Dow Misses its Date With Destiny and Intel Soars After Earnings 7/27/23

0:01Right now on fast so much for the Dow's date with destiny the winning streak ends at 13 and gone is all the talk of the late 1800s. A sharp rise in bond yields triggering a midday turnaround to look at what spooked the credit markets and the road ahead for stocks from here. Plus, smooth sailing for one part of the travel industry. While a number of the airline stocks are hitting turbulence, the cruise lines seem to have the wind at their back. We will break down the high times when the high seas coming up. And later, charting the bank sector's next move met as mega options action and the Taylor Swift's impact on the bottom line at Live Nation.

0:33It's hardly been a cruel summer for the owner of Ticketmaster. I'm Melissa Lee. This is Fast Money. We're live with the Nasdaq market site on the desk tonight. Karen Feinerman, Dan Nathan, Tim Seymour. Joining us for the hour, Rebecca Patterson, former Bridgewater chief strategist. Welcome, Rebecca. And we start off with that crashing halt to what would have been a historic rally. After spending much of the day on track to market's longest winning streak since the late 1800s, the Dow turned a sharp corner midday, closed down more than 200 points. The S &P and Nasdaq following suit. All three major indices closing just off the lows of the day.

1:04The catalyst for the market turnaround seemed to be a spike in bond yields, the 10-year jumping 15 basis points for its biggest increase since last September. That move appears to have been triggered by rumblings out of Japan, the yen strengthening against the dollars. The BOJ mulls the change to its yield curve controls. So should we be we should be getting that decision around midnight tonight? Rebecca, you've been watching this news. What is it? Was that the excuse to sort of lighten up here? I mean, I think it's a reasonable move in treasuries, given that over the last decade, you've seen capital from Japan leaving in search of yield.

1:40The estimates are as much as two and a half, almost three trillion dollars over the last decade in search of yield, leaving the country, including treasuries. So if the Bank of Japan decides to start the very slow incremental process of tightening monetary policy, you would assume that's going to reduce this capital outflow. And that is going to put one source of pressure up on bond yields, although I wouldn't get too excited about it. It's if the Bank of Japan does something, it's going to be incremental. We're talking about a 50 basis point cap on the 10 year JGB now, maybe going to 100 basis points.

2:14So it's still a huge differential with policy in the U.S. and Europe, Canada, Australia, pretty much everywhere else except China. Right. And that differential has contributed to a carry trade that we've been seeing. And so this could lead to an unwind or the start of an unwind. The new governor, Ueda, had telegraphed that there wouldn't be a change to policy. But this report that came out by Nikkei midday seemed to indicate that there could be talk of tweaking this policy. And that's what sort of got everybody on edge here. You know, it's interesting how you framed it is like the spike in yields in the 10 year caused a sell off in equities.

2:49And was that the reason? And think about this. I mean, we've seen the 10 year, you know, move from basically, you know, up to four percent. It got a bit higher there and kind of found a little bit of a level here. And the equity market has not been bothered at all over the last, let's say, six to nine months. And we've seen a lot of upward kind of volatility. So I do think it's kind of a bit of an excuse. I think the idea would be that there would be some liquidity taken out. Danny Moses was on the desk last week. He was talking about this actually with Cameron Dawson. This was the thing. You know, I think you asked the question, what's the main event?

3:17Is it going to be central bank policy or is it going to be these big earnings? And I think both of them agreed at that. And it's interesting that the earnings, while, you know, the ones that we're most excited about, the big cap tech ones, you know, it's like fine. You know, the money's moved out of them. It's found a home here. But it could be this. This could be the excuse for people to say, OK, maybe like, you know, higher yields for longer is is really going to be here to stay. Now that the Fed meeting is out of the way, we're not really going to hear a presser from Powell for another month and a half or so.

3:45So maybe what the BOJ has to do is more important right now than the U.S. Fed. Yeah. Karen, what was your take on today's move? You know, I wasn't really sure what it could have been. The bond move could have been a lot of things, but also just sort of felt like things were really getting frothy. And, you know, the combination of, you know, that that Meta call was really positive. And, you know, it's circular and sort of that started trading down at the same time. And I know in the last five minutes of the day, I just shorted some spiders because I felt like, God, even though it was down 200, I just felt like, wow, what a move we've had.

4:18And, you know, I'm always long net long for sure. But this just seemed like an excuse to sell off what has been a very broad and I find impressive rally probably too far. Yeah. Tim, I'm curious what you think and what you know, if there is an end. to a carry trade? Could that be, you know, money that comes out of tech stocks? Could that be, I mean, where does that, you know, where does that hit? Well, the carry trade is less significant and has been less powerful than the free money trade. And so, you know, the fact that we are trying to normalize interest rates, at least real rates, et cetera, et cetera, is the bigger dynamic.

5:03I think talking about Japan and talking about the Dow are two different things today. I mean, You know, the Dow went down today because the Dow was up 13 days straight. And I don't think there's anything more to that. The fact that yields are moving higher, I think global central banks and how they've manipulated their yield curves significantly more than the Fed has over the last decade has major implications for the Treasury market. And I do think that it is significant that if they start to move above half a percent in Japan, I also think that the yen's weakness up to 150 as we were late last fall, it's only 7 percent off of those lows, numerical highs.

5:38And I think there's there's definitely more room to go. It's great news for Japanese equities, by the way, that you you've ended deflation and that you possibly are entering YCC. And I think that's something, again, altogether different, something to think about. And I think that the dollar at some point is going to go lower. So the reason why yields are moving higher in the U.S., first of all, the data has been better. There are technical issues as it relates to U.S. Treasury issuance that cannot be overlooked here. But on a day when it would have been fun to pop champagne and blow off fireworks, earnings season has been significantly better than people had expected.

6:16But the stocks have priced a lot of that in. Yeah, I mean, ultimately, Rebecca, do you think that this is sort of, I don't want to say sideshow, because I think that sort of lessens it too much. But is this just sort of something that's going on? But here we are in the U.S. and we have markets at these certain valuations, which are high given where we are in the cycle. I mean, I think it's all of it, right? If you look at 12-month forward price earnings for the U.S., we're significantly above long-term medians. Japanese stocks significantly below long-term medians. There's valuation mismatches there.

6:48I agree with Karen. U.S. stocks have had such a good run year to date, especially the mega cap tech, of course, that to see it getting all that good news, all that soft landing euphoria priced in, it does leave things a bit vulnerable, at least in the short term. I think we have to watch and see can the consumer resiliency continue. There's a lot of good news for the consumer. They have a lot of fixed rate mortgages. The rising interest rates isn't feeding through the housing market the way it has in past cycles. And that's allowing the consumer to hang in there longer than I think a lot of folks expected this time.

7:24But they're still moderating. And as Powell liked to say yesterday multiple times, long and variable lags. So there's still more to come in terms of the pass through from monetary to the consumer. They'll keep slowing. The question is, does it tip over? And then what is that catalyst to make them pull back? Do companies finally lay off more workers? Or what else is it that gets them to pull back? We haven't seen it yet. I think the layoff, that seems likely. I mean, one of the things driving the tech rally is this expectation of being able to run much more efficiently with much fewer people. But the thing about the are we in a soft landing or no recession, the flip side of that is the Fed can't cut, right?

8:05So I think we're just going to have to stay higher for longer, as you said. And that's not quite as bullish as, oh, might they pivot? Not that he was saying he would pivot yesterday. That wasn't what he was saying. Although the markets think that there is a pivot coming in May. The markets think, yes, that we're near the end. Well, we have to be nearer to the end, just by definition, than we were at the beginning. But, you know, we look at things like oil moving higher. And so it's going to, I think, maybe have we seen the bulk of the inflation work done? This last part is going to be pretty hard.

8:39It's funny, though. You know, we saw the GDP print. Right. And I don't think anyone coming into Q2 thought we were going to say have something north of 2 percent. Right. So we have a 2.4 percent print. We've seen crude oil go from 68 dollars to 80 dollars. It feels like a straight line over the last month and a half. It feels like maybe this might be a little bit of like a kind of a last ditch sort of activity here. If you think about what's going on in China, like the data is really not good there. And the idea that they wouldn't export that weakness at some point, we know that the data in Europe is not particularly good.

9:09So I just kind of wonder if whatever happened in Q2, you know, we have this situation where home values have stayed fine. OK, we've seen the wealth effect of the stock market has been pretty good. A lot of folks, I think it's becoming consensus now that the year over year comparisons as it relates to inflationary readings are going to start to look pretty good here. And then all of a sudden we've seen an uptick in some of these prices and some of the related stocks. Maybe that's it. Maybe that's the death rattle. And I'll go back to July 18th, OK, when Microsoft announced the pricing for their office copilot.

9:40OK, that stock we talked about it that day. It rallied five percent in a straight line and gained one hundred and thirty billion dollars in market cap. And it really hasn't seen an uptick since then. It's down about 10 percent on a report in a guide that looked fine. OK, so maybe investors are starting to pay attention to valuation. You talk about a 10 year at four percent. Remember back in 2021 when the Fed signaled to the raise rates to battle inflation? What got nailed? tech tech got nailed so maybe that's kind of the start of this cycle a little bit if we want to be notes of caution right now one other thing that i actually read from evercore so i want to attribute correctly but it was a really good point right now consumer confidence has rallied as inflation has come down purchasing power is higher they feel great about today if you look at the consumer confidence forward indicators very depressed and when you see that kind of mismatch between today and looking forward, usually when it gets that wide, the difference, it is in the lead up to a recession.

10:33The consumers are starting to signal, we're getting nervous, we're pulling back. And to your point on oil, you know, that could be a source in and of itself for the headline CPI, not the core, but the headline to have an upside surprise in the coming months. So we definitely need to keep an eye on that because that could feed into inflation expectations and it could keep the Fed a little more nervous a little longer. Yeah, I mean, oil is up something like 14 % since the last Fed meeting alone, so in the past month. Let's get more on the Bank of Japan and what that decision could mean for the dollar and currency.

11:03Let's bring BK Asset Management's Cathy Lean. She's the managing director of FX Strategy. Cathy, great to see you again. Great to be on. What are you expecting and how have traders been positioning for this in terms of their yen positions? You know, Melissa, it's really interesting because in the run-up to the BOJ meeting, even we talked about yesterday, we have not seen a significant increase in the Japanese yen. Because prior to that, a week before, two weeks ago, the Bank of Japan basically stayed mum on all of those reports that suggested that they were not going to change the yield curve control.

11:39But today, we've seen a rush of positions to hedge against yen strength. Because we're seeing the Nikkei report, like you mentioned earlier, about how they could potentially drop the yield curve control or allow flexibility around the half percent that Rebecca just mentioned. So I think, you know, investors are not as convinced that we're going to see inaction by the BOJ. They're still trying to get a good feel about this new BOJ governor. And so I think, you know, leading up to, we got a couple hours to the BOJ meeting, we're going to see ongoing yen strength. And I think there's a very good chance we could actually see a move by the Bank of Japan that leads to a more significant rise in the currency.

12:15So what are the ripple effects you're going to be looking for, you know, when we start getting headlines about the decision, I don't know, midnight or so, our time? So what's important is that this is not an isolated issue for Japan, because, you know, you talk about this in the top of the hour, which is that it has a direct impact on the U.S. bond market. Back in December, when they last surprised with the change in the yield curve control, we basically saw a global sell-off in bonds. And the 10-year bond yield, that, you know, coincidentally or not, marked the bottom in 10-year yields, which went from 1.35 % up to 2 % and now to 4%.

12:50Now, of course, BOJ cannot be attributed to all of the move, but perhaps it kicked off part of it. So because the market is not completely correctly positioned for a BOJ policy tweak, if we do have a change, I think we'll see another sell-off in bonds and a rise in yields. We're seeing a little bit of that right now today. We talked about that just before. So I think you're going to see more bond yield strength and more weakness in the prices, bond prices. Kathy, great to get your take. Thanks so much. Kathy Lean, BK Asset Management. And spike in yield will be further weakness, I would imagine, for stocks, Tim.

13:29For sure. And again, we're coming from one of the greatest nine-month periods of performance in U.S. stock market history. So, you know, and yields, lower yields at one point. Look, there are a lot of people that were saying we were going to break 3 percent on the 10 year. They didn't know it was going to stop on the downside. So, you know, everyone's now calling for higher yields. I think there's a lot of people that have been calling for something very different. This is there are technical elements of what's going on here. And they also are mechanically how you value stocks. You use a discount rate, a higher discount rate.

14:02And, you know, you move up to 4 percent. It's very powerful in terms of what it means for equities. And again, back to Japan, one of the greatest kind of manipulators. And they talk about it. I mean, YCC equals yield curve control. And that's something it's great for Japanese banks, by the way, though. And I think that's one of the reasons why Japanese equities will go higher. All right. Our next guest, please. We are closing in on an inflection point in the market. Joe Livornia was the chief economist at the White House National Economic Council. He's now chief economist at SMBC, NICO Securities America.

14:35Joe, great to see you. You think the market can't rally much longer? I'm still in the recession camp, and I'm listening to all the comments. Very interesting about the 10-year yield. And we know we discount the equity market, which is a long-duration instrument, by 10 years. But investors right now can earn 5.5 % in Treasury bills with no duration risk, no liquidity risk, nothing. That yield curve is still extraordinarily inverted. To me, that's why the soft landing ultimately doesn't make sense. I do believe in the wisdom of crowds and the yield curve does have an unblemished forecasting record.

15:12The issue always, Melissa, is the timing and the timing with these things is always very difficult. But as long as that short rate is yielding well above five percent, my guess is over time, you're going to suck more and more liquidity out of the market. That will be bad for risk taking. And that means lower stock prices and much wider credit spreads. Hey, Joe, the dollar's had this move. I mean, year over year, it's down pretty significantly, but it's kind of dropped off in the last month or so. How are you thinking about the dollar in this framework? And what does it mean for U.S. corporate earnings?

15:42Because, again, we just mentioned that GDP print and we talk about corporate earnings, where I think a lot of folks were thinking that S &P would be, you know, 200 bucks this year. And we're still consensus solidly above that. And I'm wondering how much do you think the dollar is playing into that? The dollar is, well, overseas earnings, my understanding is about 40 percent or thereabouts of the S &P. I mean, feel free to jump in and correct me if I'm wrong. You highlighted China being soft. Their inflation is weakening quite dramatically. If we've got disinflation coming out of China, that ultimately should come back into the U.S., even though recently we've seen agricultural and energy prices rise.

16:22I don't think the dollar is a major factor for the Fed and a major factor for the equity market. It seems to me that monetary policy still is the predominant straw that stirs the drink. And the Fed is almost done hiking, hopefully. But with rates high and the Fed undertaking QT, I think that ultimately is more important. And when they stop, it will be a function really of the labor market, less so the dollar, right? The labor market has to loosen. Unemployment has to rise. Wage growth needs to slow. That's what Powell reiterated again yesterday. And the only way that happens, Dan, is if the economy goes into a recession, which ironically, the Fed staff apparently now is not forecasting a recession.

17:00So I don't think the dollar really is that central here, unless it really was the collapse. And that to me is unlikely, because other than the end, I don't see the euro, which the eurozone arguably is already in recession. That's not going to supplant the dollar at the moment. Why are you still in the recession camp, Joe? And what's your time frame for this call? I'm still in the recession camp for two reasons, Melissa. Number one, if you look at the index leading indicators and the yield curve. We're closer to the midpoint to the sort of the back half of like the longest leads we've got. Rebecca talked about the housing market not behaving normally like it does because people have locked in low rates.

17:34They've also done that, by the way, on auto loans. So again, these leads or these lags from monetary policy are long and variable until some of these forward-looking indicators reverse. I still think you have to be much more worried about recession. Maybe the probability of recession's falling a little bit, and maybe you get some weird inverse operation twist scenario where somehow the front end could rally a bit on modest Fed easing and the back end sells off. But the only way historically the yield curve has ever normalized is through Fed easing. And given how inverted it is, the Fed has to ease a lot, which implicitly means if it's going to ease a lot, there must be a recession.

18:11Joe, thanks. Joe LaVornia. Thanks, everybody. Do you see that, Rebecca? What you see? I mean, there's definitely signs that large parts of the economy in the United States are moderating, as the Fed said. But the question to me is, when do the broader layoffs start? I think if we're going to have a recession, we have to see the layoffs. Now, it's interesting when we think about 2007, 2008, right ahead of the great financial crisis, the layoffs really happened right at the peak of the stock market. So it was really July 2007. Everything went south together and it was sudden. So it was really just months before we were really in that crisis.

18:51And so it's a good thing just to remember that even though we aren't there yet, it doesn't mean it can't happen quickly. I don't know if we need a catalyst for that to happen or companies just suddenly say it's been really good for really long. Maybe we should pull it in a little bit. But the timing, I agree, is really hard. It's such an unusual cycle. We had a manufacturing recession in a way. We had a housing recession away. Everyone talks about rolling recessions because of the pandemic, because of the stimulus after the pandemic. It's just been a really hard economic cycle to call. And I think we see that in the Fed.

19:23I think they're doing a little hopeful, happy dance that maybe they actually get their soft landing. But I think it's way too early to call victory. Coming up, we're all over the after hours action. Intel and Ford, the stocks are moving. Intel is up by seven and a quarter percent. Then Ford is up by one and a quarter. We'll dive into the numbers next and later fight or flight for the financials. The group falling today as regulators unveil sweeping changes for the big banks. We'll tell you what that could mean for your money. More Fast Money right after this.

19:53Welcome back to Fast Money. We've got an earnings alert for you. Ford raising its 2023 guidance after a huge earnings beat. The call kicking off at the top of the hour. CNBC's Phil Lebeau has been listening in. Phil. Melissa, we're about 20 minutes into that call. Jim Farley pretty much doing the wrap-up of what they just released about an hour ago. Let's go over those numbers, and you see the stock. It initially popped much higher, and then it's pulled back a little bit. Yes, they beat on the top and the bottom line, beating on the bottom line by a pretty substantial margin. But it's really what their results are for the divisions that we want to focus on.

20:26The commercial vehicle division, it's on fire. $2.4 billion in the quarter. The internal combustion engine business, also red-hot. 2.3 billion. Then you see the EV division lost a billion dollars, more than a billion dollars in the second quarter. And by the way, when you look at the EV outlook, they admit that things are going slower than they thought it would be just three months ago. They are now expecting the EV business to lose 4.5 billion dollars this year. In March, they expected the full year loss to be$3 billion. And oh, by the way, they lost a little over$2 billion on EVs last year. So that loss is going to double this year.

21:06And they are also pulling back the timeline for when they expect to hit a run rate of 600 ,000 EVs production-wise. They're now expecting that to happen sometime in 2024. Originally, they thought that would happen by the end of 2023. And then they are raising their full year guidance. But remember, this guidance is being raised on the backs of the ICE internal combustion engine business. The traditional F-150 would fall into that category. And the pro business, the commercial vehicle business, where Ford leads all other automakers, now expecting free cash flow of between$6.5 to$7 billion compared to$6 billion.

21:43That was the original guidance. And now expecting to earn$11 to$12 billion instead of$9 to$11 billion. Melissa, we're going to hop back on this call. I think the Q &A section is where it's going to be most interesting because they're admitting the EV business is ramping up much slower than they were expecting. Jim Farley is still talking very optimistically on this call about their potential when it comes to electric vehicles. But you and I both know you can raise your guidance. You can talk all you want about how you're going to be moving forward. It's the EV business that is driving investor sentiment right now.

22:17And this report does very little to give people confidence that Ford will be making the money it expects to make eventually with electric vehicles, at least no time in the immediate future. Phil, thank you. Phil LeBeau, the Ford CEO, also saying that pricing pressure for EVs has dramatically increased in just the past 60 days. I mean, that tells you how difficult this business has become, Karen. It is. But, you know, as a long-suffering GM holder that pretty much put up the exact same thing, fantastic ICE business, great cash flow margins. I mean, there's a lot to like. Nobody cares. Although, you know, they're saying the EV business there and GM as well, ramping up more slowly than they thought.

22:55The ice business hanging on way more, way more durably than they thought. Right. So the durability there, a durable dollar of ice is worth nothing-ish. And, you know, the EV losses are multiplied. It's frustrating. But Ford and GM are kind of the same story right here. They have to scale up. They know that. This is not news to them. They're trying, but the market's not patient at all. I think it's interesting, though, that I think that the take is that adoption of EVs is slowing. I mean, like, so the rates and we know what they were. I think it was 70 percent two years ago, 50 percent last year, expected to be 40 percent.