Countdown to Earnings Season, and Could Prime Day Be the Last Gasp For Retailers? 7/10/23

0:02Right now on Fast Gearing Up, stocks stuck mostly in a holding pattern as investors get ready for key data on inflation and the earnings season kickoff with banks at the end of the week. Your market checklist before the July juggernaut kicks off. Plus, prime time, Amazon Prime Days start tomorrow. Is this the start of the epic back-to-school and fall retail rush? And could this be the beginning of the end of the consumer spending spree? We're going to go inside the numbers. And later, the big lift for rideshare stocks soaring Disney's bummer of a summer rolls on and is now the time to bet on the sports betting boom.

0:36I'm Courtney Reagan. And this evening for Melissa Lee, this is Fast Money. Live from the Nasdaq market site on the desk tonight, Tim Seymour, Courtney Garcia, Steve Grasso, and Guy Adami. And we start with the markets bouncing back from a losing week. The Dow jumping almost 210 points, snapping a three-day losing streak. And the S &P and Nasdaq also closing higher. The top sector performers today, industrials, health care, and energy. Industrials now up almost 6 % over the past four weeks. The gains come days before a key inflation data read this week and the kickoff of earnings season. Wall Street hears from Pepsi and Delta on Thursday.

1:10And the real fireworks come Friday, of course, when the big banks kick off earnings season. So how should investors position themselves ahead of the key numbers? Tim, what do you make of today's trading? Just sort of a little bit of a hangover from last week as we wait for the CPI number, some more details from some of these key banks. Yeah, I think it's been directionless. I think what's, you know, we're all reflecting more upon the move over the last few weeks. And what's interesting going into this earnings season, the bar is probably reasonably low. But we all know that operating income and essentially margins are probably flat to down small.

1:41We know sequentially that EPS is supposed to come in about 4 percent year over year down seven. If you think about the banks, we actually have a lot of banks that I think are much better than their fundamentals. And I think the valuation there for that sector, as opposed to some other sectors, looks pretty interesting. I think we've gotten some green light, at least in terms of their capital return programs, buybacks and whatnot. And I think J.P. Morgan and Bank of America, for example, are places where I think investors can actually find valuation upside. As we look at the broader dynamic, look, it's everything from the Fed that was out there very vocal today and still hawkish to interest rates that aren't going to change, even though CPI Wednesday is probably going to be dovish.

2:22You named some of those big banks. I mean, the regionals look attractive. I mean, they've been all over the place and Volta moves you don't normally see from those names. Any opportunity there ahead of ahead of hearing more of the details of what's going on beyond below the surface? Well, I tell you, I look at some of the the the names, even a truest or who is now at this point, maybe even growing into money center bank. But I think, you know, I own the KRE and I do believe that valuations got to a place where even though it's impossible to assess the flight, essentially the capital flight in the digital world we live in, valuations are pricing and recessionary credit trends across the group.

2:56Okay. Now, Steve, what do you make of this recessionary trend idea? Some people could say maybe we're already in one. We never know. I agree with that. I think that we could have already been in a recession. I think if you look at FactSet's numbers on earnings estimates for Q2, they're looking for down 7 % or so. Q3, 0.8 % up, troughed, and then Q4 plus 8.2%. That would be the recession probably already took place. So if that happens, maybe it was masked by the energy outperformance last year. I think that everyone is so crowded on the bear side of the trade that maybe they missed the trade going forward.

3:37And if you look at, I think their prediction for the S &P is up 9 % from here. That would upset everyone's dance card, so to speak, on the portfolio side. So I think we are in for something we're not expecting, which is higher markets at the upper end of a range right now. That's interesting. Courtney, what do you make of everything that you've seen in the last couple of days and how the Fed may be putting all of that into play, plus the number that we're going to get on inflation, knowing that the market is putting, I say, something like 82 percent chance that the Fed does hike in July? Yeah, which we need to see because obviously we got jobs numbers early last week, which blew expectations.

4:14And then they're actually much more muted than we thought on Friday. So you really you could take either side of the coin here. But I think we really need to see how those inflation numbers come in. And I think if we do continue to see inflation coming down, which we have been seeing, they're going to eventually have to follow the data. And that's really what the markets have been pricing in. But ultimately, you're still not going to see any sort of cut this year likely. And I think that's what people need to get on board with because people have been rushing into all of your high valuation companies.

4:38is when you look at the S &P 500 versus the equal weight S &P 500, which is not as concentrated in just those seven companies, trades like a 20 % discount right now. And I think that's where you do want to take the idea of there's plenty of areas in the stock markets right now that can take advantage, even if we're in this higher rate environment, which we very well might be. A lot of Fed speak so far this week. Guy and Mester saying, look, rates are going to need to move up somewhat further, given some stubborn inflation. It looks like we're going to get another rate hike. Courtney doesn't think, of course, that we're looking at a cut anytime soon.

5:08What do you make of what's going on? Yeah, nor do I. I'm with Courtney. And Mary Daly, San Francisco Fed chair, president, I guess, said, you know, the lag effect is longer than we thought. A couple more hikes. I mean, that's pretty hawkish stuff. So I think there's something for everybody. You know, in terms of the banks, I do think they're important. I'd say Tim makes a great point in valuations. Then I start to look at it. Are we in an environment where they should be trading at sort of historical norms or should you sort of ratchet it back? JPMorgan at$145, for example, is probably closing in on two times tangible book, maybe one and a half times book value.

5:41That's historically not ridiculous, but in this environment, it might be a little bit. Now, the stock has traded well over the last couple weeks, but the run-up in banks in the earnings, I don't know. I mean, it looks like maybe a little too much too fast. I think the regional banks, and Tim has made this point as well, are interesting. And in the absence of bad news, which we haven't had any now for quite some time, they'll start to levitate higher. The problem, I think, is there's bad news coming. And speaking of bad news coming, Tim, cities downgrading U.S. stocks. They see a 9 percent pullback in the S &P 500, 4 ,000.

6:10I mean, I don't think that's that extraordinary of a call here, given the move we've had. And, you know, it's been this has been the least liked market. We talk I talk a lot about where sentiment and kind of positioning indicators are telling us. And they're pretty much near the bullish side of the ledger. The reality is that most strategists had the end of the first quarter being a point where stocks were really going to get killed and that the seasonal stuff that took over in the second quarter, some of it spurred on by what should have been a banking crisis and, in fact, was a catalyst for the S &P.

6:44So if you're looking at it on a forward multiple, look, I think it's very difficult to pound the table on stocks here. I think we are going to get a pullback. I think you have a dynamic where valuations in the second quarter are going to show that companies, Look, a lot of companies, not the ones we're talking about in the banking sector, have difficult with pricing power. We're going to see this. It's actually the case of reflation or at least disinflation coming, you know, kind of back into the market. And yet there is still margin pressure from higher labor costs. So I think I think there's higher interest rate costs, a trillion dollars of floating rate debt out there.

7:13Corporate America is going to struggle on the operating margin. And I think that's something that's going to be more under the gun. But again, we know that sequentially we're going to be down four percent. So at some point, you have to say, where have we priced a lot of bad news in versus where stocks have taken us? The last three weeks have been, you know, I mean, last week was down small, but it really wasn't. And mega cap tech is still, you know, Apple's just off of all time highs. I mean, it's hard for me to say equities haven't had a huge run. And you're starting to see a little bit of value getting bid very recently.

7:44Everyone talked about seven stocks, eight stocks that have been leading it. It's been more than that. But now you're starting to see energy sort of tick off the trading range, health care tick up. So maybe you're starting to see a little bit broadening out of that bullish case. Not not so sure if it lasts, but we're starting to see that. I was going to say a little bit broadening out from those seven stocks, Guy. I mean, that everybody wants to pile into all the time. What can we do to share the love? Yeah. Well, look, Carter's going to talk about energy in a second, so I want to steal his thunder.

8:14But to Steve's point, there has been a bit of rotation, the stealth rally in some of these energy names, specifically in oil services. We'll talk about that in a minute. And I think health care is still a place you want to be. And industrials have traded well. And airlines, by the way, all seem, well, Delta specifically, breaking out. So there's clearly some rotation going on. Of course, the problem is that the seven names that we mentioned seemingly every day, most of them, not, you know, Facebook notwithstanding is probably the only one, are pretty excessive in terms of valuation, given their historical norms.

8:44I mean, Microsoft right now, although it traded lower today, is trading close to 31 times next year's numbers on a company that, quite frankly, still great growth, but growth that has been slowing over the last few quarters. You guys teased it. So let's go there. Let's turn to energy and look a little deeper. The S &P 500 energy sector is one of the worst performers so far this year. But the chart master sees the tide turning for commodities and the broader space. So let's bring in Carter Braxtonworth of Worth Charting. Courtney, thanks. You know, there's so many things to consider, obviously, when trying to determine if a real laggard is finally an opportunity.

9:19But before we look at the charts, the really curious thing is, is it even a sector? We know that the entire S &P 500 sector is 4.2 percent of the S &P, and three stocks are half the weight of that 4 percent, right? Exxon, Chevron, and Schlumberger. So, you know, talk of a sector independent of all the jobs that it is responsible for, it is a very small part of the market. Nonetheless, I think there's an opportunity, and let's try to figure it out together. The first of four charts, this is a ratio chart. We're simply looking at a line that depicts the relative performance of the S &P 500 energy sector to the S &P 500.

9:58And we know, of course, that you have that massive rally coming off of the COVID low and energy outperforms for two years. But where does that outperform and stop? It fails to the penny at that downtrend line, which you can see annotated there. Now, if we look at this same chart with a second set of lines, you'll see that the sell off leaves us essentially this give back of the past eight months at the 1999-2000 relative low. which is to say, with the exception of COVID, when there were no cars driving, no planes moving, nothing was happening, we are now at an all-time relative low, not seen since the dot-com peak, 99, 2000.

10:36And I think ultimately you get a bounce here, hence the arrow that you see. Now, as to the sector itself, absolute. So this is the XLE, or the sector itself, and it is an uptrend line. That part is incontestable. And we know that it indeed has bounce to the penny off that trend line repeatedly over and over and over. Final chart, same chart, but just putting in the downtrend line, the intermediate downtrend line in effect over the past six months. We have converging trend lines here. We are into the apex. The question is, make your bets. Are we going to break down or move up and out? I'm in the latter camp.

11:15I think one wants to be overweight energy. Carter, what's your timeline on this trade? Now. Now. So you'd be overweight right now. And for how? Which is to say, I mean, when you're trying to, when you buy something, you think it's going to happen now. Does it happen today or tomorrow? But, I mean, if I thought it was three months from now, I guess I'd hold off. But the idea is now, and we shall see. All right. Thanks, Carter. Well, you might have been right today. I had a pretty strong day here today. Thank you very much. Guy, what are your thoughts on this trade? Yeah, I agree with him. And we talked about OAH briefly, but I'll say, I mean, that's that stealth rally that we talked about from 248 or so in the OAH to 310.

11:49I think today-ish over the last month and a half or so. I think that's caught a lot of people off guard. I think it continues because you can make a very reasonable coaching cage on valuation for all the components of it, specifically Howard Burton and Schlumberger. So in the earnings, I think you stay with it. And I'm not trying to get on any analysts out there, but I think Wolf on July 10th downgraded Exxon Mobile to peer perform, which is fine, I think was the exact wrong time because I think Exxon in earnings, who had a great quarter last quarter is probably going to rally in earnings this quarter.

12:20Yeah, it looks like Exxon actually was the leader today in the group. What's interesting about what Carter said also, he brought up and reminded us that the S &P, the energy is 4.2 percent or 3 percent of the S &P. I've been saying for a long time I think that's going higher. So far it hasn't. But when I get back to Schlumberger, guys talking about oil services, Schlumberger is they've beat or hit for the last 17 quarters. They have a balance sheet that's as good as it's ever been. They have offshore oil demand. We're actually seeing significant drilling demand in some of these far flung places that at least at times during bull markets in the energy space, you've actually seen oil services names rally.

12:54So I've been along this name for a long time. I feel really good about the consistency of the earnings profile and the margin profile. It's one of the few places where margins I think are improving. Some of their costs are actually coming down. And I think you can own it. It has moved. As Guy said, I mean, it's been a 25 percent move in Schlumberger from June 1. So pick your spots here. And, you know, maybe maybe it's even some, you know, a more conservative guide in the earnings number. But I think you want to stay long. Courtney, what do you think when you look at this? Do you think you have to be careful when you're choosing these names as we're kind of uncertain about what's going to happen in the economy when you're looking at a broader fundamental analysis for this group?

13:29Well, and I think that's why this group has been lower than I think their valuations and the supply and demand constraints really justify they should be is because everybody's expecting this recession to happen that hasn't happened. And people are expecting demand to fall off a cliff that hasn't happened. But at a certain point in time, you're going to find people rotating back into this. And so I actually I really I love everything Carter had to say. I think Tim brought up some really great points here, but I think you want to be in energy right now. All right. Let's see if this contrarian play turns out in our favor.

13:53Well, coming up, some big names catching our eyes. Why Schwab and Lyft shares are in the green and how you should play those jumps. That's coming up next. But first, looking for a used car, prepare to pay up. Why prices are dropping, but not as fast as you may hope. Our traders are kicking the tires on that one when Fast Money returns.

14:21Welcome back to Fast Money. Used car prices logging their largest month-over-month drop since the start of the pandemic in June. But the pace of the declines may not be as fast as some had hoped for. Of course, those looking for a used car. Our Phil Obeau has more. Hi, Phil. Hey, Court. You know, when you look at these numbers, and let's show you again what we saw in the month of June, according to Cox Automotive, through the Mannheim Used Vehicle Index. They track the data every month. And what they saw in June was a decline of 4.2 % compared to May, which is what a lot of people focus on. But also keep in mind, compared to June of last year, down more than 10%.

14:54However, the retail inventory, it did come in a little bit. It's a little tighter market in the used market. 45-day supply was 49-day supply in the month of May. When you look at new vehicles, this is the determining factor right now in terms of what's happening in the used market. And the pricing remains strong. Why? Because it's still a relatively tight new market. That said, when you look at General Motors, Ford, Toyota, Stellantis, really all of the automakers, they have been gradually increasing their production. And as they increase production, it gives people who are in the market a greater choice.

15:33And that's why we see the declines that we've seen on the used market. As for the auto dealer stocks, Four of them today hit 52-week highs. And in the case of both AutoNation and Group 1, I think that they're at an all-time high. These stocks have had a heck of a year this year. Remember, they do well both in the new and the used side of the business, and they're benefiting right now. That's why these stocks are all, not all of them, but almost all of them at 52-week highs. Bottom line is this, Courtney. This is welcome news because people wanted to see these prices come down. But I'm not sure we're going to see big declines like this as we go into the rest of the summer.

16:12In fact, the folks at Cox think we're likely to see a more normal market when it comes to used vehicle pricings. So it's going to stabilize here over the next several months. But certainly for the month of June, it was welcome news. And what's going on with profit margins for a used car versus a new car? Well, I mean, that comes down to how good you are in terms of what the selections you're making. The profit margins are always going to be much better for the dealers on used cars. That's just the way it is. They don't make much money on new vehicles. The profit margins are clearly on the used side.

16:44And if you're as smart as some of the folks like at CarMax, the reason CarMax had a great quarter is because they were really stocking up on those vehicles under$20 ,000. And those are hot right now. People are looking for that, especially in this interest rate environment. So if you've got a good team and most of the dealership groups are pretty darn good at this, some are better than others. You can really do well in this market. Got it. Thank you very much, Phil. Courtney, what's your take on the autos right now? I think this kind of the same argument where everybody thought also home building was going to fall off a cliff right now.

17:17Everyone said, oh, interest rates are higher. Nobody's in by a house. Nobody's going to buy a car. But I think you're kind of seeing this interest rate fatigue. Everyone's saying, OK, inflation is going to be higher. Interest rates are going to be higher. People aren't going to put off buying a home or buying a car forever. But what you're seeing is, especially now that there are new more cars out, people are going to go to the new cars. You're going to the new houses because if you're going to have to pay extra interest for these things, you're not going to want to pay for an upgrade here in the near future.

17:40So I think you're likely going to see a lot of demand here because there are just too many people who needed new cars. They had to get old cars, you know, two, three years ago. So you're starting to see that demand pull forward. I think that's likely going to continue. Steve, what's the play here on the car space? Well, so when you look at the used car prices, the biggest thing that affects an Avis or a Hertz is their fleet pricing. That's the biggest thing that goes into the profitability, or I should say the value of those two stocks. So if those prices come in, then you want to be a seller of those two stocks, of rent-to-car companies.

18:15The problem is what Phil touched on late in that piece, interest rates. So if you can't afford to buy a new car based on the interest rate, that's why used car prices haven't come in as precipitous as people would like them to come in. Because you go to buy a car, it's double what you wanted to lease it for two years ago, a year and a half ago. So that's not a market anymore. So the used car market is still pretty fluid on that side of the equation. I've been making money on Rivian, which is a total different deal, but it really comes about with the supply chain issues freeing up. So if supply chain is open, these companies will do better.

18:54Well, I tell you what, I think in other places, first of all, I'm long GM and they're not getting a lot of credit for their EV business, but they are getting some upgrades on their OEM business. And I think that's interesting. Getting into the retail side where we kind of started this because the used car business has really been. I mean, look at look at O 'Reilly over the last six months. Look at a stock that's run 49 percent. Look at a stock that's actually growing their margins. And they have some of the best distribution out there. It gets back to what Courtney was saying, is that the consumer, at least in the auto space right now, it's you mentioned housing.

19:23And I would also bring up airlines because these have been, you know, what would tend to be kind of early cycle cycles coming through and they're coming through on the late side. So, again, I think O 'Reilly is a name you can continue to stay with. Margin share gains and evaluation makes sense to me. There's a lot more fast to come. Here's what's coming up next. Schwab brokers some gains and Lyft levels up both names in the green so should you be a buyer the traders are digging into those trades next plus retail's last resort all eyes on Amazon as Prime Day gets ready to kick off will the consumer make a dent and where will their dollars get spent you're watching Fast Money live from the NASDAQ market site in Times Square.

20:12We're back right after this.

20:23Welcome back to Fast Money. An upgrade for Charles Schwab is our call of the day. JMP upgrading the stock to market perform as it sees the firm benefiting from stabilization in the brokerage and wealth management industries. Analysts also saying the downward revisions to guidance may be behind us. JMP setting a$73 price target on Schwab stock. That's about 25 % higher than today's close. Steve, what do you make of this one? So here's the problem I have with this. I love Schwab. I love what they do. I love the segment that they operate in. But the problem is when you look at all of these stocks that were dragged down when we had the mini crisis or major crisis, however you want to look at it, it was a very brief crisis.

21:03They haven't bounced back as much as you would think they would bounce back. So even the ones that were saved or the ones that you thought were going to be okay haven't really shown great performance. And to me, what that means is A, there's going to be a higher regulatory burden. We all knew that. B, when you could transfer a fund from your iOS device or whatever device that you have like that, that's scary for these groups of stocks. So the majors seem to be the only ones that you can set it and forget it and buy them. These are a little bit iffy to me, even if they're a great quality company.

21:39So they haven't bounced back like you thought they might have. Guy, do you think that they should bounce back and then therefore agree with this call? All right. So I'd lump Schwab in with the regional banks, because if you go back and look, it was March of this year when Schwab went from 73 down to the 52-week low, which I think was like 45 or something-ish, maybe on the screws. It has bounced, but nearly commensurate with the broader market, number one. I actually think, like I started the show, in absence of bad news for the regional, Schwab will do this levitation into earnings on the 18th.