Everything Moving Ahead Of The Fed… And The Face Of Fear Trade 9/17/24

0:03Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. The Fed in focus. The S &P and Dow hitting new intraday records ahead of tomorrow's big rate decision in some specific areas really caught our attention. We dig into the day's biggest moves and what they say about the direction for the markets and the face of fear. The chart master sees danger lurking in the rally of a trio of sectors. What has got him saying sell them all? Plus good intel should you believe the bounce in the semi-stock. The skinny on price negotiations for Novo's Ozempec and mega meta momentum.

0:37Why at least one of our traders is so bullish on the stock. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Karen Feinerman, Bono and Eisen and Carter Braxton Wirth. We start off with a rate sensitive rally ahead of tomorrow's expected Fed rate cut. The Dow and S &P each hitting all time highs during the session but closing off their best levels. The NASDAQ finishing up two-tenths of a percent, while the small cap Russell 2000 led the charge up three-quarters of a percent. In another sign of market rotation, the equal-weighted S &P did close at a record.

1:08It has more than doubled the performance of the market cap-weighted index over the past month. Homebuilder stocks higher, too. The XHB ETF notching its eighth straight positive session, its longest streak since July 2023. The S &P real estate ETF did pull back, but it's still the best performing sector ETF over the past month. In payments, Visa, MasterCard, American Express, all hitting all-time highs today. Even lower-end lenders, which had sold off sharply in the back of Ally's warning last week, regained some steam. Ally, Capital One, Discover, each jumping more than 2%. So what does this all tell you ahead of the Fed decision?

1:44Tim, what are we pricing in at this point? 50, I guess. We've priced in a lot. And we've priced in, depending on 25 or 50, I don't know. I'm not sure I care. And the end result of what that will do for the economy is probably another nine to 12 months out. So it's why we talked about we don't think it's necessarily a political 50 if it is 50. But I look at the two year note that before that payroll number in August, which is the July payroll number, we got it on August 2nd. And then on August 5th, we had this massive intraday drawdown. We went from 430 on the two year to where we sit today, which is inside of 355 ish.

2:20And you have a dynamic here where I think you've got at least a handful of other things saying we've priced in a whole lot of Fed. Look at the Fed fund futures. We have 240 basis points between now and December 2025. And I would get back to, again, if the Fed is cutting that much between now and then, is this really an economy that equities are going to be outperforming? There is zero question to me that we have a ton of liquidity in markets right now. We have a ton of expectations about the Fed. We have a dynamic where the dollar is given up ground. The dollar is 5.5 % weaker from where its peak was.

2:52And on a week that's Central Bank Derby, ECB went yesterday. You've got BOJ coming later in the week. It's an exciting week, but I think it's going to be kind of a, you know, ah, is that all you got? And it doesn't matter where it's 25 or 50. We've priced in a lot. Equities are at all-time highs. Well, the odds right now are 70 % for a 50 basis point cut tomorrow. And so if we don't get that, is the implication that the rally that we've seen, at least for today, and yesterday, that that goes sort of up in, you know, smoke? I doubt it. I mean, I am in the 50-camp. I'm in the 50-camp. She's kind of taunting us with it, too, because she moved and I stayed.

3:27But you know what? I mean, you're right next door in the 25-camp. It's really not that far apart. Yeah, but you're showing off right now. As you're saying, you know, it's not that big of a difference. Neither of us, no one would be completely shocked if it were one or the other. But I think, was your question about is the market already pricing it in? What would happen if they get 25? If we get a 25, right. Right. I think it depends. It doesn't happen in a vacuum. We hear what Jay Powell says. And if Jay Powell, and I think the choice is 25 and very dovish, or 50 and a little less dovish, but still dovish nonetheless.

3:56So I think we always talk about denied or delayed, just delayed. I think then I don't think it makes that much of a difference. I know this is what we do on this network. We like to make it, you know, the most important 25 basis points in the history of bond fractions. And here we are. I think the market, though, is sort of pricing in 50 and maybe will be a little bit disappointed. But with the run we've had, anything could cause a little bit of disappointment. Right. It is. It is amazing, though, I mean, to think that, you know, the difference between 50 and 25 is really not that much, particularly when the aggregate amount of cuts for the year remains the same.

4:34It's just how we get them. And yet the markets have moved so decisively, believing that there is relief for the consumer coming immediately within the form of 50 basis point cut. We've seen that in the homebuilders. We've seen that in the lenders. And so if we don't get that, at least for that portion of the market and for small caps as well, it seems like there will be some level of disappointment here. I think it will affect your day traders because I think there will be heightened volatility around the announcement. We've seen those moves around treasuries and equities right as it comes out.

5:03And then you're awaiting kind of the commentary around it. So I do think that will present some trading opportunities if we were to get 25 versus 50, which seems to be priced in. And I will just say I'm kind of like at odds with Karen, which is probably a pretty dangerous place to be, where I just think going 50 would kind of break trend for Powell. Whether we can whether we want to argue that he was late and he didn't do a good job, he's been pretty steadfast in terms of his signaling. And I just worry that it might shock the market that he feels the need to kind of deviate from where he's been.

5:36And I don't think that's the proper messaging to give to the market. You know, with that said, ultimately, I do think it ultimately it's ultimately about the glide path and how far we are going to go over a longer period of time. I'm in agreement that it ultimately doesn't matter. The 25 basis points right now likely isn't going to affect the long end of the curve, which is where most of the risk assets are going to be priced anyway. But I do think that if we do get deviation from what is now the consensus that you will see an opportunity to trade around the actual announcement. I mean, the main thing is, of course, as is almost always the case, the Fed is behind.

6:08The market is wise. Collective wisdom is an important principle. And so what the two-year note is saying is that they are in need of doing quite a bit more. Now, is it 25 or 50? I think that's completely incidental. The real risk is that either one or both, they're priced in and the market says, wow, okay. 50, okay, and it goes down. Or 25 and it goes down. Remember, and this is the part that there's no way around this. These are just men and women who sit on the edge of the bed like everybody else and put their shoes on. The edge of the bed. And put their shoes on in the morning like everybody else.

6:37They have no more insight than the market. None. And the market's way ahead of them. Two-year note. Right. Is there a scenario where the market goes higher? Carter just said 25. Yes. I mean, what is that scenario, though? Because if they sort of telegraph more cuts than what is priced, then that's a bad sign, isn't it? That means the economy is going to fall apart unless they say fewer. Not in a world where the Fed has acknowledged we're going to be restrictive in policy until we're not. and data dependence certainly has been getting back to a PCE and 2 % there. But ultimately, the Fed is acknowledging we want to be driving with the brake on for a while until we feel comfortable that that's something we don't have to do anymore.

7:18I think if you get to a place where we're actually looking at a labor market that's stabilizing here, they're talking about stabilizing the labor market, I think you have ingredients where the market can go a lot higher. I will say that I think the biggest impact from the move lower in inflation happened on that July 17th announcement of CPI, which was from the month earlier, where if you look at the change in the markets, and so that outperformance of the equal weighted, the outperformance of the small caps, small caps really picking up steam as the yield curve actually normalizes. But whether it's the SPYV, the value S &P, or whether it's looking at some parts of the economy that are this broadening, we've had massive moves.

7:56We've had the RSP outperform the S &P by 6.5 % from that point in July. There's all kinds of metrics you can look at. But I would argue that that was the day that the market priced in, hey, everything's pretty clear. Now, what we don't have is a growth scare priced into equities. And that's the kind of a thing that I think, you know, until you get those data points, the market has every reason to go higher. And, again, I think there is so much liquidity in the market now at a period when the Fed was supposed to be taking the balance sheet down and also restricting liquidity and pulling it back.

8:26And if anything, I think we're awash in liquidity. All right. So much liquidity plus entering a sea. I mean, aside from the last two weeks of September and during a seasonally strong period of time for the markets traditionally, although we do have the elections, a little thing called the elections. Although I don't know. Do they care about the markets? We care about the markets. Right. I don't know how much they focus on the markets, but I think more about real rates. Real rates are pretty high right now. And so to me, that's sort of higher than they higher than they need to be. And one thing I really don't get is this idea of can Powell, can he make a, you know, can we get a soft landing?

9:05Is this not already a soft landing? Why is this not counting? When is there a landing? When is the landing? I sort of feel like he nailed the landing two years ago. If we had said, look, this is where we're going to be. We're going to have GDP here. You know, not bad. Inflation will come down. Unemployment will still be at a very good rate, four and three, whatever it is. That to me is a soft landing. Why doesn't this count as that? What do we wait? What is? I guess we have to wait until things get normalized, rates are normalized, and then you can declare soft landing. I don't know. I'm not, you know, we have a guest coming up who could probably answer that question.

9:39In terms of what we're expecting the market reaction to be, if he sort of telegraphs. I mean, what is the potential upside here if we've rallied into this decision? Well, I think that the risk is not equally weighted. I think there is more downside risk. Clearly, the trend is still higher. But in terms of soft landing, I think there may be one X factor in terms of, like, defining it by that exact definition is the state of the consumer. And we've debated that ad nauseum on this panel. And you can talk about a K-shaped recovery and high versus low income earners, employment rate. But ultimately, despite the fact that we have brought inflation down, the level of price is still so substantially higher.

10:23And that is seen across everything from insurance to housing affordability. And I think that is the landing that is still yet to happen in terms of the economy. And like the larger metrics that we're looking at from top down, I would agree. It has been quite a soft landing like he has threaded that needle. But in terms of the ability to invest and for the average American to afford shelter and insurance, housing insurance and car insurance and automobiles, we've seen so much volatility there that even though we're not continuing to grow at the level that we have at the peak of whatever it was, 10 percent, those prices are still sticky and that still leads to restraint within the consumer complex.

11:02So how big of a question mark is the consumer in all of this? if we do know that consumers high and low are questioning how they spend their money, you know, in terms of whether or not this is it. You said, isn't this a soft landing? Is it if you have different cohort consumers having difficulty or really thinking about how they spend their money? I sort of think it is a soft landing when you look at GDP collectively. Now, sure, there are slices of the economy where it's much harder for them. Is that always the case? I sort of think that it is. And then there's a broad swath that I think are doing nicely.

11:40So to me, about what could they say that would be bullish, I think that they foresee continuing decline in inflation and productivity gains. I think it comes down to the labor market. And I think, you know, the rise in unemployment hasn't actually been for bad reasons. It's really been more about declining job finding rate, more people into the workforce that have brought down the unemployment rate. That's not the making of a recession. That's not what we've had in past recessions as the ingredients to the labor market falling apart. So, yes, we've seen this disparity between the different consumer cohort groups.

12:18There's no question that your grocery bill is 40 percent higher than it was pre-COVID or more. There's no question. And we know who that's hurting the most. So I do think there are people that are getting pinched. But what we have seen on the consumer side is that, you know, how many times have we been talking over the last three months or four months about the luxury segment getting destroyed? And it's not just because of China. So I do think that the consumer is under pressure, and I think that's part of where the valuations have to suffer. All right. Our next guest expects a 25 basis point cut tomorrow, but he would prefer a more aggressive half point rate slashing.

12:49Moody's chief economist, Mark Zandi, joins us now. Mark, great to see you. You've been in this 25 camp for some time. And I'm just wondering, because we are saying, you know, there's probably not much of a difference in terms of the impact if you get 25 or 50 now. But in your view, at this moment in time, why is it better to do a 50? And what are the consequences of not doing a 50? Well, you know, I think the Fed achieved its goals, its mandate. It did that months ago, both in terms of full employment. You know, the unemployment rate is just north of 4 percent. And in terms of inflation, I think we're it's got inflation back in the bottle.

13:26So if they've achieved their goals, then why if 5.5 % are close to funds rate target? That's just why. It's just very high, and you're running the risk of breaking something in the financial system or the broader economy, the labor market. So given that, I think they should normalize interest rates as fast as they can, get it down to something. Now, there's a reasonable debate as to what normal means. Is the so-called equilibrium rate higher than it has been historically, probably? but it's not 5.5%. So let's get this funds rate down as fast as we can so that we take the pressure off the economy.

14:01Because again, we've achieved our goals. We've done mission accomplished. Let's move on. Now, 25 basis points with clear guidance that the Fed's going to be cutting rates in a consistent way at future meetings, kind of a dovish kind of 25 basis point cut. I'm not sure that's much different than a 50 basis point cut in terms of what it actually means for the economy. But I think signals matter. And I think markets are poised for a 50 basis point cut. So I would prefer that. But most of all, having said all of that, my sense is this is a much more cautious Fed. It would be sort of out of character, a Powell-led Fed to do that.

14:40They tend to wait for emergencies to cut 50 basis points, something going off the rail somewhere in the economy or in the financial system. So yeah, I'd like 50. I'd like them to get rates down fast, but I suspect they'll be a little slower than that. Hey, Mark and Sim, thanks for joining us. And I guess we're the traders, but if the stock market was the economy, the economy's never been better. What's the mismatch here? And again, why is it that rates markets are telling us something very different? I hear what you're saying about needing to normalize the Fed funds rate. But again, Fed funds out to 275, out to December of 25, and commodity prices that are pricing for recession.

15:18Something's wrong here. Can you, you know, is the economy offsides or is the market offsides? Yeah, it's a great question. You know, I think the economy is doing great. It's consistent with, you know, record high stock prices and very thin credit spreads in the corporate bond market. You know, the very aggressive kind of view on the rate cuts here going forward feels like the market is pricing in something that's not quite as good. But maybe it's the way the distribution of possible outcomes looks like, meaning the kind of the baseline forecast of traders is consistent with a really good economy, but they're attaching a higher probability to kind of a tail event, something that's kind of out there that will derail the economy, make things go off the rails very quickly.

16:06So it may simply be that they're just attaching a higher weight to those kind of very dark, risky scenarios. And that's why you're getting that kind of very aggressive looking cut in rates and futures. But yeah, I think generally markets are saying this economy is doing really pretty well, I mean, by all regards. So bringing it back to the conversation around affordability and all the focus that we're putting now on tomorrow, are we kind of like offsides in terms of where we're focusing on? Should we be focusing on housing affordability and some of the initiatives that are being put on deck, should we be reviewing that more closely?

16:45Or should the focus be squarely on the Fed? Does it really address the underlying issues that both the political parties are speaking to and the consumer is feeling? Yeah, that's another great point. I mean, you're right. I mean, the Fed can only solve so many problems. And we've got deeper issues with regard to affordability. You mentioned housing. That's the key one, right? because that is the largest cost item in most people's budget. About a third of their budget goes to housing in one form or another. And that can't be solved by the Fed. I mean, the Fed can make things worse by keeping rates too high for too long, undermines affordability and makes it more difficult for builders to build homes that we desperately need.

17:27But we do need fiscal policy support here if we're going to address the affordability problem in a reasonably timely way. Now, look, we got into this mess with regard to affordability, the lack of affordable housing, the shortage over a generation. It really began back in the wake of the global financial crisis in the 08-09 period. So it's going to take us a while to get out of this mess. But I do think we could get out of it a lot faster if we started to rest this with policy. Mark, great to see you. Thanks. Anytime. Thank you. Mark Zandy of Moody's. What do you think about it? I mean, you asked the question, so I'm curious.

18:04What do you think in terms of all the proposals to improve affordability of housing? What's the end result of the housing market? I think the key is going to be supply. There has to be some incentive for builders to build more and build affordable housing. There has to be some incentive for there to be—I don't know if tax breaks are really the way or the path forward here. Is there going to be some type of rebate that's been mentioned in terms of making loans more affordable or having the down payment be lower? But ultimately, I think it really comes back to supply. There needs to be an incentive for builders to build$400 ,000 and below level homes.

18:46I think you're right. I hear fiscal policy support and underlying issues. I hear fiscal policy support and I get sick to my stomach. I hear underlying issues and I hear a budget deficit at 6 % of GDP. You know, I don't know how we're going to solve this problem. And another reason why equities can probably go higher in the short run. But in the long run, we've got massive problems and maybe traders don't care about that. But the reality is neither party candidate, neither administration that will take office is focused at all on the deficit. And there are talk. They are talking about tax cuts.

19:16They are talking about ways in which we can support American industry at the expense of a higher cost. So those are things that are very concerning. And unfortunately, I think for citizens of the United States, it's a problem for the stock market. It may not be a problem now. Well, just maybe wrap up with home builders, since that's such a sensitive area of the market. The ITB looks great. That's an area that is not sort of crowded, steep and full. All right. Coming up is Intel's Amazon deal. All it's cracked up to be why Wall Street may be getting too bullish and the long road ahead for the chip stock.

19:49The details next and shares of Novo Nordis getting hit on comments about the drug makers blockbuster treatments. The news that is stuck. That stock's coming down. Don't go anywhere. Fast Money is back in tune.

20:09Welcome back to Fast Money. We've got a news alert. Jamie Dimon just wrapping up speaking at a conference at Georgetown University. Steve Kovach has been listening in. Steve. I sure have. And yeah, Diamond speaking at that Georgetown event, Melissa. And of course, he was asked about the Fed decision tomorrow. What else are they going to talk about? I'll just kind of paraphrase what he said here before I play it for you. He said, you know, kind of doesn't matter if it's 25 basis points or 50 basis points, really need to listen and focus on the underlying economy. Also criticized the Fed for kind of not doing that.

20:37Take a listen to what he said. They're going to do it, you know, 25, 50 basis points, not going to be earth shattering. doesn't mean that much. I mean, I think they need to do it. I'm not, you know, I think J-PAL does do a great job. But it's a minor thing, you know, when the Fed's raising rates to lowering rates because underneath that, there's a real economy. They don't know what that is. It can be getting dramatically worse. It could be leveling out. Inflation could get worse in three months. So they have to respond. Now, on top of that, Diamond has also discussed a little bit about crypto and blockchain.

21:09He recycled our favorite line, that pet rock line about crypto, saying it doesn't really matter. But he did say JP Morgan is into blockchain technology and praised it as a good thing for sharing data, transferring money and things like that. Very bullish on that technology, just not for crypto and things of that nature. And then also mentioned, talked about the work life balance. This has been a renewed topic about bankers working extreme hours. There is that one death reported on Wall Street as well. Talked a little bit about new programs to help with employees, including with drug problems. And also talked about new policies like getting assignments to bankers by Wednesday in order to avoid weekend work.

21:48But he also said people need to manage their time better and more efficiently. He used himself as an example, in fact, and says he has plenty of time to get work done, spend time with family and even exercise. Melissa, I'll send it back over to you. All right, Steve, thanks. Steve Kovach. Let's get to Intel here. Shares closing higher, though well off yesterday's after hours high. Highs shares rose as much as 8 % after the company announced a multibillion-dollar partnership with AWS and said it plans to put its foundry business into a separate subsidiary, which would allow for external funding.

22:19The stock, end of the day, up less than 3%. So, again, well off those highs. Maybe there's a little bit of realization that the time frame for all of this is in question. The execution to get to that point of producing chips on A18, that's a little bit up in the air as well. What was your interpretation here? Yeah, I thought it was a little bit of much ado about maybe not nothing, but I'm not really sure. And I think about the negotiation between AWS and Intel and who really had all of the cards there. So, I mean, I don't know if this is the bottom or not. I'd probably rather see very significant signs of a turnaround and buy it much higher.

22:56If that's the only choice, you buy it much higher, but you wait for a turnaround. That's what I'd be inclined to do. Carter, does this look like a bottom for Intel? So in principle, what Karen said should be etched in stone. It's better technique to buy something higher. And people don't want to do it. I always say, oh, I've missed it. It's usually better to buy higher than lower. If something's wrong, it's down and so forth. My hunch is, based on today's action, despite closing poorly, that this goes further towards establishing that plunge low of August 2nd, when it dropped from 29 to 21, as the low that will stand.