Countdown to Consumer Earnings and Are Semis Set to Break Down? 8/11/23

0:01And right now on Fast, we're counting down to earnings from some of the country's biggest retailers. from Walmart to Home Depot, what you can expect from those reports next week, and what they could say about the state of the consumer. Plus, a semi-slump shares in video dropping another 3.6 % today. The chip giant has now fallen over 15 % from its all-time high. That was it less than a month ago. So where's the sector going next? Well, the chart master, he gives us his two pennies. And later, a chart of the week, the stock seeing its best week since going public more than 70, 7-0 years ago. What is it?

0:35And is it too late to buy in? We're going to look for some answers. I'm Courtney Reagan. In this evening for Melissa Lee, this is Fast Money Live from the NASDAQ market site. On the desk tonight, you have Tim Seymour, Julie Bell, Bono and Eisen, and our guest trader tonight is Victoria Fernandez of Crossmark Global. Thank you all for joining us here tonight. We are going to start with a sputtering in to a pretty volatile week. The Dow managing again while both the NASDAQ and the S &P were lower on the day. All three indexes, though, well off their lows after a hotter than expected inflation report.

1:06Wholesale prices rising more than forecast in July, a shift from the narrative we'd started to get used to. Both the Nasdaq and the S &P posted their second straight week of losses. It was the first time the Nasdaq has done that all year. But now focus shifts to the next crop of earnings reports with the retailers. Those are the big headlines we're going to see next week. Home Depot first, Walmart, Target, TJX. They're all on the calendar along with some others. The stock's mostly winners over the past three months. Target, though, is the big exception. So what can we expect to hear from these names next week?

1:36And will they give the market support it needs to turn things around? Bonoan, obviously a lot of big names, two Dow components with Home Depot and Walmart. We all really care what Walmart has to say about the state of the U.S. consumer. Target, though, is undervalued here, down 17 percent since it last reported. What are you expecting out of these names? Well, they're undervalued, assuming that they've gotten some of the inventory headwinds that they've had previously in previous reporting quarters under control. If they have not and that business mix still faces challenges, particularly as we're talking about credit cards now topping over a trillion dollars, right?

2:09So there are some signs that the consumer is stretched. So it's going to be a bit more important that they get that inventory mix right. In terms of the names that I'm looking at, I think Home Depot probably would be top of mind, only because your home is probably like your largest store of wealth. And that's really where everyone's going to be tapping into, looking to either make improvements or some trades or adding value, things of that nature. So I think being that I have, you know, some some preconceived notions about where the consumer is headed, I think Home Depot gives me a lot of insight into where people are with their most prized asset.

2:40And it's funny because Home Depot had said that they're expecting this to be a year of moderation. But the market seems to agree more with you. It seems to be thinking, well, even so, Home Depot could still be a winner here. They definitely could be. But I think at this point, we're starting to see a bit of a shift in leadership. For instance, we saw energy outperform this week, the last couple of days particularly. We've already talked about at the top of the block in terms of NVIDIA and whether or not you're still going to see some growth coming out of there. So as you start to see a bit of broadening out, breadth in the market and leadership changes, those are going to be more economically sensitive topics that you're going to be focused on.

3:16And I think we're really going to need to see the numbers, PPI, for example, today, come out and support the narrative that is leading us higher. Good point. Yeah, Energy was the leading sector today. Victoria, when we're looking at these retailers that will be reporting next week, in the most recent quarter just reported, they all sort of had fairly decent reports, but a lot of caution, if not some concern about what they would report this quarter and going forward. And everyone wants to know, is the consumer cracking or is the crack coming? It's just not here yet. What do you think? Yeah, so as Bono had mentioned, we see credit card purchases going up higher, but household debt is not changing because incomes are higher because of the strong labor market.

3:52So I think we still have some support from the consumer. I think what we really need to watch on the retail earnings and the calls is labor costs. We know wages are going higher. We've seen it in many industries, right? We've got the United Auto Workers, their contract up in mid-September. So how are they going to talk about wages going higher, unit labor costs higher when productivity is not high enough to balance that out? And we've seen inflation start to come down, which means pricing power should be eroding. How are they going to combine all that and fight that? We know that typically it takes about 18 months.

4:26Once the tightening cycle starts to hit corporate revenues, we're at 17 months right now. So we're right there where we should start to hear more of that. That's what we're going to be listening for. The stronger companies with the strongest balance sheets, they should come out ahead. Julie, today Credit Suisse and Telsey Group actually coming out and giving price target increases to Walmart ahead of those results. While over the last several weeks, Wall Street has become more bearish on target and what that report may tell us. Do you feel like those are the right calls? Well, I mean, I think it's absolutely critical to be looking at these companies in terms of their ability to execute.

5:02because not only do we have a mix effect that's happening in the labor market where, you know, you see a lot of strength in wages at the lower end and in that kind of middle end, people who are salaried, you're not seeing nearly the same kind of gains. And if anything, I think they're the most at risk of job losses. So I think retailers that are exposed to that sector, I'm a little bit more worried about. But individual execution really matters. And it's interesting, right? Because you've seen investors be relatively okay with margin erosion. We hit peak margins last year and investors seem to be okay with that.

5:37But at some point, these businesses do have to make money. If you look at Walmart, its compound annual growth of EBITDA over the last 10 years is zero. That's meaningful. Yeah, absolutely. That is an interesting point. Tim, I saw from one of the analyst notes, I believe it was Credit Suisse, talking about Walmart and sort of as a fifth point of why they liked it. They like the health and wellness business, particularly the pharmacy, because of what they've heard about these weight loss drugs. And the CFO said at a recent conference, yes, we have seen a lot of sales, but they're lower margin for us.

6:08Take that as you will. What do you make of Walmart? Well, Court, I think that the Walmart story is one where the general merchandise shift is helping them, right? So going into second quarter numbers very, well, different than where we were first quarter, Coming out in the first quarter or going into those numbers, it was really clear. Walmart was a significant overweight. There were dynamics around the economy. There was dynamics around disinflation. And I think we see less of an overweight. But I think this is still a major overweight out there. Remains a very conservative play, and it should be.

6:38Comps are getting upgraded into these numbers. They're going to be anywhere from 5 % to 6.5%, I think. At least that's where the street is. And that's significantly better than what you're getting out of any of the other broad lines or hard lines. and certainly significantly better than you're going to see. Target is going to have deceleration on the comp. So I think Walmart deserves to be that overweight. It's not cheap on valuation. Julie's right in terms of where you are in EPS. Walmart's been, during this period where the stock has performed, it's really done almost nothing in terms of EBITDA or in terms of even the EPS has been up 1 % to 3 % over the last three years.

7:12If you look at the street, they've got a pretty decent gain. They've got probably 8 % to 9 % EPS growth for 24. So that's what you're playing on. You're made major investments into technology, parts of the store, pharma business, which should reach higher margin. I think the disinflation theme, which has been a bit of a short idea out there also, and I think has picked up a lot of momentum, is one that you have to be careful about because I think you're starting to see at least some of the food prices at least hold ground here. And I think while some of the multiples across food and staples look challenging, I think you're going to see pricing power hold on.

7:48Victoria, when you look at names like TJX and Ross stores, these off-pricers, this sort of treasure hunt model that has really been able to stand up even as we've moved more to e-commerce. Over the last three months, both these shares up more than about 10 percent. So outperforming the XRT. If the consumer is starting to weaken, is that an area where you could find some winnings? It's the area where we have exposure at Crossmark. So TJX is one of the names in our retail sector along with Amazon and then some auto, like AutoNation or AutoZone names. But the consumer is moving down that scale of what they're willing to spend.

8:21They're still spending. They're just trying to find much better deals. So if you're looking at something like a TJ Maxx, this is where they're going to go. Walmart fits into the same category because they have a broad range of price points. And you hear Walmart even on their last earnings call talking about the consumer still shopping there, but buying the more discounted brands. So I think, yes, TJX, Walmart, even Amazon, these are places that you can find some benefit in the retail side. I can't wait to see what all of these results obviously will be in the coming weeks ahead. Well, after a strong run in the first half of the year, it's been a rough couple of weeks for semis.

8:56The semiconductor ETF, the SMH and NVIDIA, both closing out their worst week of the year. Since hitting an all-time high about a month ago, NVIDIA is down over 15%. The company reports earnings in about two weeks. So what should we expect from the group as we head into that report? We're going to ask the chart master, Carter Worth of Worth Charting. Carter, what do you see? Sure, Courtney. And before we get to the charts, I mean, in many ways, it has always been a beta trade. Just consider the fact that, of course, semis are down 9.5 percent. The Sox index from their peak of three weeks ago, where the S &P is down three.

9:29Well, on the way down from the original peak, S &P dropped 27. Sox dropped 48. And of course, from the low in October, from which all equities have been bouncing, S &P is up 28 and the Sox is up 67. It's just juice. So the question is, is there more juice to the downside right now, having already dropped 9.5 percent? I should think so. Let's look at three identical charts. So the first, it's the SMH. No lines, no drawings, no judgments. Let's put some in. It's all very symmetrical. Second chart. It is what it is. And are we ordained? Do we have to go down to that uptrend line? No. Do I think we are?

10:05Yes. Let's look at another iteration. Final iteration. We're in a channel. The lower bound is another 4%. Ultimately, I think we'll get down as much as 7 % from here. It's very interesting moves here, Carter. And obviously, so many people are interested in these names, particularly NVIDIA. We heard about some of the super chip information this week. Any of those fundamentals, I know you're technical guy, but any of those fundamentals at play here that we need to be paying attention to, especially since we're not going to hear the full results of the quarter for another two weeks. Happily, you know, some people take things to fall asleep.

10:38If I ever can't fall asleep, I get out a Q or a K and I'm out like that. It's beautiful. Thank you. You got it. Well, thank you, Carter. We will see you in a few minutes on Options Action. Tim, what do you make of the action here in the chip space with Envia in particular? Does this actually give us an opening price point to jump in? I don't think, first of all, until the 23rd, we know they're going to beat. The question is how significantly are they going to beat, how great of a beat, and what do they need to do to actually put a floor under a stock that obviously was a rocket ship? And you can make an argument.

11:13It's easy to say now. You know, that stock for two and a half months after the earnings announcement last quarter was one that people were betting against and wrong. And ultimately, I think the AI dynamics in terms of the earnings potential of the company, we're going to continue to hear strength there. Carter talked about the charts. I think the dynamics in the semiconductors as a group more broadly are really fascinating because they've underperformed the S &P during that period where they're down 9 percent, as Carter pointed out, by almost 7 percent. So it's really been significant relative underperformance.

11:44They're not really making a relative high during that period from the NVIDIA announcement on May 25th last quarter. So I think they're going to continue to trend lower, too. We've also seen major rotation. Doesn't mean they fall out of bed, but I think there's still some room for this entire trade to go back. And note, obviously, the Qs have been underperforming as well, not as significantly, but they, too, broke through that 50-day. And I think the S &P follows. I think, you know, you take your Qs from the market here. It does not mean devastation. It means that in August and September, where seasonals tell you that I think these markets could continue to be weaker, I don't think you have to chase any of this stuff into Nvidia earnings.

12:21Julie, what do you make of what's going on here generally when we're talking about the chips? I mean, they have been so hot. It's been a sector that we paid such close attention to. But Bono brought it up earlier on the show. This week, there's been a lot of focus on energy, a top-performing sector here today. So is the chip trade cooling off? Are we moving back into the old economy here for opportunity? You know, it's really hard to say. I think at the end of the day, for me, these are businesses that are cyclical, capital-intensive, and they require really strong uptrends and secular trends that are very hard to predict.

12:51And I still continue to hear when I talk to management teams in the software business, when they're talking about AI, there is a certain reticence and a certain hesitation to really get aggressive about it. They all talk about it because they have to talk about it. But I actually don't get a sense that this, you know, if you build it, they will come. I don't, that is not my sense. I think that, you know, the concept of AI and generative AI in particular is going to take a much longer time to play out than people have in their earnings forecasts and models. I think Nvidia is a little bit different just because it has a near almost monopoly in terms of what it's able to produce.

13:27But I think for the rest of the sector, it's for me pretty unappealing at these levels. And generally speaking, not what I would say high quality. Bono, what do you make of the chip trade? Yeah, I tend to agree with the last one that Julie made, the divergence between a name like Nvidia and the rest of the space, right? There There is some cyclicality, depending on what name you're looking at, and some economic headwinds that you might be thinking of. NVIDIA, I think that's what you asked initially, and that's what I'm going to kind of focus on here. It has had one run. One of the things that Carter mentioned is beta.

13:58So when you're looking at a portfolio, you're going to look at up capture and down capture. So it's got a 1.76 beta. This thing is up like 200 % this year. So I don't think it's crazy to think that it might give up 10 % or 15%, particularly if they're not able to raise guidance. The question is, where's your entry point and how much more outperformance can you expect and how much outperformance have you already had? So if you're going to tell me that I'm going to outperform by, I don't know, 150 percent, I'm willing to take the volatility that comes with that. The beta of that stock tells you that that's what you should be expecting when you invest there.

14:29So many things that we need to pay attention to in this area. Coming up, we are combining the semi-sector with a discretionary space. We're going to bring you a trade that actually straddles both. So how you might want to play applied materials heading into earnings. But first, writers and movie studios sitting down at the negotiation table. For the first time today in months, have they gotten anywhere closer to ending this more than 100-day-long strike? We're heading to Hollywood to look for some answers. Fast Money's back in two.

15:01Welcome back to Fast Money. As the writer's strike crosses the 100-day mark, negotiators for the WGA and major studios are coming back to the bargaining table. But the economic pains of a full Hollywood stop are still being felt. Julie Borsten joins us now with the details. Hi, Julia. Well, Courtney, still being felt or just starting to be felt. Now, the Writers Guild and AMPDP are officially starting renegotiations today. This is the first time since the strike started on May 2nd that they have sat down to negotiate. Now, both sides are now under pressure. Now that the strike has lasted longer than the 100-day Writers Guild strike that was 15 years ago, This strike has already cost the California economy an estimated$3 billion plus, with additional impact in Atlanta and the other markets where there is a big production base.

15:48Now, the entertainment industry is already seeing growing effects from the actors and writers' strikes. The Emmys were just delayed from September to January. The broadcasters are bracing for a fall TV season with a dearth of scripted content. And the studios are considering delaying more films release dates from this fall because they don't have the actors to promote them, unless, of course, they come to a deal. Sony already moved the release dates of seven of its films, including a Ghostbusters sequel. Now, there are two key sticking points in the negotiations that reflect the tech-driven transformation of the entertainment industry past and future.

16:25At the center of negotiations for the writers and actors is the rise of streaming. Writers are demanding greater compensation for streaming films and series, including residuals tied to their success. The writers are also asking for AI protections, including banning AI from writing or rewriting projects and preventing writers material from being used to train AI. So we'll have to see if the talks that are happening right now are productive. Courtney, it certainly seems like the writers could have more leverage because the actors are striking with them. Absolutely. And now this is longer than that strike that we saw 15 years ago, right, Julie, or past that 100.

17:02That's right. Today is day 102. Wow. Well, Julia, thank you very much. Keep us updated on that. We're going to trade this one. Julie, I mean, how bad is this, I guess, if you are a content provider? In one way, you're saving some money because you don't have production costs. However, that benefit only lasts so long if you don't have anything to give a very demanding audience that's hungry for more. Yeah, I think it's one of those things where I think initially it was a pretty helpful thing. It was almost like, you know, years and years ago when the cigarette companies all were no longer allowed to do any advertising and it really structurally changed their margins for the better.

17:40The challenge here right now, though, is that at some point they really do need to be able to have the content. There's only so many episodes of The Real Housewives that I can watch. And it's a lot, but it's not endless. Right. Eventually we need scripted TV. And I think the real difficulty for what's happening in the industry is that it supports a much broader industry. So I would say the overall, I live in Los Angeles. Our office shares with CAA, those poor agents. They look so depressed. It's awful for them, really. We should be worried about them. But it has broader implications. And I think generally speaking, it calls into question the business model of streaming writ large.

18:20And I think that's what people need to be focusing on. Yeah, absolutely. I think in some cases that moved a little bit faster than the rest of it. And obviously the writers and the actors believe that they need to get more of their fair share. We're going to move on real quickly only because we have a news alert here. 13 F's from Soros and Starboard are just crossing. So Kate Rooney has been picking through the filings, doing some math for us. Kate, what are you seeing? Hey, Kurt. Yeah, so these are the moves from some of the major hedge funds, family offices. We sometimes call it whale watching.

18:46Let's hit Soros fund first. This is George Soros' family office. dissolved its stake in Netflix, Salesforce, Snowflake, Spotify, and Walmart, meanwhile increasing its stake in DoorDash, T-Mobile, and then two names we've got in finance, Intuit and Interactive Brokers, also added an entirely new stake in another fintech name, PayPal, and getting in on NVIDIA and Microsoft. Soros scooping up about 10 ,000 shares of both of those names. These are the Q2 moves, so it's as of the end of June. The positions may have changed in the past 45 days or so. On to Starboard, that's Jeffrey Smith's fund, upped its current stake in Humana, trimming its stake in Salesforce, and then dissolved its position in OnSemi.

19:29Court, back over to you. Wow, fascinating stuff, Kate. I wish we had some time to dig into it, but we got to move on because we've got a lot more shows still left. Coming up, it's Friday, so you know we've got a chart of the week for you, and this stock's healthy gains since Monday help it lock in its best week on record ever, all time. We'll tell you what it is after the break. You're watching Fast Money live from the NASDAQ Market site. and New York City's Times Square. We're back in two.

20:01Welcome back to Fast Money. It's time to reveal our chart of the week. It's Eli Lilly closing its best week on record and soaring more than 17 percent since Monday. The company reporting a blowout second quarter this week, seeing profits surge 85 percent And a promising new study on the cardiac benefits of weight loss drugs, helping shares hold on to those gains. So with shares now up 40 plus percent this year, can the stock keep up the healthy gains? Victoria, what do you think? Well, I mean, look, we're looking at a stock that had a huge bump because of a very specific reason, right? We're looking at a drug that people are using for vain reasons, right?

20:37And for vanity. And so how long can that last? I think that's the question. It's had a good bump. It's a good company. We own it. We have exposure to it. It should be a long-term holding. But do we expect to see this type of gain continue? No. I mean, we've heard the news. As soon as you stop taking the weight loss drugs, the weight comes right back on. So this is going to have to be something people continue to do for an extremely long period of time to continue to see these kinds of gains. So I might take a little bit off the table at this point and then wait for a pullback to get back in. All right, Tim, quickly, your thoughts on Eli Lilly.

21:09I think the stock's expensive. They're not going to grow 35 percent a year. I actually think they're best in class pharma pipeline. They also have Alzheimer's. But we've been selling upside calls for clients. They're not happy right now. It's not going to hold these levels. Bono was just telling me how expensive it is. 59 times forward earnings, I think. It is now time, though, for the final trade. So we've got to get started around the horn. Tim, you get to start us off. Yeah, we had that energy conversation. XLE is going higher. The fact that people are so negative on the sector and think this is a momentum trade and unexpected oil move is why it stays higher and goes higher.

21:41Julie, our resident expert on the Housewives. You know, I feel like you can have Walmart at 25 times growing EBITDA zero, or you can have Google at 21 times growing it at 20%. It's my preference. All right, Victoria. We like Cigna in your portfolio for a long-term holding. It's got a good risk reward going on with good membership, good valuations at 11 times. Bono and wrap us up for Friday. We're going into OA. Never hurts the ads on optionality. VIX. All right. That does it for Fast Money, but don't go anywhere. Options Action is up next.

22:15All opinions expressed by the Fast Money participants are solely their opinions and do not reflect the opinions of CNBC, NBCUniversal, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information the Fast Money participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such.