a good era for Citibank. And I think the other side of this also is banks and capital and their ability to give capital back. Seems like we're a long way away from SVB at this point. In other words, in a good way for these banks. And I think investors are ready to get back in. I mean, a long way. Banks are in general up 35 percent since SVB. So that's a long, long, long way. And for Citi, I mean, it's about rationalization of this sprawling empire.

3:34You mentioned a restructuring story. We had Mike Mayo come out and say that Citi was his top pick. He really liked the story. And then we have BMO today cutting it to a to a market perform. Yeah, I think that Mike Mayo is usually bullish on on banks. Right. And he had a good year last Fargo, those were the ones that really stood out as performers. I don't think that could happen again. And when you look at earnings trough, earnings bottom for most sectors, financials, probably not. So I think financials are gauged to be down roughly three or four percent on the whole. But the insurance, and this is through FactSet, the insurance arm of that is the one that's boosting it.

4:11So without the insurance arm of the financials, the financials should be down eight So I know that everyone waits for the financials to lead the market and the earnings. I'm bullish, but I don't think we're going to get great, stunning performance. I don't think they've led for a long – I mean, they haven't been that sort of barometer for earnings since probably before the financial crisis at this point. But in terms of the valuations going into – the other thing to layer in is if you believe that a credit cycle is going to happen. And that was sort of the point of this overarching BMO industry analysis in which it did downgrade Citi.

4:43It downgraded AXP as well. Second downgrade this week for American Express. But the concern is about credit quality, about the consumer's ability to pay, increasing delinquencies, etc. I think Lizanne Saunders put out a tweet today. Credit card interest rates are now at the highs we haven't seen probably in the last 15 years, if not all times. 21.5 percent on average, which is extraordinary if you think about it. And your point is well taken. I do think there's going to be a credit event and I do think unemployment rate's going higher. I might be wrong, though. But if you think those things are minutely possible to happen, I think banks are going to be at least headwinds with banks are going to be there for the beginning part of 2024.

5:19With all that said, I mean, J.P. Morgan, if you look at flat earnings growth in terms of year over year, flat revenue growth in terms of year over year. And oh, by the way, Jamie Dimon's been pretty dour over the last 18 months. It's going to be interesting to see what he has to say, if he even speaks on the call. And there's going to be a succession plan. I think that's going to be the 2024. We're going to be worried more about where Jamie Dimon is going or who's taking over. So he's already stated that he's going to stay on until, what's the number, 2026 until the headquarters is done in the city?

5:48Is that the date? Until the headquarters are done. They're still building. I drive by every day. I think that will dominate the conversation, but it's going to be hard. The premium that is put on J.P. Morgan with Jamie Dimon at the helm is probably very large, more than we can really establish. So something that goes away when the succession plan is announced? That's what I would guess. I just I look at how investors are approaching the whole sector and guys, right? The consumer is only going to weaken in terms of their credit quality. But it's amazing how the broader market dynamic that's including banks in some level is, I think, because of banks.

6:20We're living in a world where the sense is that the worst of the Fed's pressure is also letting up on the banks. And I think that's part of what this needs to be. There's no question that banks were pricing in a whole lot of credit concern that two or three quarters ago was even less apparent than it is today. In other words, I think there's still some of that to take off of the headwinds that were priced on these banks, by the way. And then you have Morgan Stanley and Goldman Sachs and some of the brokers reporting. I think it's, again, kind of a noisy quarter, but a place where they definitely saw a return to some of those M &A dynamics that I think had really deteriorated.

6:53And I think going forward, they're going to be optimistic on what's coming. And this if you think the rates are going down significantly, then maybe banks, excuse me, then some of the companies that are coming to market can be more patient in trying to raise debt and do equity deals. But look, if you think that there's a window that's open here, and I think central banks around the world, by the way, over the last week or so are showing they're trying to raise as much debt as possible. I think with lower rates, you're seeing companies run the market. I think that the capital markets dynamics can be very strong.

7:19That's what James Gorman and Morgan Stanley said. He said when rates come down, you're going to see the floodgates open in terms of M &A and deals. Yet he chose this year or last year to announce his retirement. Now he got in at the right time. A lot of people say maybe he's exiting at the right time as well. I'm fascinated to hear, again, what Jamie Dimon says in terms of commentary, given what he's said over the last 18 months or so. And he really hasn't wavered in terms of some of the headwinds that he thinks are out there. If some of those headwinds have abated, I'd like to hear what he has to say.

7:48All right. Meantime, investors are eyeing tomorrow's CPI report. Will inflation have cooled further in December? Let's bring in senior economics reporter Steve Leisman. Steve. Yeah, it's a big number tomorrow, Melissa, that's going to test the market's optimistic outlook for Fed rate cuts. The consensus looks for a little hotter inflation on the headline and unchanged monthly rate on the core. But that's going to continue to bring down the year over year rate. Here are the numbers we're looking for. Zero two on the top line, up from zero one in the prior month. That'll bring the year over year rate up a tick, 3.2 percent on the headline.

8:22But the core is looking to be unchanged, and that's going to bring the year-over-year rate down because, in part, base effects of bigger numbers dropping out from prior months. But it's numbers like these that have officials like New York Fed President John Williams this afternoon hailing the progress on inflation, but not ready to commit to cutting rates since the inflation rate remains elevated above the 2 % target. William said this afternoon the Fed forecast for three cuts seemed reasonable to him, but only after the central bank is confident inflation is heading back towards the target. If there's a downside surprise tomorrow, it could come from the housing part of the report.

8:58Recent reports show rents have been falling and those declines have yet to show up in the inflation numbers. Hey, maybe it happens tomorrow. It could happen. Separately, the CNBC NRF retail monitor finding retail sales ex-auto and gas up 0.4%. That is half of the strong number we got in November. Core retail that takes out restaurants struggled a bit, up just 0.2 percent compared to 0.7 in the prior month. So it was a good, guys, not great Christmas for retailers. And we'll have to watch to see if the December cooling is part of this broader economic slowdown that's forecast and forecast and forecast by the street but doesn't really come.

9:35Yeah, I think the rent aspect will be really interesting to watch. The Zillow rent index indicates rising to maybe flat, and that's a forward-looking index. We'll see what we get out of the CPI report. But I wanted to sort of zero in on this notion that inflation may be slowing, the rate of inflation may be slowing, but consumers are still very uncertain about the future. And how does that impact what the Fed does and how the Fed sort of packages the message? I think the Fed goes on what they spend, not how they feel. I think you're talking about this split between sentiment and spending. I think the Fed is going to follow spending.

10:12I don't think there's at least much correlation you can get from the idea that there's this down sentiment that's out there. I also think that I'm listening to your conversation. I feel like, and I get it, it's like you just touched a hot stove. You want to be careful. The stove is not hot again. But we shouldn't necessarily be afraid of growth. Why do we believe? We didn't believe this before the pandemic. that if there's greater growth, for example, in consumer spending or business spending, that you won't have growth in supply to meet it. That's the way the world used to work. It is possible to have strong growth with the Fed cutting rates, and you have an increase in the businesses that provide the supply for that growth.

10:53And also, to quote somebody else, growth can also lead to less inflation because you're building more plant and equipment. So I don't think we should be as afraid of growth as some people are. But I get why they are. No, I understand that, Steve. Listen, in terms of the jobs side of this equation, and I watch you every time there's a jobs report, the numbers come out, the numbers have been very good, but the revisions now for the better part of a year obviously have been disappointing. And I don't know how the math works at some point. My concern is that the unemployment rate, which whatever it is now, 3.7, is going to start to stair-step its way towards 4.5 % when these revisions start to kick in.

11:30And all the fire layoffs we've seen over the swath of industries make their way into the equation. I mean, am I right to look at it that way or am I just sort of grasping at straws here? Well, they're slightly separate. The revisions happen to the payroll side of the report. The unemployment rate is calculated from the household report. But if what you're asking about, is there a general weakening? Yes. I think that when you look at what you're talking about, which is the 10 of the past 11 months up through November, which is what we have revisions for, were revised downward. and you have to go back to, I hate to say it, 2008 to find another year that had that kind of revisions, then, yeah, you should be worried about weakening in the job market.

12:14But, I mean, the expectation is that there's some weakening, but it doesn't get that high or that bad because people have been so, it's been so difficult to find labor. Plus, you know, it's interesting, Guy, there are some sectors I've been looking at, retail, health care, even leisure and hospitality, which have been big growth areas for jobs. that still are not either at their prior level or at a level that would account for the fact that the economy has grown since 2019. So there's this baseline of growth that I think is going to mean that the payroll or the job market is going to be OK amid some weakening out there.

12:51Steve, great to see you. Thank you. Oh, Happy New Year, by the way. Yeah, there you go. Thank you for listening. You too. Steve Leisman. I had to get that in. I really don't say Happy New Year ever, except when I am upset and when Guy is here. It's going to last for a while. CPI, if I told you what the number was, do you think you would know how the markets would react? Let's see. I feel better about this one. I've been wrong on CPIs. The November CPI, which was a catalyst to the market, especially the banks, I do think was one I got wrong. But I don't think that this CPI is going to do anything to change the trajectory of how we're viewing this Fed.

13:27And I think ultimately it's going to take a lot to change the trajectory of how we're viewing this Fed, which is not that the Fed is ready to cut. I don't feel that way. I don't think we've been saying that. Whatever Fed fund futures are telling us, I think this is a Fed that recognizes, look, the inflation victories are going to be a lot harder from here. We had lower gas prices, which were very beneficial the last two months to make the overall number look good at the core. I actually think this one's going to tick a little bit higher, and I think it's not a bad thing. It's a sign of some of the strengths out there.

13:55We don't want deflation here. So CPI probably runs a little bit hotter, but year over year, it's obviously going to be down big. That's what's going to be an important headline number. But PCE is the Fed's choice. That has been running at around 2 % annualized, and its core is below the 2 % target. So I think the Fed is more concerned with PCE than CPI at this point. The market is more concerned with whatever data you give them. So tomorrow, if it's a little hotter, the market probably sells off. We've got a news alert here out of the SEC. the securities regulator approving 11 spot Bitcoin ETFs.

14:30For real, it's official. Kate Rooney's got all the details. Hey, Kate. Thank you, Melissa. So the SEC has officially approved a wave of Bitcoin ETFs. The agency putting out a statement last hour saying 11 applications now have the green light to trade here in the U.S. You've got some of the largest asset managers in the world on that list. BlackRock and Fidelity on the list of ETF sponsors, also Grayscale and Cathie Wood's ARK as well. These are set to start trading tomorrow on CBOE, NASDAQ, and the New York Stock Exchange. Not much fanfare, though, Melissa. In Chairman Gary Gensler's statement, in the same breath as approving some of these funds, he highlights the risks that still abound in crypto markets, saying essentially buyer beware.

15:13Gensler says, quote, while we approved the listing and trading of these shares today, we did not approve or endorse Bitcoin. Investors should remain cautious, he said about the myriad risks associated with Bitcoin and products whose value is tied to crypto. One person described this approval to me as the worst kept secret on Wall Street. You can see that price run up in Bitcoin in anticipation in the last couple of months here. Still very much a milestone, though, for this asset class seen as a legitimizing moment and a way to make this asset class more mainstream and also bring a bit more safety and stability to these markets.

15:46Melissa, back over to you. All right. Thank you, Kate Rooney. By the way, Coinbase CEO Brian Armstrong will be on last call in a first on CNBC interview. That is tonight, 7 p.m. Eastern time with Brian Sullivan. Let's trade it. The SEC statement regarding Bitcoin itself seems to be sort of unusual to actually cast judgment on an asset as opposed to, you know, just approving the ETF. They have to. And they have to also based upon how outspoken they have been on this, which is also unique. But this is a unique time. This is a unique asset class. And I think what this does is it really does open up for the broadening of the asset class.

16:22Remember, more regulation to me means more institutional adoption and I think a wall of institutional money. Whether it's going it's it's a good thing. Actually, we're probably in crypto 2.0, maybe 3.0. The people that have been trading this stuff for 10 years will say it's 10.0. But think about where we were, especially in early 2001, when you saw risk assets, SPACs. You saw the mania that was coming with free money and helicopter Fed and whatnot going straight into tokens. And I think we're in a very different place. But I think as you look at other places, other other I would call them vehicles for mass adoption.

16:56And that obviously is, you know, Ethereum is already in mass, moved down the curve a little bit. I think this bodes well for Coinbase. Again, it's not because the Bitcoin dynamic takes away from what people need to do on Coinbase. It's not trading Bitcoin on Coinbase that I think gives Coinbase their pole position. I think it's the broader asset class and really the ramp way to that. We saw the other initial sort of interesting reaction is Bitcoin sold off a little bit softer, and then Ethereum really skyrocketed, almost maybe in anticipation of an Ethereum ETF, which is coming next. Right. And we're not going to hear about the Ethereum ETF from the SEC until the summer.

17:32So I think a lot of retail probably got pulled in. I rode the Ethereum trust up on the back of this, sold it yesterday, own it still small, but I sold most of it. That decision's not coming until the summer. And they're following the path. If they approve for Bitcoin, they'll approve for Ethereum. Ethereum probably still bullish going into that. This time in 2022-ish, Coinbase was trading$35, left for dead. Now, Tim had a great trade in this all of last year. Trade it up to, if we pull up a Coinbase chart, you look. We trade it up to the March 2022 highs about a week or so, maybe two weeks or so ago, about$180.

18:08It's given it back since. It went from a very reasonable stock to make an argument. Maybe it's got itself a little expensive. But I'm fascinated to hear what Brian Armstrong says about this, because I think the bull side of the equation is right. Tim's right. There's a bear side of the equation for Coinbase as well. For sure. And maybe that last little sell off sort of. And it's regulatory that. Yeah. Yeah. I mean, look, they're they're in the crosshairs of a difficult battle. They're not free of this battle also with the regulators. So I think I see some of that as upside because I actually think that the markets priced in a lot of this.

18:39And I think there's still that overhang. And I think if and when that's removed, it's a major tailwind for the stock. Oh, OK. As I understand it, Andrew Roth-Sorkin will be doing the interview with Brian Armstrong tonight. But still, on the last call. ARS is the man. Right on. There's still an interview that you'll want to watch. Meantime, coming up, we are getting some after hours action and shares of KB Home, the builder on the move after reporting results. Details from the quarter and the full housing trade next. Plus, our periodic check-in on uranium. Shares of Cameco surging this week as regulators start the push to increase domestic supply.

19:10Is it time to nudge into the nuclear space? We'll debate that when Fast Money returns. This is Fast Money with Melissa Lee, right here on CNBC.

19:27Welcome back to Fast Money. We've got an earnings alert on KB Home. The homebuilder sinking after hours despite a top and a bottom line beat. Diana Olick has been listening into the call. She joins us now with the latest. Diana. Well, Melissa, it was a mixed bag on KB. Yes, they beat on the top and bottom lines and deliveries exceeded the company's expectations. But the average price of a KB home sold during the quarter was down four and a half percent year over year. That could be part of the stock issue. Gross margin had a narrow beat, which may have been a result of that pricing pressure and potentially buying down mortgage rates.

19:57The builders have been doing that aggressively lately. And Q4, we should note, was a big one for mortgage rates. In October, the 30-year fixed hit a more than 20-year high, briefly going over 8%. It fell slowly through November and then sharply in December into the 6 % range. So in the reliefs, CEO Jeff Mesker said, We have experienced a meaningful sequential increase in our net orders for the first five weeks of our 2024 first quarter, as consumers are responding favorably to the recent decline in mortgage rates. So again, looking forward, things could get a bit brighter, Melissa. All right, Diana, thank you.

20:31Diana Olek, what do we make of the home builders now that, I mean, rates have come down? That should theoretically be a tailwind. And the run over the since, well, since rates came down, right, since that move in late October, I mean, the move in these stocks to now again all time highs has been staggering. But look at this report. The headline EPS, people say that's a great thing. But Diana just said it. Deliveries decreased 10 percent. That's not good. Selling price down to$487 ,000 from$510 ,000, that's not good. And then you start to talk about the margins, down to 10.9, this time last year, 14.4.

21:06I bring it up because if this is the beginning of a trend on top of what I think is going to be a rise in the unemployment rate and a strapped consumer, I don't necessarily think you have to stay with the home builders here. By the way, it looks like net orders surge, but not as much as what analysts had been expected. also on top of them buying down mortgages. So that could be a problem. There's a price to be paid. But and as someone that's not, I'm not bullish on home builders at all. I'm probably less bullish on construction materials. But I when I think about these home builders and I think probably the best ones are PHM and Toll Brothers, but they're they're balance sheets and therefore they're kind of price to book.

21:46Their book value should be increasing. And I think that's ultimately a good thing for owning them. I think we're in an environment where I still am of the view that the macro around housing in our country, especially closer to urban spaces, is going to be a lot more difficult over the last few years. It just takes a lot of time to play out. And again, we're talking about basically full employment. When you look at Pulte, Pulte is a first time home buyer. That's to Tim's point, that's up over 100 percent in a 52 week performance. If the home builders do not have to subsidize anymore these mortgage rates, that's a tailwind.

22:18Rates coming down, tailwind. But I agree with Guy. I think you kind of overextended this. You would have to see the rates fall precipitously for a mortgage rate. Probably has to be in the fives or high fours. And I don't think we're getting there anytime soon. But if we do, then these stocks will outperform again because everyone floods the market to buy homes, to put homes on the market. I think it's a boon. Home Depot, upgrade today on the notion that the bottom has been hit in the housing market. Do you agree? Well, it's hard to say the bottom's been hit in the housing market when we haven't hit it.