Countdown to Fed Decision, and Digging in on Instacart’s First Day 9/19/23

0:01Morgan, thank you very much and live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Money, and here is what's on tap tonight. Stocks stuck in the mud as investors count down to tomorrow's Fed decision. Chair Powell expected to hold the line on rates, but with energy prices surging, housing slumping, and the consumer a bit on edge, could rate cuts come sooner rather than later? We will debate that one. Plus, deal delivered. Instacart getting a solid bump in its debut as a public company, but its$14 billion valuation, a far cry from its pre-IPO peak of nearly$40 billion.

0:39What happened there? We'll dig in on where it could go from here. And later, inside RH's distressed stock slide, the decaf downgrade taking shares of Starbucks lower, and the options action for FedEx ahead of its earnings report. Good afternoon, everybody. I'm Tyler Matheson in for Melissa Lee, coming to you live from Studio B at the NASDAQ. Upstairs from where I was the last time. It is so good to have you. New spot. Good to be here, everybody. The light looks great on you. What do you think of this? Great spaceship. Great light for you. There's a lot of empty space here that we're going to fill with quality content.

1:13On the desk tonight, Tim Seymour, you just saw him. Yeah. Karen Feinerman, Guy Adami, and Mike Coe, thank you all for joining me. We start with a countdown to tomorrow's Fed decision. Stocks closing off their lows of the day. Still down across the board, however. as investors await the outcome of the central bank's latest meeting. Markets all but certain we're going to get a pause tomorrow, a skip meeting. Still, bond traders are looking for more hikes in the months to come. The yield on two-year treasuries, posting their highest close since 2007. So what do these moves tell us as we head into the tail end of the year?

1:47Guy, why don't you go first? It is great to have you. So listen, we play this game from time to time. If you had told me this, what would have happened? So tenure yields today closed, the highest we've seen since October, if not before October. I would have said the S &P is down 75 handles. Easy, given the run we've had and given where things are. We actually rallied 30 handles off the lows today and closed only down 10 points, which I think is remarkable. To me, it's all about yields. Higher yields are not good. It does not suggest the economy is getting better. It suggests there's not demand for our debt, number one, and then inflation is still a problem, number two.

2:20The supply of debt that's coming online, that is doing nothing but putting a floor under interest rates, right? Because you've got to bid up the price. I believe that to be the case, and I don't think it's particularly equity-friendly either, Tyler. Tim? Well, I think the long end has technical dynamics to it in terms of supply. I brought up the Bank of Japan. I brought up the JGB yields, which I think are going to continue to put upward pressure on Treasuries, with Guy 100 % in terms of what the price action was like today. It also came on a day, though, you could have also thought maybe there was some downward pressure, There are some terrible housing market data.

2:51I don't know that it's necessarily the kind that moves the bond market dramatically, but housing starts, especially multifamily, which have been the lifeblood of the housing market for the last five years, and which make a lot more sense in terms of a zero interest rate environment where a lot of those projects are profitable. And I just think that the housing market is starting to show some cracks. It's not a runaway train, but it's something where I think you have to watch it. You had CPI in Canada this morning, and to the extent that we love our friends up north, And yes, we look at your CPI sometimes and it remains kind of sticky.

3:21So I thought the response of the equity markets was interesting as well, especially when you consider where we have seen the correlation to yields and equities. And I mean, at least over the last few weeks, largely, we've had this commentary. We had it last night. Our equities whistling past the graveyard of interest rates and certainly forward PEs on the S &P and whatnot. But stocks are resilient here. Karen, walk us through your Fed think right now. Now, you know, if we had had this conversation a year ago, there would have been a certain category of individuals who would have said, well, by this time next year, i.e.

3:55right now, 2023, we're going to be looking at the Fed cutting interest rates. Nobody's saying that today. Right. No, I think I mean. It's a 24 thing if it's a 24. If it's a 24 thing. Right. I think that we're so tomorrow it's sort of priced in. They do nothing. I think that's the most likely. But I don't think it's over. I don't think we're at the end. And to your point, so if we're not at the end, then we can't be at the beginning of cutting. So I think we're going to be, you know, in this higher for longer camp. And so I don't think the market has fully repriced that risk equity premium. But on the other hand, some tech stuff hangs in pretty well.

4:30Right. The big tech names hang in pretty well. So we've got a lot of cross currents here. We've got, you know, the consumer feeling stretched. We've got oil has had this kind of quiet. It's$6 a gallon gasoline in California. you? I actually saw a seven. I was there this weekend. Seven and change. I guess people will pay it. I don't know. But it was. Were you filling up gas for your lawnmower? For my lawn? I don't know why. Out in the island? I mean, yeah, I can see Karen out mowing the lawn out there, you know, just anyway. No, I it's interesting because I think that the gas dynamic is something else along with what's going on with the auto strike and with what's going on with student loans.

5:06I mean, the Fed has got a lot of things to contend with here, especially in terms of growth. And it's It doesn't make the the the calculus simple going forward. Yeah, as Karen said, a lot of cross currents here. Mike Coe, you're living in the land of six, seven dollar gasoline. What are you thinking? Six twenty nine a gallon at my closest Chevron. I'll just give you that little tidbit. I don't know what it costs everybody where you live. But, yeah, we're dealing with some pretty high gas prices, high gas prices, high home prices, coupled with high interest rates. You obviously have a very pressured consumer here.

5:42And I think actually those are the two competing forces that basically help us understand how equities behave today. I think the reason that we saw us come off of those lows is that that is kind of the behavior you would expect if you're expecting a pause, because you have those two cross currents going on. You have a pressured consumer, which is deflationary, arguably, but you do have higher prices in terms of energy and things like that. obviously the housing numbers that Tim was just talking about, that's not surprising. I mean, we have just in terms of median home prices to income, they're at record highs.

6:16And you couple that with higher rates, certainly than we are used to over the course of the last decade plus, then you're going to have obviously a very pressured housing market. And I think that's going to persist for some time. All right, let's break into this conversation for some breaking news on the Klaviyo IPO. Shares pricing at$30 a share. That's above the expected range of 27 to 29. Leslie Picker has more. Hi, Leslie. Hey, Tyler. Yeah, that's according to a source, Klaviyo pricing its IPO at that$30 price. That implies a fully diluted valuation of about$9.3 billion. That's about in line with where this company raised two years ago.

6:57So little change from those levels. I'm not sure at this time the actual offering size. I haven't been able to confirm that they still plan to sell 19.2 million shares as is laid out in the prospectus or if they have any plans to upsize it at this time. But they have decided, according to one person familiar with the matter, to price this deal at$30 per share above the range that they had been marketing, which was boosted yesterday relative to the initial range that they had been marketing. So above a range that's higher than they initially set out to raise, Tyler. So$9.3 billion valuation. Did I hear you correctly on that, Leslie?

7:409.3. 9.3. 9.3. Let's trade it, folks. So what do we think here of Klaviyo at$9.3 billion? Well, first of all, it came in well above the range, and the price talk was$25 to$27. And if you think about the world and when we talked about the ARM IPO, part of the success of this was really pricing this thing successfully. What we saw during the go-go days of 21 is that these things were, you know, whether they were priced successfully or not, they went through the roof. This is an interesting dynamic. The fact that Shopify owns 11 % of Klaviyo, I think people are also watching for some knock-on effects there.

8:15Again, it's been an exciting story backdrop for what's been going on in the IPO market after there's been a dearth of this activity. The market was closed. But I wouldn't get too worked up. In the case of a couple of these deals, these were highly, highly telegraphed. We were expecting them. And in the case of Arm, I think there were very few other guys that could have come to market the way they did. NASDAQ at$51. I mean, think about what's going on here over the last couple of weeks. I mean, NASDAQ at$51, given the acquisition they made a few months ago, that will close. Given all the things that are going on, this stock should be probably north of 75.

8:46It's undervalued. It's been under pressure. I think unjustly so. If the calendar starts to open up, NASDAQ should win. Thoughts on Klaviyo or? You know, we've seen, so paid to be in ARM first day, paid to be in CART first day. I got to assume this will happen as well. I don't know beyond that. I mean, if you look what happened to where ARM opened, traded up to and where it is now, you would have lost a fair amount of money. Same with CART today. So I don't know. These are high flyers. Great if you can get some and then quickly sell it. To me, it always is where are these stocks going to trade six months from now, a year from now?

9:21And most of them do not trade lower. Right. Most of them trade lower. Most of them trade lower, which is really the. That's why they're coming to market, Tyler. The good guys already bought it. Now, baby. All right. Let's turn back to the market and get more now from Mike Schumacher, global head of macro strategy at Wells Fargo Security. Welcome, Mike. Good to have you with us. Thank you, Tyler. What do you think, as we look ahead to the Fed tomorrow, any blazing insights there? You expect it to be a skip meeting? The Fed's not going to move tomorrow. But it's challenging for Powell in particular.

9:49He's got the press conference. So he wants people to think the door is still open. Hey, maybe we'll hike, maybe in November, maybe December. You've got this government shutdown, which is kind of a complication. He wants to make people think that's still in play but not actually hike tomorrow. It's really a pretty tough line to walk. He's got inflation moving in the right direction for the most part over the last year. But what if it doesn't get to that target that they have been so articulate about? 2%, 2%, 2%, but it stays somewhere above that. 3%, 3.2, 2.8, something like that. Is that their sort of worst case scenario?

10:25That's a really bad scenario for the Fed and for other central banks as well. Tim mentioned Canada this morning, bad inflation data there. It's a tough look for the Fed, ECB, whomever. So the question then becomes, what does the Fed do? Let's say not tomorrow, maybe in a quarter or two, if inflation has come down a little bit more. But it is sticking at 2.7, 2.8. Does it renew hiking? Does it try to jawbone it down? It's a really tough problem. So I'd say that's the nightmare scenario. Are you in the longer, the higher for longer category or not? At this point, I think it's less about when the Fed actually delivers a rate cut and more about when it signals that we're done hiking.

11:02And there are different things for the markets. So we're very much in the camp the Fed is about done hiking, whether it already happened back in July or perhaps it's next month or November, rather. Who can say exactly? But somewhere in there, it's not so much about the first rate cut. Mike, I saw in your notes you look, you think money markets and what people, investors are earning at the short end of the curve is a really attractive place to be in terms of allocation. And it's not necessarily fleeting. Some of the arguments you hear from folks is lock in some of some of that yield because there's reinvestment risk.

11:34as the Fed quickly falls out of bed. What are your thoughts there? Still true, Tim, but it's interesting. Last time I was on the show, about a month, month and a half ago, I said by short term, but also by longer term bonds. We're sticking with that call. So 10-year Treasury gets down to 350 plus or minus at the end of the year. It's looking like a braver and braver position, but we'll stay there. And the reason, again, is that once the Fed really intimates, it's about done. Yields typically move down very, very quickly. 50, 60 basis points over the span of a few months. we think that's still likely to happen.

12:04All right, so 3.5%, I hear. So what does 436 and 10-year yields tell you today? What is the market looking at? Tells me the market's not looking at my notes. Got to read up a little more carefully next time around. But I do think the supply issue has been a bit of a concern for people. And really it's this notion that it's not just the Fed, but so many central banks are looking to move policy at about the same time. People out in the investing world and also on the issue inside, too. We've talked to a lot of corporate clients recently. They need to see something a little more tangible from the central banks.

12:35Hey, we're just about done. The ECB delivered something like that last week. If the Fed were to do something like that, not tomorrow, but fairly soon, I think that would make people a lot more comfortable. So the supply thing, though, I do think is relevant further out the curve, obviously. But if you look at some of the factors, like we just talked about oil since July, oil is a lot. But I mean, how can they I think it's I think our next inflation print is actually going to go the wrong way, which I think would put more pressure on the Fed to not be at the end. Yeah, that's tough, Karen. It's a good point.

13:09When you think about things like oil rocketing up most important price in the world, you can't ignore it. You can't say, well, it's not part of core inflation. That's not what we focus on. That's a little too simple. And your average American says, hey, I eat and I drive my car. Those are the things I care about. But if I pay seven bucks a gallon for gasoline, as you did, that's a bad scenario. So the Fed can't dismiss it. So it's a pretty bad look. But at the same time, the Fed can say, hey, look, labor conditions have softened a little bit. The market's not as tight as it was. That's probably a good thing.

13:40Not saying more people need to lose jobs, but still need to have hiring become a little bit easier. And that's probably a more long-term fundamental factor. So, again, the Fed is really trying to thread the needle here. But if oil does keep going up, it's going to make it much tougher. Where do you think the 10-year yield is six months from now, March, springtime? Yeah, so, again, we're calling 350 at the end of the year. It's probably a little optimistic. I'd say mid-threes, perhaps not very different than our year-end call. But, again, it really hinges on the Fed signaling not so much that that first rate cut is imminent, because it probably isn't, but, hey, we're done with hiking.

14:12But that nightmare scenario we talked about a second ago, Tyler, inflation gets stuck. Then the Fed doesn't really have a lot of room, and 10s are probably a lot higher in yield. And there are a lot of other central banks that have decisions coming up right this week. This week. Yes. It's a big week. It is. A big week. Yeah. So you're going to have a lot to process, a lot to digest. That's right. A ton of news, really, over the next two days. You've got the Fed, Bank of Japan, Bank of England, various others, nor just banks. So it's a huge amount of news for the markets. That's right. And if a couple of those things go the wrong way, it probably does put upward pressure on bonds.

14:44Mike, thanks for being with us. Thank you. Let's trade this. What are the opportunities here? Well, everything I'm hearing from this conversation also tells me to be careful about consumer spending going into year end. I mean, if oil prices stay higher, and this was a fascinating day. Oil markets have been fascinating because we've talked about the dollar, which has also been rallying while oil has been rallying. It's 19 percent on oil since a 5 percent move on the dollar from mid-July. This is going to bite into the same consumer that's biting and buckling under student loans and auto loans and some delinquencies.

15:12And, you know, the oil market, which also has the politics behind it. There's a there's a deal today between the U.S. and Iran on a prisoner swap. There's some discussion that Iranian oil is making its way around the world rapidly at two million plus barrels a day. This is the kind of stuff that's feeding into the geopolitics of these markets right now, which aren't easy either. But all of the things we've just discussed are not consumer friendly. Higher rates, higher gas at a time when we've been seeing a lot of discretionary spending. That's the part of the market that I think you've got to be very, very careful about.

15:41Mike Coe, what's a smart place to put my money apart from money market funds, which Michael Shoemaker just talked about being a good place to sort of hang out for a while? Well, I think that is a pretty good place to hang out for a while because, I mean, you're earning a pretty good rate. I mean, you can get five plus percent. You know, we've got that's actually one of the first times you're going to be earning rates that are higher than they sort of the core rate of inflation, at least. And if we do get into a situation where rates linger at high levels or go higher still, then you have to start questioning equity valuations.

16:17And if you start seeing some recessionary pressures as well on the back of all of that, then you could start seeing the earnings dropping a little bit as well. Now, we are still long stocks, but higher oil prices. One other point I would make here is that, of course, we think about gas prices, but those higher prices percolate to almost everything else. So, I mean, it inputs transportation and freight costs. It's a feedstock. So that has obviously implications as well. You know, we can't ignore high oil prices and the implications for prices in general as we look at them. It's one of the reasons why I've always had a sort of a bone to pick with this idea of core inflation, where you take out the two things that are probably most core.

16:58And most inflationary. And most inflationary. And Mike makes a great point. It's not just the price of gasoline or the price of heating oil. It's the price of the feedstock that goes into the plastics that I use. It's the price of transportation that's going up. It's all of the secondary sort of input costs that come along with higher gas prices. If Tyler has a bone to pick with someone, Guy, I'd be running the other direction. He's a bad man. He's a bad man. Big man. Bad man. But a good man. But a great man. People watch business TV and they say, you guys are talking about 3 % inflation. What are you looking at?

17:32I mean, if you're me. It's probably two or three times that for the average American. And it aggravates people. And quickly, not that I want to go down the rabbit hole of Japan, but there's a problem there. And their currency weakens daily. They're going to do what they can to support it. It's not going to work. And if dollar-yen continues to weaken, dollar strengthens against the yen, that's going to have ramifications for us here on our equity market. Final thought? I am concerned about the consumer. However, I'm always long. I'm just going to have to ride it through. Just ride it through. All right, folks.

18:02Coming up, should Instacart be in your cart? The grocery delivery company making its Nasdaq debut today. And no first-aid jitters on this one. Can it keep up its momentum? We'll get some answers next. Plus, we're bringing you the options action on FedEx. Results due out after the bell tomorrow. So is this transport trade ready to deliver? Don't go anywhere. Fast Money will be back in two.

18:31Welcome back to Fast Money, everybody. Instacart making its debut today on NASDAQ. Shares of the grocery delivery company closing more than 12 percent higher than the IPO price of$30 a share. But that was a far cry from the opening trade of$42. So it came back to earth just a bit. So what do you make of the seeming loss of momentum here, Tim? Again, it's a concern. We knew that there was going to be a lot of hype around this. This is another one of these companies that people had been expecting. And there's there's a real business there. There's a there's absolutely. And I think the way they priced the deal was supportive.

19:07But but, you know, the marginal dollar for a company like this at a valuation that's not a giveaway, I think in this tape is challenging. So there's always excitement around an IPO market. And I think the book runners did a great job here because you can see the pop it had. We'll see what it does tomorrow in the next couple of days. That's really going to define this. Prices at 30, opens at 42, goes to 42.95 and ends at 33. Is that a good sign? No, I think it's not. I mean, it would have been better if it opened at 33. Was that a layup for you? I mean, I just toss the ball up and you smash it.

19:40Right. I just, you know, I guess, you know, sort of tells you you've got to be the first one out. Same in arm, right? Very early on. Well, I guess I'd have that run at the end of the day, but very early on, be the first one out. So we'd like to see, as you know, Guy loves NASDAQ. Stocks should be doing better. You know, at least Instacart, I mean, Tim's right about valuation stuff, but at least you can make a somewhat reasonable case at maybe three and a half, four times earnings. It's not ridiculous in the environment we're seeing. On the flip side of that coin, Arm, which has basically done two and a half to$2.75 billion a year for the last three years, at one point at its zenith, was trading around 25 times revenues.

20:18It doesn't make any sense. It's, listen, it's great company, greatest ecosystem of all time. I get it, all those things. There's a price for that. It ain't 25 times revenue. Mike, are companies just rushing to market now because they see the window is opening here a little bit and it's a little wider than it was, and so they're coming in? How do you analyze what we're seeing? I think the opportunity for issuance, I mean, look, we haven't had a whole lot of it. So I think that there's really been a lot more on the demand side. And so arguably, there would have been better times to come to market in the last 18 months or so than today.

20:55As far as Instacart's valuation is concerned, what are we looking at? About$1.50 a share, maybe$1.80 next year. That's 20 % growth, 21 times earnings. Valuation isn't the issue. The issue is supply and demand right now. And right now, there is an ample supply of stock. It looks like a lot of people who hold it are interested in selling. And the best way to see that is take a look at how it traded from about as soon as it basically started trading today versus the S &P. You can see they went in opposite direction. So even as equities were doing OK from about 1 p.m. into the close, this thing sold and then closed on the dead low.

21:30So I think that they're probably going to be cheaper places to buy it than than the closing. Yeah, I would also say it gets as Mike's talking about supply and demand of new issues. I mean, there are a lot of hedge funds that are in the business of doing this. There's a lot of investors that are excited by new issues. The size of the intraday market cap, it got up close to 15 billion dollars. And again, you can pick whatever valuation on a sales multiple you want to put on this and see what holds. But six hundred and sixty million of stock was was was sold today, which isn't massive. In other words, if you think about the free float and if you think about the size of the company, It does lead you to believe that there's still a little bit more, I think, not a ton of supply out there in this one.

22:09And I think that's going to support the stock. All right. There's a lot more fast to come. Here's what's coming up next. Knock, knock. It's an earnings delivery. FedEx gearing up to report results. So how should you trade the transport? The options action in that name next. Plus, a chip check on Intel, the company making some major hardware announcements at its latest innovation event. The semi-specifics ahead. You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.