Inflation Jitters & Big Banks Lower 2/13/24

0:01Live 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 big CPI sell-off, the S &P dropping more than 2 % at its lows. The Dow is seeing its worst day since last March. The yield on the 10-year, its highest level in over two months. The culprit, a hot inflation report that sparked fears that a rate cut is not just around the corner. Is this just the start of the air coming out of this rally and how much more pain is left to come? We'll debate that. Plus, a regional wreck, the KRE ETF, posting its lowest closed since late November as the sector comes to terms with higher for longer.

0:35Which banks will feel the pain? Which can stage a rebound? But it wasn't all bad news amid the sea of red. A handful of stocks were actually hitting 52-week highs or better. We'll get a look at the surprising standouts. And some after hours action that may help set a better tone for tomorrow. We'll go inside the moves of Lyft, Robinhood, and Zillow. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feynerman, Dan Nathan, and Guy Adami. We start off with that CPI spark sell-off. Stocks closing off their lows, but still red across the board. The Dow shedding more than 500 points for its biggest loss since last March.

1:08The S &P 500 down 1.3 percent, while the Nasdaq lost 1.8 percent. Rate-sensitive small caps getting particularly hard hit. The Russell 2000 down nearly 4 percent, its biggest one-day drop since June 2022. The inflation print rippling through the Treasury market, the 10-year yield crossing 4.3 percent, its highest level since December 1st. The two-year yield also at two-month highs. And volatility spiked sharply in the session. The VIX briefly crossing above 17 for the first time since November. So after a huge run for stocks, is this the tipping point? Is this the one that you've been waiting for, Guy?

1:43Well, we've seen things like this before that have not turned into anything. However, I mean, the VIX was elevated yesterday on a pretty benign day. And we actually traded up to almost 18 today in the VIX before pulling back. The rates move, to me, makes sense. Although I didn't think we were going down to 380. I'll say this. The TLT, which measures this, despite that huge rally in the TLT and yields coming off, it's still made a series of lower highs and lower lows since April of 2020. I think the TLT continues to go lower. I think rates go higher. I think the VIX stays elevated. And, yeah, I think it's the beginning of something in the market without question.

2:18You also believe that rates are going to higher. Yeah. And it's it's part of it is just looking at charts. Part of it is understanding the deficit get better today. I mean, we heard about also some spending for Ukraine. There's some dynamics in terms of both the inflation front and also where rates, I think, can be sticky for technical reasons. There's also a 23 percent move in the S &P since October 26th. I mean, there's also a view that somebody's doesn't have to be all right. I think I kind of feel like we live in a world where if you don't totally agree with somebody, you don't agree with anything they say.

2:46Well, back to this metaphor, you know, stocks or bonds, excuse me, stocks or rates, one of them is totally wrong. I mean, and I don't think one of them is totally wrong. But I do think you can't have it both ways here. You can't have a world where rates have gone significantly higher over the last two and a half years and equities are trading at a higher multiple and acting as if higher rates don't matter. I understand there's a lot of different things that including A.I., massive tech spend, normalization of the economy, a job market that's on fire. These are all reasons to want to own equities.

3:16And by the way, the economy feels great and earnings have been great. Anyway, today's kind of feels like a relief, actually. I mean, you know, honestly, as someone that allocates capital, it's nice to see markets acting kind of rationally. Except that if one were to make the case that this is sort of a FOMO-fueled rally, that AI sort of, you know, boosted a lot of this, NVIDIA closed basically flat on the day. So you would think that if we had a sell-off in the Nasdaq, you'd want, if you believe that we are in for some sort of flush and the market is due, I would think that you would want to see that flush in NVIDIA as well as the poster child for this market rally.

3:50Right. It'll be the last battle fought. And you know what else was green was Eli Lilly. I mean, these are two of the poster children for the biggest megatrends that we've seen in, you know, the economy and the markets in a very long time. And they've sucked a lot of money into them. And they're going to be, they're going to get defended. I mean, really, until the stories change, you know. And I think the NVIDIA story is probably likely to change before the Eli Lilly story. But again, I don't focus too much on that. I focus on things like, you know, last night, I think you called me sarcastic or something.

4:17I was talking about that. That's weird. It was great. Everything was coming up close. You had a snarky face on the list. What a surprise. She just wanted to be really clear that nobody thought I was getting all geeked up about things in general. But the point is that the fact that you have the Russell almost reverse those gains that we've had over the last week or so in one fell swoop. Right. Like to me, I think the Russell and guys pointed this out on many occasions has actually been a really good indicator. You know, it's one of those things that when it gives it up, it's like, OK, the large caps are going to follow not too long after.

4:46And so I look at this. I agree with what Tim said wholeheartedly. OK, if you look at the move that we had the last time, the 10 year yield was at four point three percent. The S &P was below forty six hundred. And I get it. Earnings have come in better. GDP has come in better. A whole host of things have come in better. But talk to me what it's going to be like for this economy with higher rates for longer, with the dollar that's rallied the way it did. You know what I mean? So much of these earnings are coming from U.S. multinationals. Right. And sooner or later, if inflation is starting to pick back up, the ability for companies to push through those input costs is going to get that much worse.

5:21They've been doing it for years. Right. And so to me, I just think that this is probably the year that it gets a bit rockier. Last year seemed kind of easy for the bulls. So we have this one data point now, and it's not surprising that the market reacted the way it should. I sort of agree with your announcement of it was a relief. I mean, if we if we step back just a tiny bit and squint, we are where we were Tuesday. Right. So even though this seemed like a very big sell off, it really wasn't. When you when you think about how extraordinary the move has been. So we have this one data point. It sort of gives us a look at how the market may react if we get some more data points.

5:58I'm actually sort of surprised that the market's pricing in as high a likelihood of a cut in June as it is. Right. I would think that waiting a while seems to be the right thing to do. But I think to your point, Dan, about AI, I mean, it was NVIDIA was down for, I don't know, an hour, maybe. I'm not quite sure when it sort of turned around. I think people want to play it out and see where, you know, how incredible can these earnings be? I don't know. So I didn't do a lot of anything today. Doesn't that make you nervous that the entire market is waiting on that one data point next week? Like literally.

6:35I mean, I've heard it again and again all day on the network. You know, I just see it on the Internet. Like everyone's waiting for this one company that just gained$900 billion in market cap in six weeks based on what their customers have said, based on what their competitors have said. And so if you think the hopes and dreams are all encapsulated in one earnings report in a company that has absolutely gone parabolic in a way that every other time in the history of the markets, when we've seen that sort of behavior, it actually corrects the other way and usually overcorrects the other way, as good as the story may be.

7:06And so, like, I just look at this and say, OK, I'm a little early in being kind of pessimistic on the stock move, not on the technology and not on the implications for the economy and how it's going to flow through so many different transformative things over the next years, decades, whatever the heck it is. But that is encapsulate a trillion dollars in two months. Seems a little overdone. And now the whole market, every investor is waiting for that one thing. Well, the two examples, the examples that you gave at the beginning of the show in terms of what has sort of captured investors imagination, what has been the poster children for this market rally, Eli Lilly, as well as NVIDIA, every single testing point they've delivered despite these concerns.

7:45What if they don't deliver this time? So much is built into the stock. Yes, but NVIDIA twice has traded down even when they delivered. That's true. So, you know. But then it has gone higher. Way higher. Am I concerned? Yeah, I am. It's expensive, right. I will be selling going into it. Of all the stocks, maybe not in December 25th or late, you know, right before New Year's, but of all the stocks, if you ask someone in November, which is the stock of the mega caps that's not going to be up 45 % year to date through February 13th, you were probably going to say it was NVIDIA. There's no way they were going to do what they did last year.

8:18And they're on a pace to far exceed it. It gets back to, I believe, in a combination of things. I'm mostly a fundamental guy. But I care about dynamics as they relate to positioning. The Bank of America fund manager survey came out and they said tech positioning is its highest since August of, guess what, 2000. It's kind of an ugly sound when you think about where the calendar was and what the markets did. And then the flip side of some other data points in there, I think it's fascinating stuff. They're only statistics. But if you believe in contrarian dynamics, only 7 percent of the people filling out that survey last week or two weeks ago, They compiled the data before the CPI number.

8:55Only 7 percent thought inflation was going to be sticky and move higher this year. Ninety three percent think it's going lower. That means most of those people actually believe there is no inflation. And if we show a little bit, some of the positioning tells you that this market is going to have to react to that. You know, it's in Karen spot on in terms of the S &P. What has changed, though, where yields are obviously much higher and that move in the VIX, don't underestimate a move up to 18 today. And what was not a crazy panic day, that's a pretty significant move. But if you want a poster child for some of the craziness, look at arm holdings over the last couple of days.

9:26Our crack staff and EC can put up a chart. Gap opened higher yesterday. Huge amount of volume, probably traded 12, 13 times normal volume. Created that island. Gap opened lower today on about 70 million shares. This is a company now with$120 billion market cap that's going to do$4 billion maybe of revenues next year. I mean, you can do that math. That's extended in any universe that you live in. Part of that fund manager survey was MAG7 was the most overcrowded trade since long dollar October of 2022. Right. Very long trade. And so in terms of positioning, we've seen inflation come down and we've seen the MAG7 go higher.

10:06We've seen rates go up. We've seen the MAG7 go higher. So in this environment, it seems like, you know, you could write that sort of context in which the MAG7 would still move higher. Yes. And if we start to see slower growth, I mean, they should stay defensive. We have this conversation all the time. But when positioning is as offsides as it is, and I think there has been some FOMO chasing some of these stocks. And I think that's that's where you get to. I just think that there are some elements about a day when rates rocketed higher, where you had more inflation, where stocks started to react to some of this stuff.

10:38And you had financials really in the teeth like New York Community Bank. I realize it's a poster child for things that could go wrong. But you can't tell me that on a day like today, that doesn't also put a bright light on credit issues that are eventual. It doesn't mean it has to be 2008. It means that there is a commercial real estate market that doesn't make sense in terms of the spreads and in terms of the core parts of that business. Earnings alert now on shares of Lyft. The stock had been up almost 70 percent after hours, but now up only 16 percent. Deidre Bosa is here with the headline that causes stock to come back down to earth if you can call up 17 % down to earth.

11:15Debo. Melissa, I have never seen anything like this. It is wild. Lift on the earnings call just corrected its earnings press release. Says that it meant EBITDA margin expansion will be 50 basis points with 1-0, not 500 basis points with 2-0. That is a major correction. I just had to go back to the earnings release and check it like five times. They did write 500 basis points. Like you said, shares went to almost up 60 % in the after hours to 15%. On the bright side, they are still up more than 15%. Part of that has to do with those improved financials, but not quite as improved as some people might have first thought.

11:57We'll continue to listen to that call and bring you more commentary, Mel. That is fascinating. Thank you, Deidre Boz. I mean, obviously algorithms, they can't tell that it makes no sense if it were 500. But but that speaks to David Einhorn last week. It speaks to exactly the points that he made. I mean, the machines don't want to say, wait a second, maybe there's a mistake. They read that. They interpret it. And that's what happens. That's why the market function not broken changed, although felt a little broken with that. I think they'll be sued within an hour. Really? Yeah. I mean, but I mean, I don't know that anyone was particularly disadvantaged.

12:30They all got the wrong information at exactly the same time. Right. Right. But I wouldn't be surprised if that that happens. How are you harmed? If you're short? If you're, I mean, you have to prove harm, right? If you're suing? That you, I don't know, that you bought it because you saw the margins were going to be, yeah. And then that was, that was. Yeah, but if you were buying a stock up 70 % because you thought there was 500 basis points a margin, you should be neutered and you probably shouldn't be in the market anyway. I mean, like, I don't know. I'm just saying, like, 70%. No, no, no. Exactly.

13:06There was nothing sarcastic about that. No, I was actually very. Not that I would do the neutering, but I'm just saying you might want to think maybe a lobotomy or something like that. They should be punished. They deserve punished. Nobody has been hurt in this other than financially. But as someone that's long-lived and someone that sees a lot of great things in these numbers, I want to point out quarterly bookings were up 17 percent. Of the 40 million users last year, 25 percent were new users. And one of the things that I guess I've always felt as a shareholder of Lyft that I was waiting for profitability, not just adjusted profitability.

13:37So let's see. But clearly margins are getting better. But but the dynamic of of a do an effective duopoly in rideshare right now. And I live in a city where you can't get in taxis anymore because not because you can't find them because they made the taxis unaffordable. So now actually in every major city in the country, you have two options. And believe it or not, they're not cheap options, but they're the cheapest options because cabs no longer are cheap enough to ride. Sorry, yellow guys. It's a case of where I think the yellow cabs have just become difficult. But look, I think it gets back to the profitability and a company that really has been waiting for normalization.

14:10The dynamics you're hearing about in ride share and their ability to pass on higher prices, I think, continues. And I think the stock's going higher. It may not be 70 percent today, but I think you're staying in the stock for that. All right. Let's move on to banks here. Getting hit hard in today's sell-off, the KBE big bank ETF falling 3.6 percent, while the KRE regional bank ETF getting hit even harder, down more than 4 percent. Here to break down where we go from here is Jannie Montgomery Scott, Director of Research, Christopher Marinette. Christopher, great to have you with us. Thank you. If we push out rate cuts, let's just say for argument's sake, rates stay exactly where they are right now.

14:46Does that do anything in terms of your thesis for regionals? Not really. I think that it's a mixed impact. I think that higher loan yields are going to be positive for banks. I think deposit costs will continue to rise. So I think the net interest margin stabilization theme that had been vigorous the last four to six weeks probably gets pushed out one quarter. That, to me, is the worst case scenario. I think the question ultimately is, is the five year treasury going back to five percent, not 432 where it closed today? hey, if we go back to last year's highs, then I think it's going to be more of a struggle for the stocks and for the business.

15:20I'm not convinced that that's going to happen, though. When do you think we see the biggest impact, the peak in terms of, you know, defaults and delinquencies from commercial real estate? How much of a lag is it? Because obviously it's not coincident. It's not. It's certainly not, you know, leading. So, you know, in the great financial crisis, if you take a look at the St. Louis Fed data, it shows key one of 2010. after the great financial crisis. That was the peak in terms of delinquencies for commercial real estate. Where do you see it? How much of a lag? And should we be prepared? Should we price that in right now, that delayed impact?

15:56Sure. I think it's being priced in. I think it will continue to be. I think the answer to your question, second half of 25, it takes several quarters to recognize risk in the industry. We started last year, so we're a few innings into this. But to me, it's going to go into 2026. So I think your peak will be a second half of 25. Banks, the good news is they have really good cash flow with PPNR operating earnings that they can continue to fund loan loss reserves, earn their way through it. I think capital is going to actually continue to build for these companies while they go along. And so, sure, we're going to struggle on net interest margin and deposit costs and those indicators.

16:30But the reality is the banks have the earnings to fund the reserves to handle the risk. It's just not pleasant as you go through the process. It's Karen. Thanks for being on. So when do you think the stock prices will be sort of under the most pressure at that same time or before that? So I think it's happening before, Karen, because the reality is we have already a lot of conjecture about how bad commercial real estate is and how bad losses are. So the stocks are down way in advance of that. So we still have a little bit of premium on price to book and PEs for the group, although I think many stocks are at a discount to where they usually trade.

17:09The question is going to be where are earnings going to be in a year from now and tangible bulk a year from now. I feel earnings and tangible bulk will be higher. It's just going to be a slow play as we roll through. I think the worries are going to continue because, again, it's going to take us several quarters to really recognize all the challenges. Chris, great to speak with you. Thank you. Thanks for having me. Chris Maranak, where are we on this trade, do you think, Guy? I think these banks have probably got – I mean, listen, Bank of America had a big rally. It's still nowhere close to its all time high.

17:39And that makes sense. But if you think rates are going higher, which I think Tim does, I do as well. I mean, Bank of America at five percent in 10 year back in October had a hold to maturity loss on their balance sheet of one hundred and fifteen billion dollars. That has not changed. The only thing that's changed are rates. And if rates continue to go up, I think Bank of America feels the pain. I think in the regional banks, it's a case of dead money. I just don't I don't know that there has to be a disaster here. It's hard to see how the fundamentals get better. If you look at NYCB, I mean, it trades at 0.4 price to tangible book.

18:09I mean, it's trading at a massive, massive discount. That's not the one you need to go get. But the question is, are commercial real estate trends and other major metropolises any better? They're not. And they're at least going to continue to percolate. That's what everyone has said here. I.O. loans are going to roll off. Sweetheart leases that a lot of these landlords have are going to roll off. Coming up, we've got a huge slate of earnings to bring to you. Shares of Zillow, Airbnb, and Robinhood all on the move after reporting. And after today's major sell-off, could some of these big moves after hours set the stage for a big bounce back tomorrow?

18:37The numbers out of all the quarters ahead. Plus, a pulse check on energy. Nat gas continuing its crash down nearly 50 percent over the past month. The reasons behind the big move and how to trade it when Fast Money returns.

19:00Welcome back to Fast Money. Natural gas prices plunging again today, down about 5%, bringing the drop in the last month to nearly 50%. The commodity now at levels last seen in mid-2020. Pippa Stevens is here to break down the move and the ripple effects across the energy complex. Pippa. Hey, Melissa. Well, NatGas, sinking to a more than three-year low with four key factors driving the declines. The first and most important is the mild winter temperatures. December was the warmest on record, and apart from a few brief cold snaps, this winter has been moderate. EBW Analytics Eli Rubin told me weather-driven demand has been, quote, off the charts bearish.

19:36Less demand means more gas in storage, with inventory roughly 11 percent above the five-year average. Production also remains around record levels. And finally, one of Freeport's three LNG trains is currently undergoing repairs, which reduces export demand. In terms of how low can we go, OTC Global Holdings' Campbell Faulkner telling me sub-150 is where things really start to hurt. Now, in a day where we saw so much red, gasoline futures climbed higher, in part because of the ongoing outage of BP's Whiting Refinery, the largest in the Midwest. And that, Melissa, is pushing up Phillips 66 and Marathon Petroleum, which I know Guy is watching pretty closely.

20:18Back to you. You're in his head, Pippa. Thank you, Pippa Stevens. Not enough room in there. It's plenty of room. Cavernous. It actually is cavernous. Back in the day, we used to call, I think it's still called natural gas, the widow maker. And you see the reasons why. So we're basically right around cost of production now. Can it go lower? Absolutely. However, as Pippa just said, those names and those names that Paul Sankey brought a couple years ago continue to work. And there's nothing really that should stop them at this point other than just buying exhaustion, which I haven't seen. Tim? Oh, well, I look at the overall oil trade.

20:53I agree. I don't trade in that gas. I never really have. The gassy exposed integrateds have been interesting and have done very well. But if you I just take the macro on the sector. OPEC was out there talking about demand for the next couple of years. They were talking up demand, not down demand. And I think their ability to control pricing here. I look at Brent. Brent's now back above the hundred. I think that's a decent chart. And I think the energy names, the integrated names especially, are where I'd be. We've got an earnings alert here on Zillow. The company reporting a beat on the top and the bottom line.

21:21Shares are up about 3 % after hours. Steve Kovacs got all the details. Steve. Yeah, it's a good beat here. It's up better than, I don't know, 3.5 % or so after that beat, like you said, on the top and bottom lines. Mel, earnings, big beat there. $0.20 a share adjusted versus the$0.12 the street was looking for. And as for the segments, let's dive into that. Residential sales up 3 % year over year to$349 million. The company also pointing out it beat the broader residential real estate market, which contracted 4 % by 700 basis points. Rentals, that's a growing segment for them, up 37 % year-over-year to$93 million.

21:55And mortgages, up 22 % year-over-year to$22 million. And here's a really fun stat for the full year for you guys. The Zillow website, 2.2 billion visits all year. That's a lot of millennials looking at houses they can't afford, guys. All right, Steve, thank you. Thanks. Steve Kovach. Karen, you've been in this. I am in this. You are in it now. Yeah. It was like two acronyms back. But, I mean, there's a lot to like here. Back when you played the game the right way. I'm sorry. I had to do that. I'm just trying to play. All right. All right. So the X and Helm doesn't work for you. That's fine. There was a lot to like here.