Fast Money 8/24/23

0:01Right now on Fast, from blowout quarter to blowoff top, shares of Nvidia blasting off at the open before coming down to earth. Did that failure to launch trigger today's jittery action. A deep dive on the struggles we're seeing at Disney, Starbucks and Nike. What does it mean for the economy and the consumer? Keeping an eye on rates ahead of Chair Powell's big speech tomorrow. Boeing's new troubles with the Max. Automakers hitting the skids as strike fears ramp up. I'm Carl Quintanilla in from Melissa Lee. This is Fast Money live at the Nasdaq Market Site. On the desk tonight, Dan Nathan, Guy Adami, Tim Seymour and guest trader Cameron Dawson.

0:33Nice to be back, guys. Thank you for having me. CQ, before we get started, the show's going to be, if we make it to January, it's 17 years. And if, let's say, another 17 years, people will say that the week of August 21st was Mount Rushmore week. We had Tyler Matheson. He's on. And you are on the CNBC Mount Rushmore. No, it's true. It's the only reason I come in is to get this. Well, you got it. Let's start with NVIDIA. All-time high after blowing the doors off. The stock did surrender into the close, up a dime, taking semis in the broader market with it. AMD, Intel, SMH all falling. Dow and S &P down more than a percent.

1:08NASDAQ leads the losses down nearly two. So is NVIDIA's 24-hour turnaround a worrisome sign? Dan, what do you think? Listen, I think it could be for the tech trade that has been so wrapped up in all the excitement about AI, right? And so it really saw a crescendo, I think, over the last month and a half or so. We've talked a lot about July 18th when Microsoft put out this press release about the pricing of their co-pilot, their AI tools. The stock rallied 5 % in a straight line in a couple of hours. We were doing the math on just the market capitalization that it gained,$130 billion. We're like, well, that doesn't make a lot of sense.

1:41And that reversed lower. It took a lot of the mega caps into Q2 earnings with it. And we were really waiting to see how investors would react to something that we all knew was going to be a blowout. And when you think about NVIDIA and you think about the sorts of growth rates they're going to be able to put up from here on out, they look much less than they did in late May, than they're going to look today, that sort of thing. And that's what investors start pricing this. We talked about this early in the week. So who is the incremental buyer of a story that we know is really great right now, but competition is going to be coming online?

2:12We don't know if demand is going to stay at this sort of pace. So I just go back to on August 14th, this stock traded$400. This morning, it traded$500. You do that math. You can do that math at$1.1 trillion market cap. You know, that, you think about it. It's a quarter of a trillion dollars just on the anticipation of that. So there was just no one left to buy it here, Carl. What do you think? I mean, if this action comes after their quarter, I would not have liked to have seen a miss. No, no. And you certainly think it's going to set us up for some kind of digestion. I think that's the best case scenario here.

2:45We've moved so far so fast. And then it's a question, to your point, Dan, if you start to see more material slow down in sales, there is no evidence of that yet because there is no clear competitor yet for them. But I think that's more of a 2024 story. So it sets you up. You digest for a little bit. You grow into this very, very rich multiple for a bit. Maybe you get another leg higher after that digestion if they can hold on to the sales pace. Otherwise, it looks more like a top. Tim, what did you make of, you know, we've made fun of Rosenblatt Street High 1100 today, arguing that it's cheaper today than it was yesterday.

3:18Does that make sense to you? It does, but I think there's plenty of people that can argue that it's hardly cheap and that the growth rates that we have in here are not the growth rates. I think this may be what Dan was saying are not sustainable. And but I'd prefer to assess NVIDIA from a market context, which is that on the Q1 numbers, the outperformance to the S &P and the relative highs it took the semiconductors to against the S &P immediately and highs that it's had that that semi socks index, whatever you're looking at, SMH has been unable to surpass. And in fact, the reaction last night was completely the opposite or really today's trading.

3:55So the semis underperformed the S &P by about two and a half percent. you saw a straight line down, essentially 5 % on the SMH. And that's telling in terms of market leadership. Now, we're coming out of a period where after the last three to four weeks going into NVIDIA, I think there's already been a lot of repositioning by equity investors, both in terms of what's been going on with the rates markets and where they have been with the stock market. I think there's so many more people investing in equal weight, excuse me, in equal weight ETS versus market weight. We've seen a significant move into cash.

4:28We get the money market data. So was NVIDIA's result and this result, I think we've all indicated that this was kind of what was expected and that I would make an argument that it was a pretty solid market response when you consider it. But most importantly, the market's not going to trade higher without leadership from mega cap tech and semiconductors. And I think this kind of crowned that for the short run, even though I think Jackson Hole actually gives markets some room to rally after some really bad price action in the last week. We'll talk Jackson Hole in a moment. Guy, I'm curious to know whether or not you think, does this allow you to graduate into some banks here?

5:05Banks trade awful. So let's just drill down quickly on NVIDIA and SMH. So 112 million shares of trade today typically trades about 50 million. We can do that math as well. Two times normal volume on a day where it opened on the highs, all-time high, and closed effectively on the low of the day. That's not particularly good price action. And SMH, which Tim just mentioned, you have a massive double top going back to December 2021, traded up to 160 and failed, traded up to 160 again, seemingly failing now. AMD had a horrible day. The rest of the semis did as well. It's not an indictment of NVIDIA.

5:39It's an indictment of the valuation. And, yes, you can make an argument that maybe it's marginally less expensive than it was the day before, but it's still expensive. And the market traded that way. And now you have to ask yourself, who's the incremental buyer? In terms of where there's rotation, I don't know. Banks don't trade particularly well. The yield curve suggests banks aren't going to get a whole lot better anytime soon. And again, if yields start go markedly higher from four and a quarter to where I think they're going, that's not particularly bullish. There's no other area that's of interest.

6:08Health care looks really interesting to me. We've talked about that for months. And energy, which is floundering here, I think is going to have a pickup as we go to year end. Tim makes a great point on leadership. And I think, Carl, is what you're getting to. Like, where would you go? Where would money go if it's going to leave these sorts of trades that have really dominated, I think, a lot of the positive price action in the broader indexes over the last, call it six months or so, really since that kind of SVB blow up in March? You know, and I say to myself, the point about the equal weight S &P, and if you just look at the ETF that tracks at the RSP, it's sitting right on its 200-day moving average.

6:38OK, so you would say, well, it's come back to support here, right? And if you look at the market weight, right, so that's just look at the SPX versus that, it's still 7.5 % above its 200-day moving average. So it's still very overbought. There's still a lot of excitement or a lot of interest concentrated in some of these big names. And I'll bring you back to Microsoft and Apple that are down about 10 % from their all-time highs that were made about five or so weeks ago. I mean, the fever is broken there, right? And so I think it's probably not a bad thing if we were to see semis kind of cool off a little bit.

7:08If you look at the SMH, that's the ETF that tracks the semiconductor, 20 % of that is NVIDIA. Now, one day does not make a trend, this big reversal. But I definitely think that investors who are selling it today because they're like, maybe this is as good as it gets near term. They're not going to be back and buying it tomorrow if it's down another 3%. You're going to wait. And I think their term, Cameron, digestion is probably a good one. Watch beta. Beta is really important. It tends to go up more when the market's up, go down more. But it's a sign of risk appetite and risk taking. We've seen beta underperforming for the last couple of weeks, meaning that even though beta made a new high in July versus the market, it didn't make or an absolute high didn't make a new high versus the market.

7:50That divergence is so very important and usually signals that we have more digestion to come. So risk appetite is not there in this market. You haven't seen big, deep defensives outperform yet. So think utilities and staples. Those aren't flying like you would in a growth scare. So watch for those for growth estimates. I think that then leaves you with health care if you want to get more defensive as a way that you're not having to reach into the deepest of the defensive. That's two health cares. We'll see. Well, I think, you know, I think Jim talks about it on your show, which is a great show.

8:20It is a good show. It's fantastic. But some of these health care stocks have been off to the races. Now, the problem, of course, is a name like Eli Lilly has gotten really ahead of itself. So you have to assume at some point if the market starts to do a back and fill, Eli Lilly won't be immune from that. But health care to me is still a sector you want to be in. Well, we'll see if anything changes tomorrow. Let's talk about the blue skies of Wyoming, where clouds are passing over Jackson Hole ahead of tomorrow's Fed summit and big speech from Chair Powell. Will he send the markets into stormy territory or ease their pain?

8:49Tim, a lot of discussion this week about a last decade or so where stocks have been down the couple weeks before Jackson Hole. What happens the week following? What do you mean? Could tomorrow inflect or not? I kind of like the stock market setup going in and coming out of it, if only because we've corrected more than 5 % on the S &P, 8 % on semis. We've just had this discussion. Also, the dollar, if you think about a lot of the pain and the indigestion for the market here is coming from the dollar, which has moved 4 % from effectively the day that the triple Q's topped. What can the Fed do to relieve that indigestion?

9:27I think there's not a lot. I do expect that there's messaging that will allow us to understand that the Fed has to stay longer. We know that. But that at some point they are going to be data dependent and that we could start to see interest, excuse me, inflation pressures come back. But there's nothing really to me other than the positioning going into this meeting that that can be said here other than bearish rhetoric, which I don't think they need to give here. I think they can take a little bit of a pat on the back in terms of where Fed policy has not pushed us into recession. It was interesting, Dan.

10:00Harker's comments, which you would think is exactly what the bulls would want to hear. We've done enough. Let's give the economy time to absorb these hikes. Didn't really help today. No, it didn't. And, you know, Tim makes a good point about positioning. And again, it's summer. You know, it's been a long summer. It's been a long year, I think, in the markets here, if you think about it. And I think a lot of folks would love to see a short speech and not rattle too many feathers. But we've said this a lot on the show. It's like a raging stock market a couple weeks ago when the S &P was at 4 ,600.

10:26doesn't make the Fed's job that much easier, right? When you see these kind of unemployment prints, you know, the first Friday of every month at like 3.5, 3.6, doesn't make the Fed's job that much easier. So I think to me, you know, a nice good old-fashioned 10 % pullback in the S &P 500 actually does make the Fed's job a little easier for a whole host of reasons. If economic conditions have been pretty good for the most part, I think a stock sell-off might basically give them a little bit of wiggle room. But when the market's raging, And there's a mania in the stock market and some of the biggest names in the market.

11:00It really is a difficult thing. And going back to that equal weight versus the market cap weight, I look at that 200-day moving average in the SPX down about 200 points from here. And that gets you down maybe about 10 percent or so. You know what I mean? Like, that's pretty good. If you're bullish, you know, you've taken a lot of the froth out of the market. You have a multiple in the S &P that might not be discounting too many rosy scenarios. How do you think about stocks within financial conditions? because Powell was asked about the stock market basically daring him in Portugal by Sarah over the summer.

11:32He said, I don't want to think about it that much. Well, I think he does think about it, but he's not going to. I mean, I think the stock market is definitely in their purview, but I think it's interesting. I think the put in the S &P is a lot lower than where we are now. I think if there is a Fed put, it comes in the form of unemployment rate somewhere between 4.5 % and 5%, which we're nowhere near, or the credit market melting down, which we show no indication of. So stock markets in their purview. I just don't think they're that worried about it in terms of stocks being expensive. This move in bond market is making stocks more expensive by the day.

12:01And I'm one of the people. Maybe I'm wrong. But this four and a quarter level in the 10 year, I think we're going to go blowing through on the upside. I'm sort of in the Bill Ackman camp. And if we get closer to four and a half, five percent levels that get us through the hot levels we saw in October, that's going to be problematic for valuations. For sure. Let's bring in another PIMCO chief economist. Paul McCauley teaches at Georgetown's McDonough School of Business. Paul, it's great to have you. I think your general take is that tomorrow will bring a so-called valedictory speech. Can you talk about what that means?

12:31I think the Fed chair is going to say that policy is in a good place, a dramatically better place than he was a year ago. Most significantly, policy is restrictive. Real interest rates are positive and are rising, including at the back end of the curve. So you're in a good place with restrictive monetary policy and inflation is coming down. So I think he's going to signal that we're in the endgame of this tightening process. He's not going to declare that we're finished, but he's going to declare that we're in the endgame, that we're fine tuning. And then his big message is we're going to stay restrictive until inflation comes down meaningfully.

13:18So he's going to shift his viewpoint from short-term tactics to more of a strategic view of we're going to stay restrictive until inflation and or the labor market cries uncle. I was going to say, so if you've gone from nine to three with virtually no labor pain, is the message going to be we're going to get it from nine to two with a little labor pain? Yeah, I think that's fair. I don't think he's going to pound the table about that. He's going to reinforce the notion that two is still very much the target. He's going to reinforce the notion he wants to see more softening in the labor market.

13:56So yeah, I think your take on it is pretty good. Paul, Georgetown is lucky to have you. We've said that. But I'll say this. There's this belief. I think it's misguided that beginning of next year, February of next year, we're talking about rate cuts. Under what set of circumstances are there rate cuts in the beginning of next year? And if there are, in my opinion, is something broke? I don't think you can get too early in the year for a cut on the inflation side of things. I think you'd have to get there on unexpected weakness in the real economy and particularly unexpected weakness in the labor market.

14:38So I don't think it's inflation that would get you there. It would be the labor market. And I don't have a sense that that's what's going to happen. I think we're going to slow in the labor market, as we have been slowing. But something precipitous, I don't think, is in the cards. So I really think that the key issue for a cut is later in the year when real rates are going up because nominal rates are steady and inflation keeps moving down. Some would call that a passive tightening, which would be unwarranted if it's happening because inflation is coming down. So I think that's the scenario he probably will articulate.

15:19calculate it will not be a scenario of an early ease on inflation data. But you would get an early ease, obviously, if the labor market fell out of bed, which I do not expect. So, Professor Hoya, this is Tim. Based upon all those things you've just said, and you were formerly a major, you know, swinging the bond market around at PIMCO, certainly one of the biggest bond shops in the world. Would this be a time for asset allocators to be pushing out the yield curve on the fixed income market, collecting some of these yields, locking in, avoiding reinvestment risk in terms of interest rates that aren't going to collapse.

15:56But isn't this a decent time for investors to take advantage where they can move up the credit curve, but they can push out the duration curve? And I don't want to get too wonky. The bottom line is it may be time to be investing in high yield fixed income or the higher yielding fixed income markets. I'm not so sure about increasing duration. I would be around neutral relative to a benchmark. But to be wonk with you, I think the bigger issue is that a barbell of cash and effectively the very long end has been very successful, as it always is in a tightening campaign. And I think we're coming to the point where you need to sell barbells into bullets and focus your duration exposure in the belly of the curve between three and seven years.

16:44Great stuff, Paul. Always good to have you. Thanks so much for staying with us tonight. Paul McCauley talking about Jackson Hole tomorrow. Cameron, you want to turn that wonkiness into a trade? Yeah. Well, I do think that there comes a point where you do want to sell two years and go long the 10-year. But that is the point when you are seeing the whites of the eyes of a recession. At a 5.9 percent in Atlanta Fed GDP now today, it's too soon to make that call. So we're sticking to the belly of the curve for now. It's interesting. TLT is right at a level. I mean, that four and a quarter, 430-ish levels from October that we topped out at.

17:19We blew through it a little bit, but we're right now. So technicians will say classic double top yields are going lower, economy slowing. But then you get this GDP forecast. And wait a second. Inflation is still a problem. it's going to go racing through. That's the rub here. And if rates go higher, in my opinion, equity is going to go lower. Yeah, we'll see if Fed Atlanta Fed sticks. It's a crazy number. Coming up, a lot more on NVIDIA's Rockstar quarter. Is the options action trading or fading the chip giants move next? Plus, heavy turbulence at Boeing. Shares struggle as these new defects are discovered in the MAX.

17:49Could that derail deliveries? Details straight ahead. But first, after hours action is heating up. Affirm Nordstrom gap on the move. We'll dive into those reports when Fast Money's back in two.

18:05Welcome back to Fast Money. Ernie's alert on Affirm. Shares moving higher after a beat on the top and the bottom lines. Revenue guidance for the quarter also topping estimates. That conference call got underway at the top of the hour. And Kate Rooney has details. Hey, Kate. Hey, Carl. So Affirm surprising on the upside, especially when it came to delinquency. So there had been some fears about consumers being able to pay back those buy now pay later loans, but credit metrics improved with delinquencies down about 30 basis points. CEO Max Levchin on the call just now talking about some of the cost discipline paying off while still maintaining some of that growth.

18:39Revenue grew 22 percent year over year. Gross merchandise volume at GMV was up 25 percent,$5.5 billion. And one measure of unit economics, revenue less transaction costs that came in stronger than expected at$182 million. On Outlook, though, Q1 revenue was above consensus. A firm not guiding on full-year revenue. They're blaming the interest rate curve, negative consumer sentiment. They think that's going to persist through the end of the fiscal year. Executives also expect student loan repayments resuming to be what they called a modest headwind to 24 volumes. I appreciate that, Kay Rooney on Affirm.

19:16Tim, as we're talking, Nordstrom has comments about delinquencies that kind of echo what Macy said earlier in the week. Does that make a firm more interesting or less? Much less. I flagged that as well. It was interesting when Macy's made the announcement and Jeff Jeanette said it. And now Nordstrom is saying it. Nobody's been talking about delinquencies, but department stores. And if you think about the buy now pay layer audience and the customer base, like I think maybe their credit metrics improved this quarter. But this was really about better net interest income and where their expenses got better.

19:50I wouldn't go near a firm here and I wouldn't be investing in that sector. I think the story at Nordstrom is one that's also concerning because think about the cycle that their consumer has been on and their target demographic. And it was it was ideal coming out of covid or in covid. Their digital sales are down almost 13 percent this quarter year over year. You know, it's it's just these are trends that we're talking about. Everything we said earlier tonight talking about the consumer and the backdrop here, I realize it hasn't been in your face and they still have a job. But we are starting to see it, especially in the weaker stories.

20:25If you look at total, if you look at these metrics alone, this stock should be higher. Total transactions, 45 percent up year over year. Active customers, 18 percent. I mean, there are four of them that are all very good. Of course, the problem is loan loss provisions will start to go up and they're up to now ninety five million dollars. And that number is going to continue to go higher for the last year and a half. two years, every rally in the stock, like the one you're seeing now, which, by the way, just gets us back to what we lost today effectively, has been sold. And I think Tim's right.

20:52I think this is going to happen again. 666 again, which is how NVIDIA opened this morning. Doesn't exactly make you feel good. A couple earnings alerts on Nordstrom and Gap as well, both beating on the top line. Those calls underway. CNBC's Courtney Reagan is following that action. Hey, Courtney. Hey, Carl. Yeah, so Nordstrom beating earnings by a really wide margin on, as you said, stronger than expected revenues. The retailer, though, only reiterating guidance despite that really big beat. Revenue was down more than 8 % for the year. It wouldn't have fallen that much if you pull out the hit from the Canadian operations and this anniversary sales shift into the third quarter from this second quarter here that was just reported.

21:30There was also sequential sales improvement throughout the quarter. The rack sales improved, but we're still down 4%. The Nordstrom business sales fell 10%. Active Baby Kids and Men's apparel, stronger categories, inventory down more than 17.5%. And that call is ongoing, as you point out. Gap earnings also beat by a wide margin, but revenue and comparable sales disappointed. Online sales fell 11%, store sales down 7%. Banana Republic and Athleta, those comparable sales down 8 % and 7 % respectively, well, maybe down 6%, gap down just 1%. Now, the global apparel retailer's full-year sales guidance falling well below expectations.

22:08Noting, quote, the continued uncertain consumer and macro environment. Inventory fell 29 percent. So that's good. Got that more under control. And CEO Richard Dixon officially took over two days ago. So today's day three. He is on the call and he reminded investors, quote, that restructuring is challenging and the change of this magnitude doesn't come fast. Transformation is difficult. Still, our people at every level of the organization have stepped up, made tough calls and champion the progress we've made so far, and we're going to keep going. So big expectations from a leader that is widely lauded from the conversations that I've had with folks.