Does Drop in Rates Give the Green Light for Stocks? And Grayscale Takes a Big Step Forward in its ETF Journey 8/29/23

0:01Right now on Fast, what a difference a week makes. 10-year yields were hitting 15-plus-year highs just last Tuesday. They've fallen 25 basis points since then. So if rates hit their peak and is that the green light stocks needed to get back into rally mode? Plus, crypto rising, the Grayscale Bitcoin Trust notching a big win in its fight to become an ETF today. The news that sent the entire crypto space rallying and where we go from here. And later, two left for dead stocks getting a boost from one top Wall Street firm. Why analysts say these names may be sending investors a strong signal. I'm Melissa Lee.

0:32This is Fast Money. We're live at the Nasdaq Market site on the desk tonight. Tim Seymour, Bono & Ice, and Guy Damian guest trader Dan Suzuki, Deputy Chief Investment Officer at Richard Bernstein Advisors. We start off with a major reversal in the rates market. Treasury yields falling to their lowest level in nearly three weeks. The two-year seeing its biggest basis point drop since early May. The 10-year now trading with a 4.1 handle. It was just over 4.3 % just a week ago. Today's drop follows disappointing consumer sentiment and job vacancy numbers, otherwise known as jolts. Stocks getting a boost from the yield decline.

1:04The Nasdaq rising almost 2 percent. The best day of the month. Tesla, Airbnb, OnSemi, NVIDIA among the big winners. The S &P 500, in the meantime, saw its best performance since June 2nd. So have we seen the rally, the peak in rates? And if so, is this the all-clear for the rally in stocks? Tim, you say yes. All-clear. That's a big statement right there. I'm not saying it's all-clear time. I think some of this is just really where we've come from. And the dramatic move we saw in rates was something that I think a lot of the market was not positioned for. We know what higher rates mean for equities, whether you're crunching your discount rate or whether you're looking at the short end, whether it's inflation expectations.

1:41I think that's the question. You have to ask yourself, why do rates go up as they did dramatically? And I think it's a combination. It's inflation forwards are actually going higher. I think it's a Fitch downgrade. I think it's supply demand dynamics, the refunding schedule. I think it's rates around the world. And all of these things don't get a lot better. So I'm just going to say I actually think rates hold, you know, kind of around here. I don't think they're going to go a lot lower. I look at the two year and I would say if you if you remove COVID, which is a big removal, but rates have been going higher at the short end for a long time.

2:10They've been going higher for for five or six years. So I think rates are higher for the foreseeable. But we were just thinking of repositioning in equity markets over the last five or six weeks. And now since we had that repositioning, you've actually seen semis continue to reassert themselves. They're up 7 % since August 18th. So over the last 10 days, you've seen the Qs outperform the S &P. I'm not saying we're off to the races again. I'm saying that, obviously, markets were really under a lot of stress. I think we have seasonals that are going to make it really tough in September. But I think we're going to rally a couple more weeks here.

2:44We're going to get to 45-50. Ultimately, is this going to be a head fake, Dan? No, I don't think it's going to be a head fake. I think Tim's absolutely right. I think in the near term, rates have peaked for now. And I think the answer to whether that's going to be the case going forward is what the growth trajectory looks like. I think we're getting a lot of mixed signals from all over the economy, from all the different companies. Listen, if you're bearish on growth, you should be bullish on treasuries and vice versa. So I think that's good. I think the Fed's not in the driver's seat. We're not in the driver's seat.

3:13I think growth is in the driver's seat. Listen, I really think the reason that we had the outsides move that we had today was because of the rate volatility and the reversal from the high levels that we had seen. But keep in mind, leading up to that level, there was quite a bit of rate volatility buildup to that point. So I'm quite a bit hesitant to say we've definitely peaked in rates. I just think that the volatility in that rate, particularly the longer it into the curve for now, is going to continue as we continue to get mixed economic and gross signals. This jolts number essentially flies in the face of what we've seen in terms of the unemployment rate.

3:46You know, the consumer confidence flies in the face of what we saw last week from the Atlanta Fed, essentially calling for, I believe it's six or low six in terms of GDP annual growth rate. So I think there's quite a bit of push-pull dynamic going on. And I just really think that it was the exacerbated move back down in rates that led to that outside move today. You were on vacation. Whilst I was on vacation. See, I didn't say it tonight. I know, I said it. You anticipated. On your behalf. But Tim had mentioned, you know, he talked about potential for this to happen in the Jackson Hole. And this is playing out right before our very eyes.

4:20But I don't think rates have topped out at all. And I think the reasons why Tim was talking about before, there's going to be a problem moving forward, I think. The market's going to demand a higher yield for our treasuries. I mean, I just think that's where we are right now. Today, bad news was good news for the market, without question. And you saw that in terms of what yields did and in terms of what the market did. But at a certain point, I think bad news will be bad news again. And I think the trajectory of rates, which was lower left to upper right, will continue. I think rates going higher, they'll go higher for the wrong reasons.

4:52We stopped in the 10-year pretty much exactly where we should have, the level we saw back in October. But I think that's going to be short-lived. So we have not seen the highs? I don't think so. I'm not saying I'm right. I just think rates will go higher. But not because we're seeing economic growth, but we're seeing inflation concerns. I agree. It's not because, like, how many people have now recanted on their recession calls? But I don't think that's what's going on. And I think this is highly, highly technical. And I just think we've gotten to a place here where we had four decades of yield compression on treasuries.

5:24I actually think it's going to be really difficult to take rates that much lower. And I think it's not that the world is looking at the U.S. difference in terms of reserve currency. I can tell you it sounds like the ratings agencies are. I mean, they're talking about politics in a way that they are evaluating emerging market nations. And so anyway, back to the market, though, it's pretty extraordinary what we were saying after those NVIDIA numbers when it gave it all back. Look, that NVIDIA chart still looks like it wants to go higher to me. And I think that's extraordinary when you consider what has happened and what the expectations were.

5:54So I think you have to be very careful if you're looking for this major reversal in markets, because right now, until semiconductors and queues stop giving up the boat, look at Google. at 18-month highs. Google hasn't given up anything here. And I think there are places you can stay invested. Is this head scratching to you, Dan, because you've been through negative technology for quite some time now? No, I think this is exactly the story. Days like today show you just how sensitive that particular part of the market is to the liquidity and interest rate environment. So what that tells you is it's really not so much about the fundamentals.

6:26It's really about the liquidity and rate story. So if you're cautious about the liquidity story, and I would argue that a lot of the measures of liquidity are actually showing like looking like they might roll over, you know, you got to be a little bit worried about that. Like what? Pretty much every measure of liquidity. You look at the Fed balance sheet, you look at interest rates, you look at lending standards, you look at financial conditions. They're either at these very stretched levels or they're already rolling over from. And that was the opposite of what you've seen all year, which has been a big driver of this story.

6:55Right. So that means that logically, if that holds true, that Q should go down. We should see this pull out of technology eventually. You should see equities go down. But again, I'll continue to purport that I think that particularly that five or seven names, whatever acronym we want to use for them, I do think that there is a perceived margin of safety there. And I think given the proliferation of passive investing, it's so easy to transact in and out of those names. Fine. Perhaps you're going to find better value in some, you know, Russell name or some more obscure name. But in order for you to actually build a position worth having, are you going to move the market against you in a meaningful way?

7:36So I just think that fine, you have quite a bit of liquidity that's being traded on the market. But the liquidity in and of the actual investable asset itself, I still think will lead those to trade at a premium. So it is the safe haven. Really? It's still the safe haven. The magnificent. Don't do it, please. Please. I do air quotes. For people who are listening only, I'm doing air quotes because I don't really mean magnificent. They are the seven largest stocks. They're magnificent companies. I mean, we've deemed them that. But if you watch the movie The Magnificent Seven, which I'm sure you did, I will tell you.

8:10What happens to them? Well, four of them got whacked at different times towards the end of the movie. I don't know. Maybe ultimately it will be a fitting acronym. Could be. And just quickly before. So I think inflation is going to reaccelerate. You saw, and I don't want to get too wonky here. I don't know if Pippa Stevens is back in EC, but there was a huge crude draw. I'm going inside baseball now. But basically what it means is there was a huge unexpected draw in crude, 11 million barrels. It was expecting two. That's going to be problematic. Crude's going to be higher tomorrow, which, again, makes the Fed's job that much more difficult.

8:41Yeah, these correlations are there. I agree with that. And I think energy is a great place to be. And for all those people that said energy was just a trade, you know, we're two years with the XLE outperforming the S &P. And there have been some moments, but it's been rocky. And we've said this. I don't want to see crude at$110. I want to see it at$75 to$85, which is where I think we're settling in. And the balance sheet's across the board there. I think the dollar is another major force here to watch. Because if the dollar hadn't rallied 5 % over the last three weeks, I think the markets would be at new highs.

9:11And I think the dollar is responding to Fed policy. It is responding to cross-border flows. It's responding to some of the economic data here, which isn't going to fall apart. By the way, today's jolts and consumer confidence numbers, I think, had nothing to do with the move in treasuries and the move in the dollar. I just think you've gotten to a place where we priced in. This is also letting some steam off of from Jackson Hole. I mean, no one really knew what the Fed was going to say. Right. There was a lot of people priced in there. ECB sent a lot of very dovish signals over the last couple of weeks, which on the differentials to the Fed gave the dollar that room to rally.

9:42I'm not saying the dollar is going straight down here. The dollar is your friend. It was a 12 year bull market. And I think there's a lot of investing to do internationally that over time reversion to the mean is going to work out here. It does seem like very easily we could see the resumption of rates moving higher, at least to the levels that we saw just a couple of weeks ago, Dan, just simply because Jay Powell has every opportunity or other Fed officials have every opportunity to talk the markets in that way. They don't necessarily want to see rates go down. Do they want to see the 10 year yield at 4 percent?

10:09Probably not. Do they want to see it lower? Probably not, because that means a rally in equities. They probably don't want to see that either. Well, I think we're at an interesting point in the cycle where if we're kind of close to the end of the hiking cycle, most people would say there's zero to one hike left. This is where growth becomes the ultimate driver. And the more the Fed hikes to sort of clamp down inflation, the more the long end becomes anchored because it's negative for long term growth and negative for long term inflation. So you really have to distinguish what part of the curve you're talking about.

10:39Sure, the Fed hikes, the short end goes up, but the long end might not go up. And that's unique to sort of late cycle periods. I mean, they want the long end to stay high. They want that narrative of higher for longer. That's the policy dimension that they had to hammer home at Jackson Hole, which they did fleetingly. Unfortunately, what I think is happening, and again, Dan, I'm sure his thoughts, central banks are learning that they no longer control certain aspects. And you're seeing it in Japan. I mean, right before our very eyes, those yield curve controls, which worked really well for a long time, are no longer working.

11:10So they're having an issue here. And I think we're having a similar issue here, not to that magnitude, but clearly the same parallels. Thematically, I also just think that the housing market is going to have a lot of problems. I know if you've been investing in the SHB, you've had a great year. You've outperformed and the components have outperformed. But you can't tell me it's not just about where mortgage rates are. It is the velocity of all these transactions. And we've talked about it. The home builders are in kind of a different place, especially those that are subsidizing a lot of these higher rates.

11:37But you can't tell me if you grind things down. and ultimately the affordability really has gotten worse. I just think that the housing market, which is what the Fed also should be targeting, let's be clear, where do people have most of their wealth tied up? It's in their home and it's the wealth effect attached to the home. That's good news for the Fed. I know it's not good for everybody out there, but again, I think that the best days for the XHB in 23 are behind it. It's not that I'm calling for a housing crash. I'm just saying that I get why these housing stocks and the peripherals rallied when rates actually went lower.

12:10And I get why they sold off. Although, so it had a big day today. I think you'd be careful there. But can the Fed actually attack that if people are just staying put? If one doesn't have to sell your house, you don't feel that contraction in price. You still feel just as rich as you did before sitting on a two point something percent mortgage. Not if you can't pull equity out of the home. Not if you can't effectively refi and pull equity out of your home and allocate that spending elsewhere. And I think that's there. And to the other panelists' point about inflation, If they're unable to drive inflation from three to two percent, which is a purported target, I do think that that 10 year probably is sticky and probably moves.

12:46I think Guy said it closer to that four and a half percent range rather than the three and a half that that it feels like yesterday that we were just at. For more on where rates are headed and what it means for the markets, let's bring in the chart master. Carter Braxton worth of worth charting. Carter, help us answer the question. Have we seen the peak? Well, you know, Bonwin makes a good point. Just yesterday we were at three and a half. And this is the fickle nature of consensus on Bonwin, meaning Wall Street. Before we look at the charts, we were at three and a half in June. Crude was at sixty five dollars a barrel.

13:17And the consensus was recession. Now, two weeks ago, it was higher for longer because 10 years at four, three, five. The reality is actually REITs peaked 10 months ago and we've never exceeded those highs. Let's look at the charts and talk about it. We have four identical charts, but they're different time frames. That's the two year. We move quickly. Look at the five year. Look at the 10 year. Look at the 30 year. Now one would say, yeah, but didn't they make slight new highs? A breakout. There are rules to this going by one penny higher a stock commodity and then faltering. That's what a double top is.

13:52That's October 21st, almost 10 months ago. Rates have never exceeded those highs except a little bit. just to draw in consensus higher for longer, and we're all good. We remain, this particular firm, worth charting and those who work here in the lower rates camp. And I don't think anything's changed. 10 months later, we don't see it in the charts other than a double top. What does a lower rates camp mean, though, Carter, in this scenario? Does lower rates mean 4.1 percent? Do we actually move to new lows? Do we chug along? And what does that mean in turn for equities? Sure. So the key will be whether we break that uptrend line.

14:32It's very well defined on the 10-year, of course, but other parts of the curve. And I think ultimately we do. I think 3%, three and a quarter, is in the cards. And what does that mean for equities? Sounds like a rally is in store. Or is it? Or something else. Or is it? Yes, that's to be determined. I mean, listen, these relationships are what they are. But consider this, and everybody knows if it was always so perfect, lower yields mean higher stocks. Well, then when the 10-year treasury was at 35 basis points of the COVID low, the S &P should have been at 15 ,000. Carter, thank you. Pearls of wisdom always from Carter Braxton Worth of Worth Charting.

15:10That's why he is in the pantheon. Yeah, he is. So lower rates will mean a bad thing. Bad world, Dan, that we will be entering. Are you in that camp? Yeah. I mean, if he's talking about rates going a three, three and a quarter, that's pricing in a recession. And I think that's a real risk that you have to consider at some point. But I think what's important is we have to understand there's risks on both sides. I think there's a risk that the economy accelerates. And you have a Gaia-Dami scenario where we have inflation and the Fed's got to step in to fight that inflation, and you're going to have much higher rates.

15:40But you also have to understand that we had the services PMI roll over last week. We had jolts showing the economy is loosening up, consumer confidence rolling over, delinquencies picking up. There's a lot of things that could cause this reacceleration to peter out. And so I think none of neither of those risks are priced in on either side. Guy, you usually like to agree with Carter Braxton worth. And yet in this situation, you're diametrically opposed, diametrically opposed. But his charts speak volumes and he pulled it with two, five, 10 and 30. They all look identical. So if you were just looking at the chart, you would say, you know what, Carter's right.

16:13They're going to do this back and fill in a meaningful way. I get it. I think I think this is one of those cases where you false breakout, it pulls back and then you just go ratcheting through to the upside. We've seen it before in other things. I think you're going to see it here in rates. I think rates have to go a lot higher in Japan and I think they have to go higher in the European Union. I realize Europe's got a lot of problems, but monetizing the debt right now. Remember, what happened from the great financial crisis through to where we are today is all the debt dynamics, the credit dynamics, All that scourge went from the private sector to the public sector.

16:46And the question is right now, are we ready to continue to underwrite the public sector in the same way we were over the last decade? The markets are telling you it may be a different day. Either way, discount rates for equities are 250 basis points higher than they were pre-pandemic. Equities, by definition, aren't worth as much. And I agree with Dan here. I mean, look, last week we heard a lot of stuff about the consumer and delinquencies and from consumer and discretionary that I think is just the beginning. We haven't heard anything. No one's even talked about it. We get it from Macy's. We get it from Nordstrom's.

17:17I'd be careful. Frankly, I think there's compelling arguments on both sides as to whether or not we're at peak rates. I tend to think that we're probably going higher, but I really don't think that's really the question at hand. The question at hand is, are we going to stay where we are or thereabouts for longer? And what is the cost for a rate cut if we end up lower? And I tend to agree with Dan. And if we're back at three and a half, as I purported earlier and I was dead wrong, that it's really a recessionary overhang and a real problem spot for the equity market. Coming up, huge news in the crypto space, a major win paving the way for the first ever Bitcoin ETF.

17:49What it could mean for investors, institutions and the entire crypto world. More on that next. Plus, the iPhones, they are changing. Apple sending out its latest save the dates and a major adjustment could be coming in the iPhone 15. the charging changeup when Fast Money returns.

18:17Welcome back to Fast Money. We've got an earnings alert on Amborella, the semi-stock dropping after reporting results down 15 percent right now. Christina Parts and Nettles has got the details from the quarter. Christina. Although artificial intelligence may drive future business, Amborella still needs to deal with the, quote, very challenging near-term environment that includes weekend demand. Keep in mind, Umbrella is highly exposed to the video processor market, like surveillance cameras or cameras used in cars. But companies are cautiously spending on that kind of hardware. That's why the CEO said on the earnings call that they anticipate their video processor revenue to contract, contributing to that Q3 total revenue guidance decline that we saw at$50 million, lower than what the street was estimated at$67.6 million.

18:59The CEO doesn't, quote, expect a recovery in 2023, but a return to growth in 2024. So this time frame is worse than expected, with the CFO calling it a cyclical correction. Their products also include low-power systems on a chip used for artificial intelligence. Said they shipped about 17 million of these AI processors cumulatively so far. But that future AI potential, still not enough to offset the weak end market that the company has been faced with. And that's reflected in the stock drop and obviously the Q3 guidance, which is really weak. Christina, thanks. Christina Parts Nevelis. Guy, what did you make of this quarter?

19:35So we talk about the pie for spend, right, CapEx spend. And this might be one of those situations where you're starting to see NVIDIA's gains or names like Amborella's losses. Now, it's anecdotal for sure in terms of this. But you might be seeing more and more of this. other semi-companies seeing a pullback where other of these companies like NVIDIA and the AMDs of the world starting to see an acceleration. There's only so much spin that can go around. Somebody wins, somebody loses. Today, it's Amborella's loss. Meantime, Bitcoin surging more than 7 percent at its highs today after an appeals court ruled in favor of Grayscale on its spot Bitcoin ETF proposal, potentially paving the way for adoption of exchange-traded crypto funds.

20:16Kate Rooney's got more on this. Kate. Hey, Mel. So the crypto market is one step closer to that Bitcoin ETF. Grayscale is one of many of the applications out there. It's tried multiple times to convert its$20 billion Grayscale Bitcoin trust into an ETF. It sued the SEC in a court of appeals in D.C. today, sided with Grayscale, saying that the SEC's initial decision was what they called capricious and arbitrary. And the commission failed to explain why it approved the listing of two futures ETFs, but not Grayscale's Spot Bitcoin ETF. If approved, the Bitcoin ETF would get some of the world's largest asset managers on board.

20:54You've got BlackRock and Fidelity among those also in line for their own ETFs. It's also seen as a way to broaden the crypto investor base by allowing crypto to be held in more traditional brokerage accounts. And the Spot ETF is also seen as a more efficient way to track prices versus futures ETF. GBTC, that Bitcoin trust I mentioned, narrowing a bit today in terms of its discount to Bitcoin's price on hopes of this approval. You've also got Coinbase getting a bid today. Sort of a surprising move there. On one hand, the ETF could take volume away from Coinbase if people are using more traditional brokerage accounts.

21:27Some are interpreting today's ruling, though, as a loss for the SEC, and they think agency may have a little less influence in enforcement actions going forward. Coinbase is locked in its own high-profile legal battle with the SEC. Mel. All right, Kate, thanks, Kate Rooney, on this It's a major decision in the crypto world. The discount, though, for the GBTC is still very steep. So it hasn't really closed that if there's hopes that there's that arbitrage still to play. Yeah. And, you know, a lot of that discount is still making its way back from, you know, everything where we were with FTX, et cetera.