Has The Homebuilder Rally Gotten Ahead of Itself? And Are Psychedelics the Next Cannabis Trade? 6/27/23

0:00Right now on Fast, the unstoppable builder boom. Housing stocks hitting one high after another. But is a rally justified or has it, as one of our traders calls it? Gone stupid. We're checking the foundation of this trade. Plus, a meta melt-up shares jumping more than 3 % as Wall Street crowns a new biggest bull on the stock. Meta's more than triple from its November lows, but how much more upside is there? We debate that. And later, a groovy opportunity. Psychedelic therapies all the rage among entrepreneurs as they seek out their next big breakthrough. And the trend is catching the eye of some big investors.

0:31So will this be the next cannabis craze? I'm Melissa Lee. This is Fast Money. We're live with the Nasdaq MarketSite on the desk tonight. Tim Seymour, Guy Adami, Dan Nathan, and Chris Verone of Strategas, a Baird company. We start off with that rapid and seemingly unrelentless rise in homebuilders. Lenar, Pulte Group, NVR, DR Horton all hitting record highs once again today. And the group has been on a tear all year. Just take a look at some of the gains in the major players. In 2023, far outpacing the S &P and even the tech-heavy Nasdaq, the strength comes even amid all the economic uncertainty.

1:03Mortgage rates remain near record highs. And that has helped drive down home prices. The S &PK-Shiller Index posting its first year-over-year drop in 11 years. And new home sales in May rose 20 percent from a year ago. So does the current environment support this run that we've seen in the builders? Or is this trade on shaky ground? Guy, you're the one who called this trade stupid. Stupid, yes, this morning on the call. I said with the move we're seeing in Pulte Homes and some of these names, now it's getting a little ridiculous. But collectively, we've been talking about homebuilders for the better part of the last nine or 10 months.

1:36When people were running from them for fear of a slowdown, we talked about how supply demand imbalances were still in play. The fundamentals worked. And look at the stocks. Lennart had been the laggard. That just took out its 2021 high from December. Now they're all off to the races. Now, it is getting a little absurd here. I think this is the wrong time to be piling in. I think Dan would probably agree. I'd love to hear what Chris has to say. But if you've enjoyed the ride, you've enjoyed it for the right reasons. These stocks are going higher for fundamental reasons, not just FOMO reasons. Yeah.

2:06Chris, what do you see in the charts here? Well, I think you can have two distinct views. You can have the secular view that this is leadership and may maintain that for some period of time. But in the short term, we're talking about names that are 25, 30 percent above the 200-day moving average in a market that has regularly punished overbought conditions. So I want to be a little bit mindful of that here. If you're looking for things that are not as stretched, Home Depot, Lowe, Sherwin, actually just starting to turn. So some of the derivatives of the housing play, I think, probably more appropriate from a timing standpoint here.

2:35Yeah. And there's a 10 percent gap just about between XHB and ITB showing that sort of difference there. Yeah. No, listen, I thought it looked a little silly. I think we talked about it a couple of days ago. I think today's price action is kind of interesting. It feels a bit like a chase. It definitely feels like this is a month end. This is quarter end. This is something that has worked and it's been slightly counterintuitive. I mean, that being said, I mean, I think to Chris's point, look at Amasco. It's still down 20 % from its 2021 highs, but it does feel like it's trying to put a bottom in here.

3:03It's very near its 52-week highs. I made the point a couple times in the last couple of weeks, the fact that Whirlpool, Masco, some of these stocks weren't keeping pace with some of the builders. That would kind of lead me to believe that maybe there was like this value trade going into this supply-demand dynamic that Guy was talking about. But there's other things. I mean, look at the XLI. I mean, look at the industrials. They look like they're about to break out. So for all those folks who, you know, been in the broadening out camp, it's not just this AI thing. There are some things to chew on.

3:32I'm not exactly one of them yet. Wait a minute. No, no, no, no. Okay, you're not one of them. I got all excited about it. I have to acknowledge. I mean, listen, I've been wrong about plenty of things. And we just kind of try to call it like we see them. But I'm not going to fight this sort of stuff. Yeah, I mean, and I guess that's the key, Tim. I mean, this is part of, you know, one of the trades this year that has worked. And in spite of all the reasons to not like it, it's still working. And so you jump on it. But do you jump on it? That's the question. Well, so the guys are talking about some of the other related names in the in the XHB.

4:01So let's take a whirlpool. So around 150, 155, that's Chris's chart territory. But I'll just tell you, you know, you're kind of breaking through some some important resistance. And whirlpool, which was so badly punished when there was a lot of demand during COVID for appliances and for people staying at home and nesting, couldn't deliver on the products. Major supply chain, major costs and margin headwinds. Now, they were a 30 plus percent market share company going into covid. They went down to low 20s and the stock was was punished for it. They're back to high 20s. They're seeing margin improvement.

4:31So I like Whirlpool here. I think people that are pushing back on the housing sector are right to to do that as well. I mean, the supply side of it, we do this all the time. Diana Olick gives us this data all the time. Two point six months supply means that there's going to be a bid even in a rising rate environment, even for people that don't want to leave a mortgage. And then you have people like Lenar who said a week ago or so on their numbers that they feel like they're filling a void in terms of the spec market. People that just want to, and again, many cases, these are first-time buyers.

5:04So I think that today's housing data is a bit of a head fake. People are relieved that the actual housing prices are down small year over year. And they're like, wow, this should be great. Watch that trend because year-over-year prices were up 20. They're coming down. And the momentum here on a chart like this doesn't just stop at zero. I think housing prices, especially in some inflated markets, do have to come down. Yeah. The CEO of Compass was just on closing bill overtime a little while ago. And he was talking about how everybody with a super low mortgage rate, they're holding on. And that creates even more inventory bottlenecks in terms of supply in the market.

5:40And that's the foundation for, if you will, the foundation for this trade to go higher. Makes a lot of sense, right? I mean, if you have a mortgage, you know, sub three and a half percent. Why give it up? Why give it up? Because that's become an asset in this environment. Right. And that's added to the reason why these home builders, I think, trade as well as they do. Somewhat counterintuitive. Sherwin Williams was mentioned. Let's talk about that real quick. Probably trades 26 times ish, which historically is not ridiculous for the company. But technically, look at what it's done. Had that huge move from 350 down to 205, traded down or a couple of times held.

6:13Just got an upgrade yesterday. today, I think at BMO Capital, 275 price target. I think what you're going to see with some of these names, analysts will start playing catch up. You're going to start seeing an upgrade cycle, price targets raised. This is probably a stock you can own for a trade here, for sure. So it sounds like you guys think that this trade overall or that, you know, the momentum in the sector can continue, but there could be another trade within this, and that is rotating into the value areas of the housing sector. I mean, that's sort of the message that I'm getting. Yeah, I think the last three or four weeks there has been, to your point, a hint of this market broadening out.

6:45And I certainly don't want to ignore that. What I would say about some of these builders, when you look at a Lenar or a DR Horton, the move today I think did look a little blow-off-y. The last time we saw this type of, it was called early February. And that was followed by about a 15 % drawdown in those names. Now, they went on to make new highs. But let's not forget you can get corrects in trend. I'd watch two things here. Watch the 10-year yield. We're pushing right up against 380, 385. Anything above 390 is a big breakout in yields. I think that would be a very meaningful message for these home building stocks.

7:16And second, remember the history of this group. While they were very, very bad in 08, they were great in 01. So their track record in slowdowns is very different than I think many people suspect. Let's get Diana Olick here. She's got more now with today's key housing data, what it could mean for this space. Diana, you've heard us sort of going around here, and you covered the sector very closely. I mean, talk to us about this data, but also, you know, why we should be more optimistic maybe about this housing trade, or should we? Well, Melissa, I think it's really a tale of two housing markets that we got in the data today, and that is the new home market versus the existing home market and the existing homes we saw in the prices.

7:54And I'm sorry, but I'm going to have to disagree with Tim, because even though we did see that first year-over-year decline of 0.2 percent in the case, Shiller that which is backdated to April which is three months backdated actually we've now seen three straight months of seasonally adjusted increases in home prices and that's on the existing home side and the expectation is because we have such low supply in the market and still strong demand that those prices are going to still push higher again we are only two percent off of that last June peak and the S &P case Shiller actually said they believe prices bottomed in January when we started this increase.

8:30But when you look on the new home side, that's a completely different story because the builders are obviously benefiting from all of this. And one number I loved in the new home builder data today was that there are now twice as many homes that have been sold but not even started yet as there were a year ago. So that's just a tremendous backlog for the builders. They did bring down prices about seven and a half percent from a year ago, but that's, you know, they're able to do that. They're doing incentives. They're buying down mortgage rates. That's how they're getting buyers in the door. Existing homes, you can't really do that as much because it's a supply and demand crunch that we've really never seen anything like this before, Melissa.

9:07So the new home market looks really strong with a huge backlog in terms of existing homes. We saw that peak, as you mentioned, in June of last year, and then it went down to January of this year, sort of recovered from there. I mean, do you think that this is the reset that Jerome Powell was talking? Remember that press conference when he was talking about if you're a young home buyer out there, I would wait. There's going to be a reset coming. Yeah, a reset of 0.2 percent. I don't see that as a mess. I'm sorry. Look, there were massive outlandish gains, 20 percent increases. We're still up 45 percent in home prices from January of 2019.

9:43Forty five percent. That's ridiculous. It had to pull back. But that doesn't mean that it was going to drop 20 percent. We're just coming back to sort of remember home prices generally historically go up about four percent a year. So now we came back to maybe negative two point two percent or perhaps next month we're going to see home prices flat. This is not some kind of crash in prices that people thought were going to reset the market and help buyers get back in. And what was so interesting in the new home sales is these were May signed contracts. And if you looked at mortgage rates, they started May around six and a half percent.

10:16We're around there for about two weeks. After two weeks, mid-month, they shot up over 7%. And we still got this incredible home sales number. So that was with rates over 7%. They haven't moved much in the last couple of weeks, around 6.9%. And the builders keep saying, we heard Lenar and KB say it, that buyers are just getting used to this new normal of mortgage rates. All right, Diana, thank you. Diana Oleg, breaking it all down for us. Well, I mean, listen, we're talking about Lenar here. I mean, earnings are expected to be down 30 % this year-ish, okay, on sales that are down low single digits, and margins are going to go from 27.5 % last year to 23 % this year.

10:54This is not the environment that you want to be buying a stock like this at a high like this at a valuation that I know 10 times seems kind of reasonable relative to the market, but look at what's going on here. I mean, they're going to be below their 2021 earnings levels. And, you know, again, the rates thing, the supply demand thing, I mean, this is not the place to chase. I like some of the things that Chris is bringing up about some of these trades that could play catch up for other reasons. And the Home Depot one is kind of interesting. The relative performance too low is kind of interesting.

11:24So those are the sorts of trades that I think make more sense than chasing these right here. I'm glad Chris is on because he said, you know, you can have corrections within bull market. It's clearly been a bull market for these home building stocks. I mean, there's no denying that. But we're at a point in this inflection point, Dan said it, it felt a little blow off toppy today, which is why I said today on the call at 1230, it felt a little stupid. But when you see a Pulte homes up two and a half dollars on top of what it's done, it makes you question a little bit. So if you've enjoyed the run, I don't think there's anything wrong with exiting and looking for a better entry point.

11:55I do think you'll get that better entry point to your question to Diana quickly. That's the right question. You remember Jerome Powell on his way off that podium said. Right. There should be a reset. So don't you think the Fed is taking a look at this and thinking there is no reset in the housing market right now? And shouldn't that instill fear? And that's the risk to rates here. I mean, look at what we've seen in some of these global rates the last couple of weeks. U.K. yields have run away. On these homebuilders, watch the 50-day averages. They've ridden them the whole way up since last October, November.

12:24I think if this, any pullback causes something more serious, it's because those 50 days get violated. Also, just be mindful. What's been unusual about this move is they've deviated from the regional banks. Homebuilders from regional banks historically have moved in step with each other. That's clearly broken down here. Who's right or who's wrong, we'll find out. But an important distinction there. Tim, your thought, I mean, you think Jerome Powell is taking a look at this and thinking the economy has cooled down enough for inflation to get under control here? Financial conditions are looser. We all know that.

12:56And I would just put it to it does get back to the Fed and it does get back to recession. And you can't tell me housing prices don't go lower if we haven't hit a recession. Or if we actually think that the Fed has sufficiently tightened rates enough to get to a 2 percent inflation target here, then I think housing's doing what it's supposed to do. But but again, I and I, you know, Diana, by the way, I appreciate her getting up in my grill because, in fact, she's right. The stabilization in housing prices is is is is appropriate over the last couple of months. But I look at we're not 2008, but I look at you can't tell me housing wasn't in a bubble during COVID.

13:31And you can't tell me at essentially record low unemployment that assuming that the Fed's job is being effectively carried out in the market. This is this is not where we go in housing prices. And I again, I don't I look at that housing price chart and I see it come down from 20 percent year over year growth to basically flat. So I'm not saying it's falling apart. I'm saying that chart doesn't just stop at zero in my book. You know what the group reminds me of? Remember all the European luxury stocks four, six, eight weeks ago? They were untouchable, and they were thought about as untouchable.

14:04They've all had 10, 15, some cases 20 % drawdown. They're still in trend. Doesn't mean they're bad secular stories. But things can get ahead of themselves, and I think that's the story with the homebuilders here. Here's an interesting would you rather. I don't think I've ever paired these two together ever in the history of fast money, and the history of Fast Money is very long. ITB or Netflix, which are up roughly the same percentage year-to-date. This is just because they've run. It's not a PE thing. It's not, you know, but from here, guy. Where'd you come up with that one? Unscripted, folks.

14:40Out of thin air. They're both up roughly 40%. I just thought it was interesting. Netflix. Because you wouldn't think Netflix and ITB would be up almost the same percentage. I'll play your reindeer game correctly. I won't say can I go off the board. I will say Netflix, given what we just talked about. I think there's still sort of some secular tailwinds for Netflix. It hasn't had that blow off top, whereas these home builders definitely got a little frothy. Well, I know you said you're pulling it out of thin air, but I could throw a dart at my main fact set screen that has about 300 stocks, and I could probably hit, you know, dozens that are up 40 percent.

15:15I'm sure. I'm not saying that. Is that me getting all up in your grill like Diana got all up in Tim's grill? I don't care. Get up in my grill. I don't care. I'm not fearful of anybody being in my grill. I'm not denying that there are many stocks of 40 % this year. I just paired them. But you know what's interesting about your question? Yes. I don't know if you wanted to take this time on it. Is that as an investor, you have lots of choices, right? And so, like, for instance, you would think that, you know, when interest rates started going higher, stocks like Netflix started selling off. This was about a year and a half ago.

15:48And now they just don't care about rates. But a sector like this, and to your point about keeping an eye on the 10-year, if it were to break out above that, that might be the trigger to cause that 15 % to 20 % sort of sell-off just to kind of bring it back towards trend towards that. It might be worse for Netflix, though, if you think about the story there. But I think when you compare those two pictures, one's making new all-time highs and one is not. I want to lean towards ITB here. I think the longer-term Netflix chart is at a spot where it probably starts to stall and ultimately fail. So make that distinction here.

16:17Chris played the game correctly. He did. I know I did. I know you did. Dan, not so much. You want to give Tim a shot? Sure. Tim, Seymour, what do you say? Well, I am still long Netflix, but I've been selling some over the last couple weeks because I see some of the things that Chris is talking about in the chart, but I'm talking more really on the valuation. So, you know, I'm going to play the game correctly and say ITB, but I hate my choices right now, Mel. I'm sorry. I mean, I would have liked to have thrown a dart and come up with something better. off the board, pull up another stock that's up 40 % and throw it at me.

16:50And that's fine. I'll let you go. Dispensation. Wow. So you want one right now? Yeah. Let's go with Delta Airlines. We're going to talk airlines, so I'll just leave it there. I mean, I think there are industrials that haven't performed, and I think their valuations are a lot more defendable. Yeah. I don't mean to put that was actually amazing that he pulled up Delta, It is up year to date 40%. What he does is the ambassador. He's like Lepidic. Anyway, speaking of Delta, wheels up for the stock. Shares heading for the clouds as the airline holds its investor day. What the CEO had to say about demand and a possible record quarter.

17:27The details next. Plus, the real deal, why analysts are getting bullish on Meta's Reels product, how it's fueling the stock's highest-priced target on Wall Street. Don't go anywhere fast when he's back in two.

17:49Welcome back to Fast Money. Delta Airlines soaring nearly 7 % today, hitting its highest level in more than a year after lifting its full-year profit forecast and touting a potential earnings record for the current quarter. CEO Ed Bastian speaking to our Phil LeBeau this morning ahead of its Investor Day. The demand that we're seeing today is even stronger and the value is even greater than we're seeing. We're raising not only the full year, we're raising the second quarter. I think the second quarter is going to be our highest Q2 earnings in our history, coming just three years after the start of the pandemic, which is pretty incredible.

18:23Delta is also raising estimates for free cash flow this year by almost a billion dollars, so three billion from over two billion. That's a huge increase. Tim, you own this one, as you mentioned before. Yeah, and I say this about airlines, too, that they're some of the greatest trading stocks in what's been a great trading market. And Delta is really only getting kind of the benefit of the reopening trade here. And I'll let Chris talk about the chart. But when you're up 15 percent, kind of mid-teens-ish to your 2019 RASM, TRASM, whatever you want to pick acronym. And we know what we know what they mean.

18:57So revenue per available seat miles. Sorry, I can't do that without saying what it is. But this is a story where with airlines, nothing like a good crisis to get them to reel in the excess and the inefficiency. So when they start talking about capacity holding the line, you start thinking as an investor, at least for now, there's discipline in the airline sector. And they saw God because things got really nasty. And Delta, of all of them, by the way, didn't leverage their balance sheet. So Delta is the best. And again, they're the ones where you can talk about 2019 because the EV is more or less the same relative to their peers.

19:33Chris? I think Tim is right. These are trading stocks. They've been trading stocks. Our whole careers, they've been trading stocks. They're still trading stocks. The preempt of this move was the last four or five, six weeks when Delta and UAL, they all held their 200 in that pullback back in May. I think the gap the last several days is impressive. I could get you probably 60 on Delta. That's the 2019 highs. I could get you probably 70 on UAL. Frankly, I think that's the better chart here coming out of a base. Even, dare I say, Southwest may be hinting at a turn here. But remember, these are trading vehicles.

20:05These were at the center of the storm three years ago. When you're in the center of the storm, you remain trading stocks, not investments for the next number of years that follow. Think about the banks coming out of 09. There were times to make money, but they weren't investments. They were trades. Think about the airlines the same way here. This is somebody's final trade last night. Guy. Oh, sorry. I didn't know you were looking at me. You know they play poker? You do, right? I do. Card game. Everybody's got to tell, right? Okay. 386 was on the set. I think it was Dan, myself, 386 and Tim. So you roll your eyes.

20:37You're like, where are you going with this? No, I know you. I have a place to go with this. And there was some negative news out on Delta in the entire space. It was in early May. The stock actually closed higher that day. Collectively, we said that's a bit of a tell. Stock should have gotten crushed. It did not. And it's now broken through probably a two and a half, three year downtrend. I'll get you to 49, which was the high, I think, in April of 2021. that's where it probably tops out in the short term. In that same spirit, think about how CCL in the cruises traded yesterday. They couldn't close it on the lows, and then today makes up the whole move, right?

21:12There's wisdom in this price action stuff that we all look at, and I think the price action here the last two days is pretty important. There's a lot more Fast Money to come. Here's what's coming up next. Reel in our call of the day. Why analysts are poking meta for a big move higher. And now Reels is driving the action. The details next. Plus, markets on pace to put in a banner first half. But can stocks continue their run through the next six months of the year? What the technicals are saying about the market's next move. You're watching Fast Money, live from the NASDAQ market site in Times Square.