Dow Notches Record Close After Fed’s Latest Rate Pause, and Pfizer Touches More Than 10-Year Low 12/13/23

0:01All right. Welcome, everybody. Live from the NASDAQ market site in the heart of New York City's Times Square. This is Fast Money, and here's what's on tap tonight. Monster market moves, the Dow topping 37 ,000 for the first time ever. S &P getting within 2 % of a record in the 10-year at levels not seen since the summertime. August, to be precise. All this thanks to Jerome Powell. How the Fed chair got stocks surging, and can they keep their momentum in the new year? We will debate that. Plus, bad medicine shares of Pfizer plunging to more than 10-year lows. The headlines sinking the stock and what one of our traders is doing with their shares right now.

0:41And later, crafting concerns. Etsy, the latest name to cut jobs. Why the market wasn't buying in on the announcement. In from Melissa Lee, I'm Tyler Matheson. Welcome, everybody. Coming to you live from Studio B at the NASDAQ Market site. On the desk tonight, Carter Worth, Karen Feinerman, Dan Nathan, Guy Adami. Don't let me fail here. Of course not. Keep going in my back, will you? Keep me propped up. Always. All right, historic close on Wall Street today. All kinds of records, both all time and for the year. The past 52 weeks, the Dow rallying more than 500 points. It was flat at 2 o 'clock, folks.

1:17500 points at the close, higher, closing above 37 ,000 for the first time ever. S &P 500, NASDAQ also up more than a percent. The move's coming after Fed Chief Jerome Powell signaled multiple rate cuts are on tap for next year. That news sent the benchmark 10-year Treasury yield tumbling to within a basis point of a three-handle, 4.016, rates now at their lowest since mid-August. And check out the moves in some of the most rate-sensitive market groups, regional banks, big banks, home construction, and Cathie Wood's ARK Innovation ETF, all outpacing the broader market with gains of almost 6 % in the case of regional banks and ARK Innovation nearly 4%.

2:02CNBC senior economics reporter Steve Leisman covering the big Fed developments in Washington. Steve, put it into context for us. Well, after an aggressive campaign of hiking rates, the Federal Reserve pivoted today, strongly indicating its sharp rate hiking campaign had come to an end, forecasting rate cuts next year that were, I'd say, more aggressive than the market had anticipated to come from the committee. Here's what we saw today. The result was to significantly boost the probabilities of a rate cut as soon as March to near 80 percent from 46 percent before the meeting. What happened? What changed today?

2:35Well, the Fed acknowledged inflation progress. Indeed, this pivot comes after wholesale prices this morning surprised to the downside. And previously, inflation expectations also surprised. Powell said the committee discussed rate cuts at the meeting today. And the average forecast of a Fed official is now 80 basis points lower next year than the current rate of 538. All of this surrounded, however, by caveats from Powell and the Fed. Inflation has to keep coming down and stay down. The job market has to continue to loosen up and economic growth moderate as well. But the market sees the threat lifted of additional hikes and the chance lessen that the Fed is going to make a mistake and plunge the economy into recession by staying too high for too long.

3:14And from the give them an inch, they'll take a mild department. The market already pricing in more cuts next year than the Fed is forecasting. 150 basis points. If you look at the January 2025 contract, which encompasses all of 2024, almost double, Tyler, what the Fed is forecasting. Often, Steve, it seems to me that the chairman uses the press conference to either walk back or soften or adjust or tweak what has been said in the statement, what the market is interpreting. I didn't sense that today at all. No, he furthered it. And I think two things happened is my suspicion here. The first is that the economic data put him in a position where he could not hold the line.

3:55I actually, Tyler, expected him to hold the line and deliver this press conference more in January after another month of data. I think that was one. I think the other thing is, if you look at the forecast, I think he risked losing his committee on this one. There's five officials that have 100 basis points of rate cuts built in. There were officials in the previous forecast, Tyler, that were over 6 percent. Nobody's over the current rate for next year now. So the committee itself turned dovish, and I think that's because the data, I think, inexorably because of math and because of what's happening in the economy, the inflation data, I believe, is headed down.

4:32The Fed acknowledged that today. Powell could not defend, I believe, a more hawkish position any longer. I felt in a funny way that I was listening to either Nick Saban, the coach of Alabama, or Brian Daybol, the coach of the Giants, after a win where he's saying, hey, we're making good progress, we're doing well, we played a good game here, but we've got more work to do. There's still more work to do. There are some things we need to clean up on inflation. Did you hear that? Well, I mean, it depends on if you think the Fed is 5-8 like the New York Giants. That's another issue. You know, and maybe it is, given its forecasting record, but it's had a couple wins in a row.

5:06In fact, we were talking before, Tyler, that a lot of what the Fed forecasts this year in terms of inflation, in terms of growth, in terms of the funds rate, actually came to pass. So it wasn't a bad year for the Fed forecasting. And I do think that's right. They do have more work to do. They know it. But he couldn't defend the harshest, most hawkish position of this idea that, hey, we're about to hike rates again or we could be hiking rates. They took away that bias to hike. I would say right now they're in neutral with a forecast to cut if everything comes into line. That's the forecast right now.

5:40But it has to be underscored and supported by the data. All right, Steve, thanks very much. Steve Leisman reporting. Dan, let's trade this. What should I do? How do you interpret what the Fed has done and said? You know, it was really interesting. I was watching Jeffrey Gundlach at Double Line Capital on with Scott Wapner right after the Fed presser was done. And he kind of stuck to his guns. So if Mel was here, and we're very, very happy to have you here, Tyler. If Mel was here, she would have looked over to her left, to Guy and myself, and she would have asked some very pointed questions. You're being very nice.

6:11I've been very wrong about the stock market this year, at least as a monolith, a term that Karen likes to use, because I think back to a year ago today, in the end of 2022, on December 13th, which is also T. Swizzle's birthday. You know that. I know you know that. Okay, so shout out to Taylor. We know she's watching right now. Huge fan of the show. Yeah, huge fan of the show. But I would say this, okay, the S &P 500 was at 3 ,800. It closed at 4 ,700 today. You know where the 10-year yield was? It was 3.5%. You know where the 10-year close today? At 4.01%. So there's something out of whack, okay?

6:45And Jeff Gondlach also said this, and I thought this was really interesting. Stocks need bonds, but bonds don't need stocks. And that's going to be a story of next year. And that's why I'm sticking to my guns here, Mel. Well, what he's saying is, okay, that, like, you know, bonds this year did a thing based on what the Fed had said they're going to do, right? And as soon as they went from 5 % to 4%, it was liftoff for the stock market, right? The flip side might be true next year. Once the Fed has kind of given up on what they think they needed to do, that bonds might continue to do something.

7:15He also said that he thinks that when they start cutting, and this is something that Guy has said quite frequently, that they're going to actually have to get a lot more aggressive. And that won't be favorable to stocks because the reasons that they're going to need to cut will not be supportive of risk assets. Karen. Well, a couple of things. We talked about that, comparing that bond. That was, though, when they were just starting to begin a hike. Not last year. No, no, no. Last year? I mean, like, think about it. No, I mean, like, the two-year was higher. It was 4.5 % or something like that.

7:44I mean, at some point, at the end of last year, rate cuts were... But the 10-year was going into a hiking cycle. Now we are like, the hiking cycle is over. They've told us it's over. So I think that's different. But, I mean, what a crazy broad rally, which is good. I mean, we've been wanting a broad rally because as that Magnificent 7 just was higher and higher, there was more risk there. And so they had a very not great day, certainly underperforming. So I like seeing it broaden out. I have been bearish bonds lately, so that didn't work today. But I don't know. It feels like this reaction was a little bit heavy because I think this expectation is what's been pulling the market up for the last two months or so.

8:29Heavy in the sense it was overstated? Yes. Overstated reaction. Right. Guy? Well, I mean, we even talked about for the last few weeks how there's seemingly four, if not five, rate cuts priced into the market for next year. So they basically came out and I think just sort of galvanized those thoughts. But the market, for whatever reason, sort of jumped on that and took it to the next level. So today was a remarkable day. When you see an 18 basis point move in 10-year yields on the back of what's been a 75 basis point move from 5 % down to 4.25, you have to take notice. I mean, stocks seemingly across the board love this.

9:07But, you know, I'll say this great stock market. You know, maybe the Fed is threading this needle. But right now there are, I think, 45 million people in this country. It's no longer called food stamps. It's called the Supplemental Nutrition Assistance Program. That doesn't speak of some great economy. And 62 percent of Americans live paycheck to paycheck. That's not me making numbers up. That's coming right from the government statistics. So stock markets saying one thing, economy saying something entirely different. And oh, by the way, I think the Fed even acknowledges the lag effects haven't kicked in in terms of the rate hikes to this point.

9:40So we'll see how it plays itself. Yeah, well, we'll talk a little more about the economy with our next guest, Joe LaVornia, in just a moment. But Carter, let me let you button off this conversation in terms of maybe how should I interpret what the Fed has done and said and put it to work in my portfolio. Right. Well, one thing, maybe an anecdote that's worthwhile, the consensus among my clients, right, which range from long short to long only, could be big pension plans or just small hedge funds, that it's all about rates. And we know this. So that's not elemental. That's not new. But it's all about five to three and a half.

10:15All good. Goldilocks. We go below three and a half and then we have a problem because it means that really something is wrong on Main Street. So maybe this is a Goldilocks. Maybe we get a little higher. But ultimately, I think we're going down below 3.5%, and then the stock market will wake up. Yeah, yeah. Very interesting. So what should I do now? Do I play this rally as though it's going to continue for the next five months? I think there's plenty of sectors that actually when rates were going higher, to Karen's point, when you went into this year, right? And a lot of people, I think this is really important to kind of remember, too, that rate hikes were priced into this year, right?

10:49And they all got pushed out, right? And so that was one of the reasons why I think most folks did not see the labor market being as strong as it was, the economy printing over 2 percent. Right. Like last year at this time, a recession was priced into most risk assets. So that's the thing that kept on getting pushed out. People were not positioned that way. So it was a chase all year long. And that move from 4 percent to 5 percent in the 10 year. It was quick, people. The fact that we're talking about 5 percent in the 10 year, it wasn't there long. It wasn't above 4 and a half percent long. You know what I mean?

11:19So that just got a lot of things, risk models, I think, out of whack a little bit. And we might see that's what a blowoff feels like right now is kind of the reversal of something like that. Right, and also because when it was at 5%, all of a sudden it's all about recency. Everyone's saying higher for longer, it's going to be 5-5. And, of course, it wasn't. It was the exact opposite. Is now time for small caps or not? I think so. I mean, I thought so for a little while as we kept seeing the Magnificent Seven, and those just didn't move at all. Now, I mean, this move today in an index, I mean, that is an enormous move.

11:48And I don't think that it's gone crazy to the upside. I think the disparity between where, you know, the Magnificent Seven was trading and the small caps is so large that there's still room to go. So among the IWM, staying long, didn't add any here, but staying long. All righty. Let's let's pause here and move forward with the Fed's path ahead. And to do that, we're going to bring in Joe LaVornia, chief economist at SMBC, NICO Securities. Joe, good as always to see you. What is the path forward for the Fed here? I mean, as Steve pointed out, five members of the board see great cuts next year of 100 basis points or more coming down to 4.6 percent from 5.1 percent or maybe lower.

12:33What do you see happening? Steve, I love the fact that Steve, I like what Steve said, Tyler. I love the fact that directionally the Fed is on the right path. They've got a lower rates, but they do not have enough rate cuts built into their forecast, in my opinion. I believe the Fed will go at least 150 next year. It needs to go a minimum of 250 basis points between now and the next 24 months. They need to do this or what happens? You will have a much harder landing because that deep curve inversion, Tyler, is causing a potential credit crunch. You're seeing banks pull back significantly on providing credit.

13:17You're seeing the senior loan officer showing significant tightening of standards. It's a very slow burn. But the longer it happens, where that curve remains inverted, and we're approaching now all-time records, to me, that will make the ultimate downturn worse if the Fed doesn't try to normalize that curve. There's some wisdom of crowds built into the long end of the Treasury market. And you've been a believer, it hasn't happened yet, that we were going to have a recession. this year, right? That's correct. That's right. And so you still believe it's just a matter of timing before it comes. That's right.

13:50And the Treasury market, we avoided one last spring when the Fed added$400 billion in liquidity around the regional banking crisis. But here again now, the market is pricing even more cuts now than they were 12 months from where we were this past March. And I do believe the bond market eventually will be right, which means the equity market is wrong. Because the amount of easing the Fed needs to do to normalize the curve is not consistent with a soft landing. So I think the bond market is correct and the equity market is wrong, meaning the equity market will need to retrace its run up. Whether we go back to 33 or 3400 S &P remains to be seen.

14:29But I do look for a weaker equity market in 24 based on a hard landing. Karen. Hey, Joe, it's Karen. So where do you think the Fed wants the real rates to be? And I'm of the view, Karen, that the real equilibrium rate is a bit lower than what the Fed currently believes because productivity is soft. Demographics are poor and debt levels are high. So if the real equilibrium rate is closer to zero, maybe it's 50 basis points. It's sort of like pre-COVID type readings. Then the funds rate really should not be much above two, two and a quarter in that scenario. So rates potentially have a long way lower to go.

15:10You mentioned the inversion. So this is, I think, historical in terms of the duration. And you go back and look, typically the longer the inversion, the more severe the downturn. But somehow people think, for whatever reason, it's different this time. Why would it be different? Or could it be worse than people are expecting? It could definitely be worse than people are expecting. I don't look for a deep recession because I do believe that that will be cutting more than they are saying. In 2008, we had this debate in the spring. People thought we had avoided a recession. It wasn't even a deep inversion.

15:43And it turned out we wound up having a very deep and long recession. We don't know what the recession will look like. It hasn't started. And when you get into recessions, unfortunately, bad things can happen. And we can find leverage in places we didn't know existed. When that unemployment rate goes up and all of a sudden that leads to defaults, That could cause a cascading effect in other markets. So we just don't know. But yes, I do believe that the deep inversion, which, by the way, Guy, the record is 20 months. So that'll take us to February. So we're not past the record. But I do believe the Fed could avoid a deep recession and a hard landing if they were to cut rates aggressively, because most of inflation, most of the decline in inflation is transitory.

16:24This period, to me, looks much more like the 1940s than it does the 1970s. think the Fed has made a major mistake in raising rates as far and as fast as they have. Hey, Joe, so you were in the White House four years ago, right? And I suspect you'd like to get back there. And when you think about this as we head into 2024, you know, if you were in the White House and you were talking to this administration, what would you what would how would you change the narrative, if you will? Because obviously the president is not doing particularly well as it relates to his marks in polling on the economy and the like.

16:55What would to be your advice? Because the stock market is saying something. The economy is hanging in there. I listen to that presser. They seem to be pretty happy with what's going on in the job market and the way inflation is going and the like. I'm just curious, where's the disconnect there? Because and what sort of advice would you be giving right now? The the the to me, the reason consumer sentiment is so poor and guy was talking about people living paycheck to paycheck, I believe it was a CNBC analysis that came out a year or so ago that said people have something like$400 of excess savings effectively in their account.

17:29They're looking at the price level. The level of prices is still significantly higher today than it was three and a half years ago, even though the growth rate's low and the price level is high. And unfortunately for many households, their real wages, their standard of living cumulatively, though it's getting better recently, cumulatively has been pretty poor. It's been negative over the last three years. There's no getting around that. I'm not sure the administration would want my advice. I'd be happy to give it. But I would focus on supply driven incentives to work with the private sector to create the better outcomes that we'd like.

18:03Unfortunately, and maybe I'm biased, I don't want to be. I've seen the administration doing the things that I'd like them to do. So therefore, I don't expect a phone call. All right, Joe, thank you very much for that. You know, I think it was very interesting. You both sort of hit on it. There was a lot in the press conference today of the chair cheering the fact that inflation has slowed. The idea that the economy and the labor market are strong, basically strong. The economy may slow next year, so is their forecast, but not into a recessionary level. But you both made the point that people don't seem to feel like the economy and the market is at a record.

18:44People do not seem to feel as though the economy is in a good place. And certainly the administration is getting no credit for what has been, by some measures, a pretty good stretch for the markets, for the job market, and now indeed for inflation coming down. Well, I'm not saying they're doing a victory dance today. But in combating the inflation that the Federal Reserve begged for for years, they needed to do certain things, which hurt the majority of the people in this country in ways that we can measure, we pointed out. So the disconnect is the last couple of years have been very difficult for people without question.

19:21They look and say, how can the stock market be where it is when we know inflation is a problem? The cumulative effect of inflation is there for everybody to see. The inflation isn't going down. It's going up less fast, which is not nuanced. It's just the math. Which is what LaVornia said and what Powell actually said today, Super Powell, what he actually said today was the rate of price growth has slowed, but prices still remain high. The bottle of detergent that now costs me$16 is still costing me$16. It's not as though that bottle, Carter, has come back down to where it was four years ago. One of the biggest issues, has the Fed imputing to the Fed some insight that's beyond the mere mortal?

20:04They get out of bed in the morning, put their shoes on. They've never been ahead. I mean, this is the truth, right? They've always been behind. It turns out they were saying inflation was transient. It wasn't. Now they're saying they're sticking to their things. It's probably coming down faster than they thought. There is no great insight there. It's not about these individuals. It's just that that insight doesn't exist. And so the question is, are they behind yet again? And the presumption is yes. Yes. All right, guys, ladies, thank you very much. Coming up, we are watching shares of Adobe after hours.

20:32Keep your eye on that one. That stock on the move and lower by a lot after reporting results. The numbers from that quarter next. Look at that decline there. 38 points, nearly more than 6%. Plus, an e-commerce cut. Shares of Etsy dropping after a big layoff announcement. The red flag they are raising when Fast Money returns in two minutes. You're watching Fast Money. Here on CNBC, we'll be right back.

21:07Welcome back to Fast Money. We have an earnings alert for you. Adobe beating on the top and bottom line expectations, but shares are dropping and how on weak guidance. Pippa Stevens has more on the quarter. Pippa. Hey, Tyler. Well, Adobe shares are tumbling after the company set a cautious tone for 2024, saying they expect full year revenue to be between 21.3 and 21.5 billion, while the street was looking for 21.7 billion. Now, when it comes to EPS, Q1 Guide is ahead of estimates, but for the full year, it's basically below consensus. And during the fourth quarter, the company's revenue did top$5 billion for the first time, and its key net new digital media annualized recurring revenue came in ahead of forecasts.

21:53On the call just now, executives talking up the opportunities surrounding AI and generative AI, calling it a generational opportunity to offer new products and solutions to an ever-expanding set of customers. Adobe also disclosed in a filing that the FTC is probing its subscription cancellation practices. And, Tyler, that stock down 6%. Back to you. All right. Thank you, Pippa. And speaking of Adobe, Jim is chatting exclusively with Adobe's CEO tonight on Mad Money. Catch that full interview at the top of the hour on Mad. Let's trade Adobe now, Dan. Yeah, I mean, listen, 24 % run in the last six weeks into the print, trading at 35 times.

22:32is a company expected to grow earnings and sales, you know, 12, 13 percent this coming fiscal year. So, you know, it really depends on valuation. I'm actually surprised it's down this much. I didn't think the guide was that meaningful as far as on the front. No, I just didn't. Is it this? I don't I can't. Think about all these regulatory headlines, Karen, that we get every day against all these big tech companies. They don't really move the stocks that much. And, you know, so when I think about this, if I'm the CEO and I'm this this management in general heading into a year that we know that enterprise spending might get a little tougher and costs might be a little higher as you spend on the generative AI stuff or whatever.

23:05Why not set a lower bar? Do you want this thing to be just overshot? And, you know, just real quickly, Broadcom did this last week, too. And the stock was like unchanged. We're looking at it and we're like, and then it goes up 20 percent in a straight line in the next three days. And it just tells you where investor sentiment is. So I think the company is probably doing the right thing, especially if they have poor visibility right now. Carter, it's such a testament to underperforming on the way down and still underperforming on the way back up, meaning the Nasdaq 100 dropped 37 % from its peak.

23:33This dropped 62%. It's still underperforming other key marquee tech-like names, and today's news doesn't help their cause. Yeah. All right. There's a lot more fast to come. We're going to take a break now, and here is what's coming up next. Job cuts at Etsy, the e-commerce company slashing its workforce at the height of the holiday season. Their plans for restructuring and why they're sending shares lower today. Plus, we're chatting chips, the group beating the broad market in a big way recently. But the technicals could be saying there's still a power play in store for the space. The chart master makes his bull case.