Digesting the Drop in Rates, and the Latest Headache for Starbucks 5/6/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast The boss, former Starbucks CEO Howard Schultz, calling for an overhaul at the coffee chain. He ran not once, not twice, but three times what he thinks his handpicked successor needs to do to get Starbucks back on track. And later, the chart master will be here to tell us why it could be time to play oil for a bounce. Tyson investors crying foul after earnings this morning. And a record-breaking weekend at the track of betting bonanza on the Kentucky Derby. I'm Alyssa Lee. Come to you live from Studio B at the NASDAQ.

0:45on the desk tonight. Fano and Eisen, Steve Grasso here in New York, Dan Nathan and Guy Adami live from the Milken Conference in Los Angeles. And we start off with the interest rate tug of war. Ten-year yields down again today. They've now dropped 25 basis points from recent highs hit just two weeks ago. They're now at their lowest levels in almost a month. The move coming amid renewed hope of Fed rate cuts this year. Chances of at least one cut have risen over the past week after the Fed meeting on Friday's softer-than-expected jobs report. Markets now pricing in a nearly 90 percent chance of a move by December.

1:17Rate sensitive areas in the markets seem to be applauding the action today. The small cap Russell 2000, the tech heavy Nasdaq leading the broader indices higher. But is this move in rates warranted? Will we actually see them go higher eventually? Steve, what's your take? I don't know if they're going to go higher. I mean, we're in this period where everyone is very nervous. It's about earnings. It's about the Fed. But when you see a number like that, That's what makes everyone sort of grip tight and say, OK, so maybe he's not going to keep rates this at this level for a longer time. And maybe we're going to have a bumpy landing.

1:52So is the economy going to be good or is the Fed going to be over hawkish or are they going to be both? That's what we're dealing with right now. So I think, you know, at this point, we have enough in the tank to get us a little bit higher. But I'm still holding on for my 200 day test. Interesting. So are you still betting that we're going to have three? I'm still betting we're going to have three. Okay. I think – no, no, no. I'm not mocking you. I feel better today than I did before Friday. Go ahead, Monoan. Because now we're celebrating one, and I just want to know if three is still on deck.

2:26And I think that really speaks to what's going on in the market right now. You've seen the oscillation. Last week, we were talking about how far will this market fall, right? And that was because, listen, you're getting macroeconomic data that, on one hand, is telling you that the Fed needs to continue to fight inflation. And I understand that that's front and center. That is one half of the dual mandate. And then on the other half, you get one singular jobs report. And we've had downward trending inflation, a deceleration for the better part of two years. And every time we get ahead of ourselves, the Fed comes out and says, listen, we still need to see continued momentum towards our target policy rate.

3:03And I don't think anything has changed. Now, we can sit here. We can part and parcel of what we think is going to happen from one week to next. But I absolutely think that this singular data point does absolutely nothing for the Fed. Not a thing. Listen, I think that if anything, it gives you a body come of hope because you're not seeing a 300K jobs number. And I think it shows to people that are expecting rate cuts that there is perhaps some weakness. But again, one, this number might end up being revised. And what happens if next reading we come on and say, well, there's 280 jobs that have been hired and we're seeing a reacceleration of wage pressures?

3:45Because we have seen the pullback in inflation on the good side. But until we see that stickiness in services start to dissipate, I really don't understand structurally how you get back to that base rate without continuing to at least keep things in a tighter monetary policy. That's a great point in terms of revisions, because they have been notable when it comes to the jobs report. We've got a CPI report next week. But as Badawan had mentioned, one single data point that shows inflation is continuing its downward trajectory. Guy won't be. And I mean, that's not going to reestablish the trend.

4:18Plus, we have issuance from the Treasury Department. Yeah. Hi, Melms, by the way. It's great to be out here sitting next to the great Dan Nathan. But I don't think it's about, you know, the Fed at this point. I think it's about other factors. And the issuance, to me, that's one of the biggest, if not the biggest factor without question. That coupled with the fact, you know, we started the show with a tug of war, it makes sense. Because on one side, you have economic activity that is clearly slowing. You know, that manifested itself in this latest job number and the GDP report. On the flip side, inflation is clearly still a problem.

4:51And oh, by the way, Japan's in the midst of a bit of a currency crisis without question, if you look at the last week and a half. and they've been the buyer of sort of last resort, and the issuances are going to be out. You know, people will buy our debt. They're going to just do it at a higher rate. So I am surprised rates came down as quickly as they have from four and three quarters to four and a half, but I will remain in the higher 10-year yield camp for the foreseeable future. So let's say we had a crisp. Yeah, go ahead. Bonwin just made a really interesting point. He said that last week we were trying to figure out how long this drawdown might go when the S &P was down, like, let's say, 5 % or so from those recent highs.

5:30Now, as you think about, we're through 80 % of S &P 500 earnings for Q1. I think it really was the guidance that hit some of these specific stocks or these sectors here. And a little bit, when I think about what are some of the inputs to earnings, well, coming into the quarter, expectations were up 3.4%. That's per fact set, okay? We came in about 5 % greater, you know, year over year, and that's an improvement, right, from that 3.4 % that was expected. You think about the dollar coming in, you think about crude oil coming in, and you think about yields coming in. That is the thing, I think, the ingredients that are making equity investors feel a little bit better about the multiple.

6:08Coming into this year, we were all kind of scratching our heads. How do you get to year-over-year 10%, 11%, 12 % earnings growth, which is pretty much consensus? And I think that if 2.2 comes in better than expected, that's the thing that kind of powers the market higher because people are looking at about 20 times right now saying that's not horrible relative to the 5 - and 10-year averages. All right, so this is going to be a strange scenario question to ask, but I shall ask it anyway because that's my business. Let's say the 10-year yield goes to 4.8%, but NVIDIA's earnings, which come out on May 22nd, are really strong, and they've raised their guidance.

6:47What wins out? Is it the higher yields that pressure the market or NVIDIA's report that fuels the rally? I might posit that it is NVIDIA. Yeah, I think that would be NVIDIA. I think people want to see an environment where these darlings of the market that got us here can still outperform and there's still something left for them. Plus, they have 85 percent market share. So if NVIDIA can do it, then there's enough chips that might fall on the side for the rest of the companies to do it. But NVIDIA has to lead. Yeah. Guy, what's your take on that question? Yeah, no, that is the right question. That's a fair question.

7:25I'll still think I'll still push back and say yields rule the day. And NVIDIA is a single stock and I'm not going to underestimate its importance not only to obviously semis, but to the broader market as well. But I think it's about yields and about what's going on on that front. So maybe for a day or two, NVIDIA will capture the imaginations under that scenario. But I think yields at those levels will sort of dictate a lot of things going forward from there. Surprise, surprise. I'm in the NVIDIA camp, and not just because I'm sitting here. Yes, or gung-ho about the stock, but because of what I believe that it implies.

8:00It means that CapEx spending going forward remains strong and that the outlook of companies that are allocating those dollars to CapEx believe that there's growth to be had and the ROI supports the accelerated capital expenditure. And I think that bodes well. I think it probably flies in the face of our most recent GDP number, but it also speaks to the confidence that companies have to continue to allocate, grow both top line and ability to maintain margins with the capital outlays. I think it would also, Dan, highlights one theme of the earnings season versus another. And one theme is the continued spending, an emphasis on AI.

8:36But the other one under, you know, underlying this is weakness in the consumer. The consumer is sort of, you know, getting fed up with price increases. And we've heard this time and time again, whether it be Starbucks to Tyson today, I mean, you name it, there are very few companies right now that feel confident about further increasing prices. Yeah, and that's a great point, Mel. I mean, there is a massive bifurcation. If you think about the companies that are driving S &P 500 earnings right now, they're the very companies that Bonwin was just talking about, the ones spending on these high-end GPUs, right, for their generative AI models.

9:09And when you think about how they monetize that, we heard it from Amazon, we heard it from Google, we heard it from Microsoft. Meta is obviously more consumer focused there, but it is going to be from enterprise spending, right? So to your original question, if NVIDIA does not guide up in a meaningful manner, given what expectations are for this year, 80 % revenue growth on 80 % earnings growth, and it's not something that folks can kind of see kind of continuing to accelerate, then I just don't think that those stocks are going to be the leadership going forward. And to your point about consumers, if you look at all these consumer companies, and we're going to get a lot of data from retail companies are going to set to report starting next week into the next couple of weeks.

9:51If the consumer is not holding up and there's a de-sell in enterprise spending on generative AI, then I think you have a problem for the market not too different than what we saw from the highs in July in 2023 to the lows in October, because then you do have a valuation problem relative to the spending, because if the spending is going to increase and they don't monetize it, that's going to weigh on margins. One of the street's biggest bulls sees potential for a bumpy economic landing. John Stolfis is Oppenheimer's chief investment strategist. He joins us now. John, great to have you with us. You think recession is off the table completely, correct?

10:25I mean, so you must think that those who even utter the word stagflation are kind of crazy. Yeah, I just don't think that's where that's where we're headed. We've had 11 hikes. We've had seven now pauses by the Fed. No recession. Earnings growth is substantially better than was anticipated. You've got three sectors with double-digit earnings growth that include communication services. You've got consumer discretionary and information technology, all over 20 % to 40 % earnings growth. And then you have the three bad sectors that are negative earnings growth, double-digit down, are energy, materials, and healthcare, believe it or not.

11:14It just, what it tells us, whether we look at the earnings growth, whether we look at the jobs growth that continues, albeit at a slower pace. But the history of this Fed Fund's hike cycle tells us that the Fed has done something right. Business has done something right. Likely that AI that's been talked about that already exists today and that's been invested in has helped business navigate things better. the consumer is navigating things better, likely to just the technology that they have at hand today and the information that is much freer delivered than it ever has been in a Fed funds hike cycle that I can remember over 40 some years in this market.

11:54So it looks pretty good to me, you know, and is there trouble? There's always trouble all the time. You know, I've been on the show how many times in the last 12 years that I've been with Oppenheimer and I've been decidedly positive most of the time. And from the last time I looked, I think we were about 1565 when we started. And now we're at 5100 and change, you know. We call you the street's most bullish strategist because your price target is the highest on the street is 5500. But you still don't rule out a bumpy landing. Does a bumpy landing rule out a bear market sort of pullback in the markets?

12:29I mean, what what does the market con you know, the contour of the market rally to hit 5 ,500 look like in that context of a bumpy ride? Bumpy ride could be the bond market pricing the 10-year to yield closer to 5 than closer to 3.8 around where we started this year that causes concern. Are we going to see the consumer fall apart? Are the businesses going to get into trouble with refinancing? What happens to real estate? But this thing, just like a few weeks ago, I mean, the bears were basically saying it's the end of the bull market, it's over, you know, kind of thing. And then all of a sudden, we look at the economic data, we hear from the Fed, and it looks like this has longer to move.

13:19A lot of it is that That secular trend of technology drives all 11 sectors by management. If management of companies want to be a great value company or a great growth company and art and technology, they need the developments which are occurring today. And so they're investing in it. And the consumer has been remarkably resilient this particular cycle, as well as been jobs growth. So, you know, bumpiness, always a possibility. That's why we don't rule that out. John, great to speak with you. Thanks for your time. Thank you. Appreciate it, Melissa. John Stolfes of Oppenheimer, 5 ,500. Do you agree with that?

14:04Ultimately, but I don't think it's a straight path there. I think you're going to get a bit of a pullback, as I said before. I think we're going to test that 200-day. The market set up technicals look to me like a setup from July 2023, where you had these little bit of a hesitation, a little start, and then it sort of fell out of bed, tested the 200-day, and then moved higher. I think we're probably not going to do it in one fell swoop, but I think probably in the next month or so we're going to see that test. Yeah. Guy, what's your take on 5 ,500? No, I mean, again, is there going to be a straight line there, which sort of mirrors that Barron's article that came out that said most money managers think another maybe 8 % to 10 % of upside, and that's sort of what John is talking about.

14:44But I'm sort of with Steve on this one. That 200-day moving average to me sort of sticks out like a sore thumb. And I'll say this about the consumer. Yeah, I've said it a thousand times on this show that never underestimate the U.S. consumers want to spend. But unfortunately, right now, they're spending to combat inflation. I don't think that's just all that. I don't think that speaks to a healthy consumer. I think that speaks to a consumer that's trying to figure things out on the fly. I think the last few years have kind of swallowed us. We've gotten used to 15, 20, if not 30 percent moves in the S &P.

15:16And I just I think, honestly, there's very little upside from here, given what we're seeing. It's essentially a confluence of events. We have, you know, opposing macroeconomic data. We have a lack of unity around what Fed policy is going to be going forward. We already have, you know, we continue to raise expectations around earnings growth. And we do have, you know, Citigroup essentially came out today and said, listen, the bottom half of the consumer is starting to struggle. And we do have persistent inflation. And all the global issues put aside, I really do think that the deglobalization puts upward inflationary pressure, period.

15:53And I don't think that's going away anytime soon. And I think that's being massively underestimated. So I think the 500 likely does not happen. Meantime, Boeing shares falling midday after the FAA announced it would launch a new investigation into the aerospace giant's 787 Dreamliner. This one is around employees potentially falsifying records around inspections. Phil LeBeau's got all the details. Phil. Melissa, this played out over the last several weeks, and once this report came out in the middle of the afternoon, we were able to sort of piece together exactly what has happened and what the FAA is looking into.

16:24Yes, it does involve the 787 Dreamliner and the question of whether or not employees have falsified records. Boeing was alerted by an employee last month, late last month, and it alerted the FAA, which says, you know what, let's look into this. Hence the beginning of an investigation. With regard to the employee who said, hey, look, something doesn't add up here. Boeing's head of the 787 program issued an employee email saying, after receiving the report from an employee, We quickly reviewed the matter and learned that several people had been violating company policies by not performing a required test, but recording the work as having been completed.

17:07Boeing builds about five 787 Dreamliners a month. And by the way, both Boeing as well as the FAA say this is not a flight safety issue. But it does need to be investigated, Melissa, because you need to determine, A, how widespread was it? How far back do you have to go in terms of checking previously built 787s, doing the test that had been marked as being completed, though it may not have been completed? And they will also be doing checks of those that are currently in the production process. We don't know what the test is for, Phil, do we? No, but we do know that Boeing is pretty emphatic about saying, look, this is not a flight safety issue.

17:45This is not a case where the plane should not be flying if we think that this was a completely falsified test. Right. OK. Phil, thanks. Phil LeBeau. I guess that makes me feel a little better. I'm not I don't know how I think it makes me question Boeing a little bit more at this point. If you're not questioning Boeing, there's probably something wrong with you. This should be a mini series. All the drama that's gone on on this, this is going to be on Netflix within within two to three years. The only reason why the stock is staying where it's at is because they have a duopoly. Right. Them and Airbus.

18:20If this were any other company, it would be trading probably in the 20s. Like this is it's crazy to me that they're keeping their head above and only down 30 percent for the year. Guy, at some point, isn't it so bad it's good to use a phrase from Carter Braxton worth the chart master? A hundred percent. But I thought that, Melissa, if I'm being honest, when the CEO stepped down and that stock went from a basically, you know, 185 or so to 196 in a straight line, I'm like, that's it. you finally caught this thing cold. And I thought it was headed to$220,$225. And I'll also say that I understand exactly what Steve's saying, but their defense portion of the business gets absolutely zero credit whatsoever in this environment.

18:59So I'm with you, but I would have said that$20 or so ago. With all that said, I mean, I'm not in the business, but maybe I should be because the crisis management at Boeing, in a word, sucks and they got to do a lot better job. Coming up, Elon Musk has a thought or two on what Berkshire Hathaway's next big investment should be, why he thinks the Oracle of Omaha would be wise to take a stake in Tesla. That's next. Plus, a showdown at Starbucks with former CEO Howard Schultz had to say about the man he chose to replace him. And how will his advice help the stock get back on track? We'll percolate on that right after this.

19:36This is Fast Money with Melissa Lee right here on CNBC.

19:47Welcome back to Fast Money. Warren Buffett's Berkshire Hathaway revealing in its Q1 report over the weekend a 13 percent cut to its Apple stake in addition to a record cash hoard. That news prompting Tesla CEO Elon Musk to suggest the Oracle of Omaha takes a position in his company tweeting on Sunday that investing in Tesla is, quote, an obvious move. But with shares losing a quarter of their value since the start of the year and the EV maker's growth prospects in question, what, if anything, would make this legendary value investor dip a toe into Tesla? Dan, I feel like I want to go to you because I think that you're going to call him crazy for one.

20:26But hear me out. Hear me out. One could make the argument that this is, you know, in some ways a Berkshire Hathaway sort of investment because it would require a very long time horizon to actually pay off. Yeah, you know, listen, Mel, we just spent a lot of time, five minutes talking about Boeing, the quality assurance there. You know, that was a culture for decades and decades that you could take it to the bank. Steve mentioned the duopoly. I think about what's going on in the EVs and I'm hard pressed to think, like if I was Warren Buffett, I'd take like$100 billion and invest as SpaceX, because to me, that's still a very untapped.

21:06If you believe in what Elon Musk is able to do in each one of these verticals that he's basically applied his know-how to, I think the Tesla story is much less interesting. And again, a lot of investors, you just look at the valuation of Tesla or some of these other companies, they're really making a bet on him. I'd rather bet on him in space and Starlink and these other things than Tesla right now, because you know, Berkshire's made their bet on BYD. They think China's going to be the market. They think emerging markets are going to be the market. And I don't know about you, but Elon didn't give me any greater confidence about what they had to say over the last few weeks about them doing a mass market car.

21:42So again, not something I think that Berkshire would ever be doing anytime soon. Yeah, I mean, I tend to agree. I'm actually surprised that you even suggested that he might or should invest in some of the other issues. So kudos to you in terms of finding a creative way to find some type of alliance between the two of them. I really don't think this fits the profile of what Charlie Munger historically and Warren Buffett are in the business of doing, which is value invested, which is essentially bottoms up some of the parts, essentially saying we're able to buy something at a discount. And right now, I can understand the logic in terms of wanting to be behind a secular trend towards EVs or battery-operated vehicles, electrification, move away from fossil fuels.

22:26But that also flies in the face of what he's done historically with Oxy and some of his other investments. So I really just don't think that the value at point of transaction suffices for it to be a Warren Buffett move. I think what you're going to see Elon Musk do is move and pivot. He's the ultimate salesperson, whether you love him or you hate him. And it's that binary. He's going to move more into AI, more into robotics, less into EV. But he still is the number one player. I agree with Dan on the SpaceX because everyone's clamoring for a piece of SpaceX. That's the golden jewel. But I think if he can get someone like a Buffett who, by the way, Buffett's on his way out, not dying, but handing over leadership, it might take a different stance and it might not look like the Berkshire that we're all used to.

23:11So you're saying it's a possibility? I'm saying anything is a possibility. How big of a possibility? We could all debate. But if you could pivot that to an AI bet and he's still, let's face it, he's still the number one play in EVs here. Rivian's the second player, distant second player. There's a lot more fast money to come. Here's what's coming up next. Disney on the docket. The entertainment giant getting ready for a rare before the bell earnings report tomorrow. Can the company deliver some magic? We'll debate the big report. Plus, former Starbucks CEO Howard Schultz with some choice words for the coffee giant's new boss.

23:48Will this roasting give shares the jolt of caffeine they need? We'll percolate on that right after this. You're watching Fast Money live from the Nasdaq market side in Times Square. We're back right after this.

24:07Welcome back to Fast Money Stocks. Taking off the week in the green, the Dow gaining about half a percent for its fourth straight positive session. The S &P up more than one percent and the Nasdaq jumping nearly one point two percent. Tyson Foods falling hard, though, after this morning's earnings report. It was the worst performer in the S &P today. The chicken producer warning that inflation is taking a big bite out of consumer budgets, forcing them to trade down when grocery shopping. And a pair of sports betting stocks feeling the love today. DraftKings and FanDuel parent Flutter both getting a boost today.