Debating A Fed Rate Cut… And Back-To-School Blues 8/4/25

0:02Live from the Nasdaq market side in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Back in rally mode. Stocks all but erasing the losses from Friday's sell-off as hopes for September rate cut continue to grow. How much can we expect the central bank to move this year? What will it mean for markets and rates? We'll debate that. And the back-to-school blues. Retailers bracing for a busy shopping season with the impact of tariffs top of mind. How they're setting up for September and how to trade the stocks. Plus, two of the year's hottest stocks on the move after earnings.

0:31Figma falls in its third day of trading. and the headline prompting one of our traders to load up on shares of Lyft. I'm Melissa Lee, coming to you live from Studio B at the NASDAQ. On the best tonight, Tim Seymour, Karen Feinerman, Steve Grasso, and Guy Adami. And we start off with that quick turnaround in stocks. The S &P jumping almost 1.5 % today, nearly erasing all the losses from a post-jobs report sell-off at the end of the week. The Dow gaining 585 points, while the NASDAQ jumped nearly 2%. Treasury yields, meantime, ticked lower, with the yield on the benchmark 10-year hitting its lowest level in three months as chances of a Fed rate cut in September rose even further.

1:05So is the central bank destined to make a move sooner rather than later? And will that be the green light for an even bigger market rally through the end of the year? This almost goes back to our game when you get the data. Yeah, I like this game. If I had told you, oh. Is bad news good news or is bad news bad news? Yeah, let it finish the game. I mean, we have a lot of games. I thought it was in our heads early in the week. A lot of tomfoolery here. But in terms of the bad jobs report on Friday, bad news is bad news. And today, maybe bad news is good news. The bad news on Friday, I think, and if you had played the other game, if you had told me Friday what was going to happen, that's another good game.

1:38The bad news on Friday, to me, came in the form of a Fed governor stepping down and the BLS firing, which I thought was market moving, and I think it spoke volumes as to what's going on. But clearly, I think what the market came to the realization was it's more about what the Fed might potentially do with a softening job market. now, softening job markets suggests the economy again is probably getting weaker before things start to pick up again. And I don't think a 6 ,300 or so S &P has any of that priced in. By the way, we talked about the bad news bears a couple of times last week, too. I mean, I think we named more people on the bad news bears than have ever been named on financial TV and ever again.

2:16So let's get back to the market. I do think you had a case here where the bad news being good news is where we were this morning. We also had a chance to assess an earnings season that's been extraordinary. I mean, you've beaten 9 % or so in terms of where earnings are, and you've beaten around 7.5 % on the top line, about 4 % on the bottom line. There are dynamics in every sector that I think imply margins are doing okay, even in a world where higher tariffs, especially margins that are getting help from AI and related technology, innovation, et cetera. So I just think we got very negative on Friday.

2:51And that's appropriate, given what we heard from that job number. I would say again, however, if we get another bad print, I don't care what the Fed is going to do. We don't want and I don't think the job market is going to essentially fall apart before our very eyes. But that's what it felt like on Friday. Suddenly it was a job market that the three month average of thirty five thousand jobs was the worst three month average we'd seen since before COVID. And we didn't know that. So I would get back to we still have an August payroll number that will be before that next Fed meeting. And I think that's very important.

3:23And I don't expect that those numbers are going to be that good. But I'll leave that that excuse me, that poor. But I'll leave that to the economists. But the Fed put is larger and firmer than ever before with the opening on the board. Right. With Trump's ability to to put somebody of his thought process in terms of rates. Right. Well, that's one more vote. Right. Yeah. Although, back to your question, I think inflation is bad news. I think labor could be good news either way. If it's weak, because then you'll see the Fed come in. And if it's not weak, well, then, OK, everything's fine. I think both of those could be good news.

3:58Inflation, I think, really ties their hands. You think inflation is worse than weak jobs? I think weak jobs moves the Fed. Inflation keeps the Fed pat. And that's what he said. What would you rather see for the market? Rather, we're going to. No, go ahead. It's a derivative. Games and people taking over the show and there's all kinds of stuff. Taking over the show, by the way. Would you rather? Would I rather? I guess I'm a little. I guess I'd rather see weak jobs because I think there's an explanation. Right. You and I talked about this a little bit before the show. I would think we might see a big jolts number, which would say there's not enough people to fill the payrolls.

4:37And that's why the payrolls were light. So Powell said that we are further away from the inflation mandate last week. So so jobs have to get considerably worse for him to do anything there. Last week, we had an outside reversal day and then close to one on Thursday. I think it's not over yet. We have August through October is the weakest seasonal adjusted months for the S &P. I don't think we're going to see an end to the sell off. Probably in the next couple of weeks, I think you can have another revisit of a sell-off again. I wouldn't be buying. I'm always buying a dip. Right. I wouldn't be thinking about this is over and where the coast is clear at this point.

5:25I think that you're going to see some weakness. We had stellar reports out of Mega Cap Tech last week, and it was not enough to guard us from the sell-off we saw last week. Yeah, some of those reversals, Steve's right. We talked about it last week. I think Tuesday was the day, Thursday as well. You don't see that all that often. You saw it twice last week in individual names in the broader market. Obviously, a day like today, you forget what happened last week. But nothing's really changed on the technical basis in terms of some of the things that might have broken down. And today, listen, I have no idea what today's rally was predicated on.

5:56I don't know if Friday was month end. I know it was the first of August, but everybody has a different calendar. With all that said, the technical damage done last week is still in place. One more thing on treasuries. So if you look at treasuries, you have the two year below four percent. You have the 10 year below four and a half percent. You have the 30 year below five percent, considerably below all of those levels, with the exception of the two year. That, to me, is not a panicky market. That, to me, is not worried about Powell being ousted. That, to me, is not panic yet in the market. Well, it's interesting.

6:29And you brought up the Fed put and clearly the Fed put is back in some capacity. If you remember, and I think everyone remembers back into May in the depths of, excuse me, of April, where the sense was the Fed put was moving lower. Yeah. And we didn't know where the Trump put was, but we felt that the Trump put was also somewhere. And, of course, it was really the it was the 10-year yield put that ultimately took over. But I think the administration's puts, the Federal Reserve's puts, they're very much alive for this market. It explains the extraordinary reach for risk, the liquidity that is run amok.

7:03So in other words, it should be a tightening environment of some kind, even if it's less tightening. And yet there's probably we haven't been this awash in liquidity so much so that the IPO markets and the M &A markets are about to run crazy as well. All right. Well, for more on the Fed's next move, let's bring in Steve Leisman. Steve. Hey, Melissa, just moments ago, San Francisco Fed President Mary Daly, I believe, an interview with Reuters saying that making some dovish comments, saying the Fed can't wait forever to cut. and it's more likely the Fed needs to do more than two cuts this year rather than less more than that in a second.

7:34But Dele joins Wall Street economists thinking the jobs numbers, they weren't political. They were real and could signal a possible slowdown. Goldman Sachs writing over the weekend, quote, Friday's payroll report brings payroll growth closer in line with big data indicators of job gains and the broader growth data set, both of which have slowed significantly in recent months. taken together the economic data, confirm our view. The U.S. economy is growing at a below potential pace. And the futures market is trading like that. The Fed funds futures are acting like these numbers are real, adding a third expected rate cut from the Fed this year.

8:10It's not much more than 50 percent or 55 percent, but that is new that the Fed would cut at every meeting through the end of the year. On Friday, Atlanta Fed President Rafael Bostic telling CNBC, If it looks like the labor market is weakening in a sustained way, such that the risks on the side have increased to be greater than the risks on the inflation side, then I'd be open to increasing the number of cuts this year. Today, I don't see that. Well, before the jobs number, the Fed was missing only, obviously, on inflation. Weak job growth could mean it's missing on both sides of the mandate, with most thinking the Fed, it'll address jobs and worry about inflation later.

8:45Melissa? Karen brings up an excellent point, as she always does, in terms of the impact of immigrants coming out of the labor force and the impact on numbers. Is that sort of anywhere in this discourse? It absolutely is. In fact, Powell mentioned it at the press conference. So your equation of unemployment, right, is the total labor force minus those who are unemployed. But both sides, the labor force are changing now, right? We have fewer people coming in. And that means fewer people, people who are part of the workforce, people coming in, fewer people working. So all of that is a problem and it's all changing.

9:23You could have 4.2 percent unemployment and it could mean that many fewer people are working because you've reduced the size of the labor force. So it's a fascinating question and it's probably a part of the reason for the big revisions. There's a lot of sort of unique stuff that's been going on. I've been talking to some labor economists that make it difficult for the seasonals and all kinds of other stuff that's out there to to adjust over time. And one of the other things that could be is it could be an inflection point. If you have a situation where the things we use to adjust the data are looking for an expanding economy and expanding workforce and the economy is slowing and the workforce is not expanding, then, Melissa, I know it's a bigger answer than you wanted.

10:07But all of that does play an important factor in the statistics. Steve, the downward revisions obviously created a bit of a problem. I'm not certain we'd be having the same conversation if it was in reverse. But forget about that for a second. Is there a methodology problem in terms of numbers? I mention that because obviously a lot of decisions are made based on these numbers into them and then actually out of them as well. Well, look, on one level, you get what you pay for, right? If you want to count every job precisely every month, you can do it. It'll cost you an awful lot of money. You know that the 90 % confidence level on the jobs report is plus or minus$136 ,000.

10:52If you want a precise number to trade on, I'm afraid we're not able to do that for you. Over time, over a couple, three months, we can give you a pretty good idea of what's happening in the job market. Can it be done better? Can they use big data? It's being discussed. They're trying to figure out. There's a lot of problems with that, trying to get data from a private company. For example, is that data then only available to the public at a given time? What happens when that public company, if it goes out of business? There's all sorts of issues. A lot of smart people have been thinking about this for a long time.

11:23You are trying to measure a base of 133 million jobs and what's happened to that every month. It's not an easy job. And the kind of precision that traders seem to want or that the president seems to want seems unattainable. Steve, always good to see you. Thank you. Pleasure. Steve Leisman. UBS Asset Management out with a note to clients today, emphasizing the need for a diversified portfolio due to increasing economic growth risks. Evan Brown is behind the note. He is the firm's head of multi-asset strategy. Evan, welcome back. Good to see you. So was Friday the beginning of a growth scare in your view?

12:00I mean, it was jarring to see, you know, 150 ,000, three-month moving average drop to 35 ,000. And we've been of the view, I think everyone's been of the view that there's going to be a soft patch and we're in it. But if you're slowing that quickly, that raises the potential that something breaks. There's some kind of shock and then you get a bunch of layoffs. We're not seeing that in the data right now, but we're getting dangerously close. And so we talk about buying dips. Look, we're still constructive on the stock market. We think things will hang in, but we'd rather be buying dips and bonds right now as insurance for that potential scenario.

12:39So what are you looking for? Are you waiting for the next jobs report as your data point? I mean, what sort of signals to you that we are beyond the point? Well, I think the encouraging thing is that jobless claims, not only have they been stable, they've actually been coming in lower. So that gives us some peace of mind. It makes sense, in fact, that over the last few months after Liberation Day, May, June, there was a slowdown in hiring and maybe some layoffs. But since then, as things have settled down, those layoffs have come down. You've seen that in initial jobless claims. So that, I think, is the best real-time data that we get in high-frequency tracking the labor market.

13:19And so we'll be focused on those. So, Evan, if you're looking at buying bonds, what's the traditional split used to be 60-40? It sounds like you're more aggressive on bonds. What would you think this split should be now with the environment we're in? Look, I think so I would still be overweight equities versus versus bonds. Right. But, you know, the portfolios that we run, we actually we have leverage. Right. So we can be overweight equities and bonds at the same time by borrowing in cash. And so that's that's kind of how we how we see it with that. For the retail investor, it's that extra cash that you have on the sideline.

13:53The next move, just to diversify a little bit, would be into bonds. So thanks for being here. When you think about bonds and you think about corporate credits versus treasuries, is there enough credit premium that you're getting? Not really. There's really – I mean, with NIG, about 80 basis points of a spread. We're at the lows. Because, you know, I don't think that winds out too much because I don't think we get a if we do have a recession, I don't think we have a big recession. But there'll be some widening there. And I just don't think you're compensated enough. So I would I would stick with with treasuries.

14:31Yeah. Evan, help us understand then the process and the sequencing almost of asset allocation. Say we have another terrible number in the first week of September on the jobs front. What does that do inside of your investment committee? How do you make those adjustments? And let's just hypothesize another terribly weak jobs number in the first week of September. How does that affect your asset allocation here? Yeah, so the idea is that we're well diversified ahead of these events so that we don't have to chase. And I wish I could have told you that I knew that those revisions were coming and that we bought a bunch of bonds right before Friday.

15:06We we didn't. But in fact, we were looking for a little bit of a rise in yields to buy into. But it would imply that the world's different than what you thought before you went into that period. Definitely. Definitely. I think we will get we'll get mixed data over the coming weeks ahead of that next jobs number. And I think we'll get a pickup in bond volatility. So bond vol is extremely low right now. I think it should pick up a little bit with all the moving parts in the economy. I mean, we haven't even talked about inflation yet here. And so say inflation comes in a little bit hot and you get yields moving higher.

15:40We would be using that to add some before the next labor print. I think Ray Dalio actually said in a tweet that he would have fired the BLS secretary as well because not because he or she was doing something wrong, because the methodologies, we just talked to Steve about it. I only bring that up because institutional credibility in your notes is concerning you, which all roads lead back to gold. which has done extraordinarily well. Do those roads still continue to lead to gold? Yeah, I think so. I mean, we've had a consolidation in gold, but with what we were seeing with the BLS chief getting fired, and again, I think Steve Leisman's right on in the sense that the methodology of capturing this data is difficult, and there can be a review on how to collect these data.

16:28But when it's viewed through purely a partisan lens, and then you raise the prospect of going completely the other direction where you have a partisan hire who's then going to look to impact the data otherwise. You know, we can't take for granted the institutional credibility that we have in this country and our economic data. And it'll be very important to see who is nominated this week and then also just over the coming weeks when the Senate comes back if they approve that person. Evan, good to see you. Thanks so much for coming by. Great to see you. Thanks for having me. All right. Meantime, the U.S.

17:05construction ETF ITB popping nearly 2 % today as it continues to benefit from lower rates. Homebuilders, Toll Brothers, Lenar, Pulte Group, and D.R. Horton, all rising about 2 % or more. Housing-adjacent names like Wayfair, RH, and Williams-Sonoma seeing even bigger gains. So what do we do here? Because presumably rates are coming down in a faster, in a bigger way, Guy. But if rates are going down because the unemployment rate is going to start to take higher in a meaningful way, I mean, I think the unemployment rate is potentially the biggest headwind for the housing trade. That, to me, is the one thing outside of rates that people should be worried about.

17:40So I get the knee-jerk reaction. But if rates are going down because the unemployment picture is getting murkier, then you should not be in these names. I do think, though, there's still so much pent-up demand, right? We've had such a supply-demand dynamic that's been so out of whack for so long. So for names like a Home Depot, I think there's still, I get what you're saying, but I think there's still a lot of demand. Look at like a name like Zillow. If it could add more volume to that platform with low costs, that's great. 50 % of people have a mortgage rate below 6%. You have to really move that rate to get people out of their homes.

18:12They own a mortgage. They don't own a home. Everyone says that. That's the truth. So you need that rate to come substantially lower. Your Home Depot. though. Yeah, I like it. And I like it in an environment where the consumer has less ability to do much in terms of moving around because of obviously I like the moves they've made structurally to their business. They're getting into the distribution channels. We know that their pro business is very margin to creative. I don't know why you'd get too far away from a long term holding in Home Depot. When you go into Home Depot, what do you consider yourself?

18:42A pro or just a consumer, regular homeowner or somewhere in between? What's him does when he's not here? I know, but where's your head at? If you have to ask what aisle, you're not a pro. Right. No, and look, I don't think it's going to be a surprise to anybody that I consider myself a pro. Especially when I walk into Home Depot. Look, I mean, Dad walked around, you know, was doing stuff on weekends. I mean, thanks a lot, Dad. It worked. No, I'm just, America wants to know. Coming up. I didn't. Ernie is a little bit of swing with shares of Palantir, him and hers, and more all on the move after hours of details and numbers from the quarters next.

19:17Plus, Figma taking a breather. Shares pulling back after the blockbuster IPO. But can the software surge stage a comeback? We'll debate that when Fast Money returns. This is Fast Money with Melissa Lee right here on CNBC.

19:43Welcome back to Fast Money. Palantir shares popping on the back of its second quarter results, a company posting quarterly revenue over a billion dollars for the first time. The conference call kicking off at the top of the hour. CNBC's Morgan Brennan's been listening in. She's got more color here. Morgan. Yeah, Melissa, that's right. The call is still underway. And this is a high flyer that's gaining altitude here. So victory lap, really, for CEO Alex Karp and Palantir, based on what we're hearing from the call. This after a beat and raise that led that was led by 93 percent growth in U.S. commercial.

20:11U.S. government revenue also up 53 percent top line growth expected to accelerate in Q3. All of this being highlighted on the call. But Karp saying that this is an America story. That's what he told me earlier today, that the plan is to grow revenue 10x over the next five years and do so while reducing the size of the Palantir workforce. Karp also saying, quote, we're growing faster than we are even able to grow. Like we're going to have to start turning away people. We are now very focused on people who are partners that are willing to learn from us and then ramping them up very quickly. Now, he calls this a revolution of agency, meaning more radical output at lower costs.

20:45And that's a lot of what's being highlighted on this call. Melissa, case in point, talking about Fannie Mae as a customer cracking down on mortgage fraud, a process that used to take two months, is now taking seconds. And they're really talking about the power of this AIP, this artificial intelligence platform, not only for retaining customers, but for growing current customers and how much they're spending and then bringing more customers on board. So shares of Palantir popping up. Last I checked, about 4%, and that's after hitting a record high earlier in the trading session. All right, Morgan, thanks.

21:16Morgan Brennan, lost a little bit, but still higher by 3%. Tim, you're just lamenting how you sold too early. Yeah, most of it. I think it's a case where on a price to sales now, you've got a 4-plus billion run rate, and it is less expensive than it was. And I don't think we've ever questioned whether governments need AI. And in fact, that's part of what the headlines show us in the aftermarket in terms of the addressable market. It's just it's about the valuation. The concentration also of the revenue from the government is something that at times has had people worried. It is a case where being close to the government here seems to be a good thing in terms of the market.

21:54I there's no question this is a stock that demographically a lot of young people own, want to own. And I think we'll continue to own and care less about the valuation. And I think they are in a great spot. I just think it's expensive. It's a meme. That basically what you're saying. Yeah. I mean, I didn't say you said that. I didn't say that. The story he was telling seven or eight years ago is was the story and continues to be in there growing. But billion dollar revenue, first time ever, up 48 percent year over year. I get it. That's staggering. I mean, just in terms of the government up 68 percent year over year, everything looks fantastic.

22:30The problem is this growth rate needs to continue basically at this rate in order to justify a$380 billion valuation sitting on top of maybe five and a half, six billion dollars of revenue. So if you believe they can continue this, then the stock's OK here. If you believe it's going to slow at some point, then the stock is still expensive. Yeah, I don't know if they can keep up this pace. 35 % of their revenues is the U.S. government. Another 20 % are other governments. So it's 55 % are governments. They needed commercial to come on as fast as commercial came on now. And to Tim's point, AI is helping them sell.

23:05I think they're going to run into a wall one of these days, but it seems like their runway still has a little bit further to go before that wall comes in. I mean, the margins are just staggering, right? Yeah, they've got to be. And I think Alex Karp was talking about increasing the margins, that revenue side growing much not only faster than expenses, that maybe there would be fewer, less expenses. So obviously that is hugely beneficial to the margins. Extraordinary business. It's not for me. I just can't get comfortable. It's not just the they don't obviously have to keep growing. The acceleration has to continue.