Inflection Point For The Market… And the JPMorgan Healthcare Conference Kicks Off 01/13/25

0:02Live 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. Pause or pullback? Some of last year's hottest trades dropping sharply from recent records. Is this just a rally taking a breather or a sign of more trouble ahead? And weighty issues, the obesity drug space front and center at this year's J.P. Morgan Health Care Conference. The latest from the top players in the space and what we might be hearing about potential deal making. Plus, KB Holman's solid foundation after earnings. Our pair of rivals teaming up to buy U.S. steel and why hedge fund titan Bill Ashton is looking to take over Howard Hughes.

0:35I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. We start off with the major moves in some of the market's most popular names. Apple spending most of the day in correction territory, ending down a percent, and now more than$25 off its post-Christmas high. NVIDIA, Bitcoin, and Tesla down double-digit percentages, all as a 10-year Treasury yield hits a 14-month high after last month's blowout jobs report, last week's, I should say, and has chances of a rate cut this month lessen. The dollar index also on the move at its highest in over two years.

1:08And don't look now, but a huge slate of earnings is upon us. J.P. Morgan, Goldman Sachs, Wells Fargo, and Citi kick things off for the big banks on Wednesday, followed by reports from Taiwan Semi, UnitedHealth, and many more later this week. So is this just a temporary pause on the road higher for stocks, or are we nearing a major inflection point for this market, Guy? That's an interesting setup, Melm. So here you go. I'll give you my sort of two cents. An optimist will say, you know what? Great reversal today off the lows. That was very impressive. The VIX backed off. Great day. We're going higher now from here.

1:42Pessimists will say that's a pretty feeble bounce. Is that what you said? Well, I tend to be pessimistic. Well, you know where I stand. I'm not trying to bury anything here. Off what was a pretty miserable day on Friday. I'll say this. I think right now as we're sitting here, 10-year yields are now firmly above 480. I think they're trading 481 or so. That's the story. So the market in this environment, our economy and our stock market is not set up to have yields trade higher in the manner they have over the last couple months. Which camp are you in, Karen? I'm not a pessimist. You know, I'm always long, so you have to kind of always be optimistic.

2:17I am concerned about the rate thing. But remember, I mean, we are off a good at least 5 % since that December peak, whenever that was. So, you know, we'll see. I like to, you know, know what earnings are and understand what are the fundamentals. And so I also really like to hear from banks because not only do we get their fundamentals, but they have such a good look on the economy at large. And I think we're going to see some good earnings. So I am long staying long. So intraday at one point, the S &P was below the 50 day moving average, and it hadn't been there since August 4th, 5th, essentially when we had a growth scare.

2:52So we don't we have the opposite of that here. We have we have a bit of a rate scare. And the question, as we always ask, is this move orderly? And I think 120 basis points in the 10-year from almost the moment the Fed started hiking rates is reasonably orderly. What's happening in Japan doesn't feel very orderly. And I think if you look around the world, there's some places where those bond markets aren't acting orderly at all. And I think there's an issuance glut that's coming. And I think we're seeing it in other parts of the world as much. And in terms of the administration coming in, we know there's a growth first, debt second kind of approach here.

3:24So back to equities, it's a very interesting day because that reversal is very important. It's not just the S &P, but semiconductors. If you look at the SMH, it was clinging to that 200. It's been kind of bouncing along there, finished positively. But again, getting back to the leadership of whether you do have the MAG7 and the outperformance of a couple to each other is also very interesting. Meta up almost 11 percent to Apple year to date. But I think equities came into this year with uber complacency, cash levels uber low, no expectation that the job market was going to be quite this strong.

3:58And I think it's a reaction. And I think that's something volatility will come with that. But my glass is half full. Yeah, I'm pretty neutral right here. And I'm in Karen's camp. I want to wait for Q4 earnings. And really, more importantly, I guess, Q1 guidance, if there's anything we can glean into the year. You know, expectations for earnings growth are still 12%, 13 % or so. And I just don't know how you get there for these large multinationals who are dealing with a dollar that's trading at multi-year highs. You have yields that are trading very near multi-year highs, you know. And I'm just looking at like crude oil.

4:29You know, today you saw the airlines. They were all down like four some percent. I'm looking at what's the headlines. We saw some earnings last week. It was crude oil trading at 79 bucks is what I suspect here. So when I think about this, it's got to come from the leadership, that fateful aid. If you look at some of those names that we saw today, you're talking about, you know, a big reversal in Tesla. Apple did stay down in the day. It had a fundamental reason to stay down in the day. So when I think about what happened, there was a lot of pull forward over the last kind of month and a half or so.

4:57So now we have to wait for earnings. We have to wait for this inauguration because one of the things I think is really important is, like, some of these big moves that we saw after November 6th, right? So you had these kind of runaway FOMO sort of trades. Well, they've given a lot of it back, right? So it was expectations of maybe a different regulatory environment. Now we get to the confirmation phase of all these folks that are going to be, you know, that were nominated for these roles. And I think this is the back and forth that you get on policy. And this might shift sectors. We've had a really nice run.

5:26Some of them have given a lot of that back. So I think earnings and I think, you know, the confirmation period is going to be really important for regulation. You mentioned your fateful eight, and that brings into light the fateful eight being the biggest seven stocks. Yeah, formerly the MAG seven plus Broadcom. But just in case people haven't really cracked the term. We're getting comfortable with that here. It's not an acronym. No. Stay tuned. We need to clarify. Maybe for you, Karen. Stay tuned. I was going to say, it didn't work. It's good enough. Not for Dan. But that sort of underscores just how this market is built, and the market is built on the market cap of these stocks.

5:59And you mentioned Apple being down for a fundamental reason. NVIDIA was down for another fundamental reason, the fear of further export control. I mean, there are certain things that some of the biggest stocks are actually grappling with. And it's not just positioning here. It's actual fundamental issues which might affect their business. Yeah, each have their own without question. And I think we're at a point now where 10 stocks, so 2 % of the S &P 500 are 40 % of the weighting of the S &P 500, which is remarkable. I've got to believe that's some sort of record. But, you know, it speaks to the top heaviness of the market.

6:31And maybe it's not as broad-based rally as we thought. But with your point is well taken. Each of these names have their own issues. The one that I think is interesting, they're all interesting, but, you know, the move in Apple seemingly come out of nowhere. Yeah, there have been some negative headlines along the way, but we've seen that before. And the stock didn't seem to care for every reason it is now. But, you know, I encourage you to go back. Look at where we topped out in July all through the summer into October. It was sort of 232 or so. That was a prior all-time high. That should be support.

7:00And that's where we seemingly are stopping right now on the downside. It feels like it's become in vogue to criticize Apple and to say iPhone sales are going to be soft. And iPhone, there's no reason to upgrade the phone. People are going to last longer. People don't want a future proof. Their purchase of an iPhone, you know, buying an advanced version in anticipation of those AI sort of features, because Apple hasn't shown any proof of those AI features at this point. At some point, this becomes consensus, though. That's fine. It's not in the stock. I mean, you can't tell me the stocks. The stocks, first of all, now that it's given back some of this move, The stock's effectively up 10 % in two and a half years in one of the greatest bull markets of all time.

7:36There's nothing in Apple stock. This is one of the best stocks in the market in terms of giving back capital, in terms of running their business as a cash flow machine. The services business isn't 30 % plus, but it's certainly solidly 20s, and it's certainly got a margin attached to it that allows it to trade at a higher number. Should it trade at 33 times forward? Probably not. But I just go back to Apple and I say this is a company that I feel really comfortable owning in this environment relative to some of its peers in that. Faithful 8. Faithful 8. Faithful. So, I mean, I think you've got a dynamic here where it really is.

8:09I would take all that negativity and say that's right and it's in the price. I would say if you're looking for Faithful 8 that are really, I think, value. To me, meta and alphabet are far more compelling and multiples much closer to a market multiple than 32 odd, whatever it is. Was that a movie with like Denzel where they think that a remake? I don't know. It was the hateful. Oh, the hateful. Oh, so you're playing on words. Is it Denzel or Denzel? There's a lot of stuff going on. The fact that we have to explain this and spend that much time. Well, by the way, Denzel is a huge fan of Fast Money.

8:43He's watching right now. So we're all the eight. We're not spending a lot of time talking about Amazon, which I think is really interesting because there's a lot of levers to pull. We think about some of the stuff we came in today. We saw Lulu guide up. They're kind of saying some pretty decent things about holiday sales. We know that obviously that's not a huge margin contribution there. But some of the stuff out of AWS over the last year and a half or so coming off of a bottom, I think that's one to really keep an eye on. But I also agree with Karen on the alphabet. I mean, this is one that's been fairly underappreciated.

9:12I think the underappreciation as it relates to Microsoft probably has more to do with this kind of early leap that they had as far as their relationship with OpenAI. But also when you think about this company, they're not getting a lot of uptake with the co-pilots, which is what this OpenAI technology was powering. All right. Well, Evercore ISI bracing for further market weakness. Julian Emanuel is the firm's senior managing director. He joins us here on set. Julian, great to see you. Great to be here. How much more weakness are you thinking of? Probably not a lot more. OK, so we came in essentially December the 18th.

9:46The FOMC changed the outlook on how to think about volatility. And we finally get this this idea where, yes, there's damage being done by virtue of higher yields. And yes, at what was then 25 times trailing earnings, markets are going to be vulnerable to less than perfect news. And we've had a lot of less than perfect news over the last several weeks. But when we think of the manic swings in sentiment we've seen in just, frankly, since the beginning of the year, and you superimpose that on the fact that earnings season is starting Wednesday, you're going to get a CPI report on Wednesday, and you're going to get a new president inaugurated on Monday.

10:28Even if some of the information there is less than perfect for markets, you're going to have resolution of uncertainty to a certain degree. So to us, we think you possibly test 5 ,700 on the downside. If things get, you know, incrementally more ugly, maybe down to 5520. But for us, the bigger picture is we think you're going to 6 ,800 by the end of the year. So thanks for being here. So if you were to get to that 6 ,800, what do you think are what makes up that perfect environment in terms of unemployment, inflation, capital, I mean, financial conditions. What's the perfect brew there? The most important thing is that the 10-year yield remains in check.

11:16What's check? OK, check is basically called 450. You could nudge towards 5%. But frankly, if you look at this, the entirety of this bull market going back to October of 2022, stocks have had difficulty as they are now when you get above 475. And you've actually only spent one day at 5 percent in that entire time. And that was the end of the biggest correction that we've had this entire cycle. So to us, that is the thing, because the Fed, I don't care what anyone says, the Fed's not hiking rates this year. Let's put that aside. And we don't think there's a recession. But what you're left is how effective the bond vigilantes are going to be in dictating what the limits of policy and dictating where multiples can go.

12:06Are you worried, although, about inflation as it relates to me? Look at copper prices going higher here. Look at oil prices going higher. I realize there's been fundamental news around the oil market. I don't think so much around copper. What we're seeing feed through here, look, a lot of people, the Fed funds rate means nothing to what they pay for their mortgage, for their houses, corporate borrowing. I mean, I think inflation is going higher. And I think leaving the Fed aside, how does that play into the equity market? So, look, over the long term, inflation in manageable dollops tends to be positive for equities.

12:39We know that's one of the rationales. I think you have to think about it within the context of what the intent is this year. And when you look at the Fed, they're likely going to tolerate inflation being a little bit stickier. the same way they did last year in the spring, simply because their read right now is that the longer term 10 year yield moving up the way it has is likely going to moderate financial conditions from overheating. After being inverted for the longest time in history, the yield curve is now as steep as it's been probably in four or five years ish. Good or bad? Net good. OK, I think this entire cycle going back to post pandemic, the return of, quote, unquote, normal price of money and normal term premiums.

13:31We both know that in our careers, this is still very low in terms of where the yield curve is. And you could go a lot higher. Our concern is that it happens in a more disorderly way if there's a reaction to policy as it evolves over the next several months. But we don't expect that as our base case. Julian, great to see you. Thank you for stopping by. Thank you. Julian Emanuel. So, Steve, that's good for banks. We're going to hear from them. I mean, J.P. Morgan traded great today. And I think Karen's point, what's the read on the consumer? Like, how is, you know, business activity going? And we're going to get all that by the end of this week.

14:05You know, when I think about it, and Tim just mentioned this, you know, going back to July, August, there was a growth scare. And so this is like a perfect ingredient, in my opinion, where valuations are in stocks here. You know, the concentration of this index. We also have two years that have been powering the secular shift as far as generative AI. If there is a digestion phase, if CapEx starts coming down, if you do not see the use cases for this technology and the return on those investments, then you put that together with the potential for an economy here, but also overseas that is going to start to feel the effect of just dollar yields.

14:41And then the last thing is the deflation in China. I don't know if that's fixed this year. And I think that's the sort of thing, if that is exported around the world or at least in the emerging world, that's going to weigh on our U.S. multinationals. I think one thing to come out of the banks will be consumer strength. Yes. And I think that we've had this brief sell-off in some discretionary names that I think is an interesting opportunity. Let's get to an earnings alert on KB Home. Shares are jumping after hours on top line and bottom line beats. CNBC's Diana Olek's got more. Diana. Well, Melissa, the big concern here was mortgage rates, which had dropped to recent low in September.

15:14At the time, KB CEO Jeff Metzger said in the previous earnings release that Q4 demand was coming in strong, but rates shot up after that. Apparently, it didn't matter. KB still saw net new orders up 40 percent year over year in Q4. In this release, he said buyers continued to demonstrate a desire for homeownership and housing market conditions improved relative to last year, despite ongoing mortgage interest rate headwinds. Now, the average selling price was even up 3 percent. Gross profit margin increase ever so slightly. KB's average price is right around$500 ,000. So kind of in the middle for new builds, higher than Lenar and D.R.

15:50Horton, lower than Pulte and Taylor Morrison. Home deliveries were up 17 percent year over year. Melissa, I just want to note, I was just listening to the conference call before I wired up and Metzger was saying there that they were seeing a soft start to this quarter, to Q1 of this year. And that's likely due to mortgage rates. He said that he hopes to make it up in the upcoming spring season. All right, Diana, thank you, Diana Olick. That's assuming mortgage rates come down. But if we're here higher for longer, who knows? Scott, what do you make of this point? So, I mean, this was an eighty nine dollar and 70 cent stock a couple months ago, traded almost in a straight line down to where we bottomed out at today.

16:27I think this is a bit of a relief rally. But I'll say again, if you think interest rates are going higher, which I want to be clear, I do. And if the unemployment rate will go higher, which I also do, I think the home builders are a hard buy right now. I take the other side of that respectfully in that we talked about this a number of times, this phenomenon of all of these sort of stranded homes that aren't on the market yet because people's mortgages are too cheap. That, to me, is a bigger threat to home builders, and this environment is good for them. And so I kind of like this space. All right.

16:58Coming up, keep your friends close and your rivals even closer. why Cleveland Cliffs and Nucor may be coming together to make a bid for U.S. Steel and the likelihood that deal gets done. We're continuing to monitor the devastation from the deadly wildfires in California. The latest on the damage is firefighters brace for more dangerous winds. Don't go anywhere. Fast Money's back in two. This is Fast Money with Melissa Lee right here on CNBC.

17:33Welcome back to Fast Money. Firefighting efforts continue in Southern California as dangerous winds and dry weather counter efforts to contain the deadly wildfires in the region. At least 24 people have died and evacuation orders have extended to 92 ,000 L.A. residents. Wells Fargo Securities estimates insured losses of about$30 billion as of this afternoon. Per more on the damages, let's bring in Contessa Brewer, who is there in the midst of it. Contessa.

18:03Yeah, I'm in the Pacific Palisades this evening, Melissa. And we've also seen a massive jump in the estimate on economic losses from AccuWeather. It went from on the high end range of$150 billion to this afternoon,$275 billion. And when you're out here and you see the damage in these neighborhoods, you're just looking at house by house on every street. And to me, it just seems apocalyptic. recovery.lacounty.gov gives homeowners who have still been forced to evacuate some confirmation that maybe their home is gone or by miracle maybe it's still standing. But this website is far from updated. The insurers have said right now they're relying on aerial imagery to go overhead and try to get a sense of where their policies may come into play.

18:54Many of the homeowners in this neighborhood would have bought coverage through California's last resort insurer, the fair plan that we were talking about, Melissa. Today, it sent out a notice saying it's way too soon to put a dollar figure on its expected claims, that it's too soon to say whether it will have to tap other funding sources, which basically means make all the other insurers pay even if they haven't been collecting premiums on these neighborhoods. And it warned it operates on a cash in cash out basis when paying those claims. As I've previously reported, it doesn't have a lot of cash on hand.

19:29So that could mean a delay in getting money into the hands of the people who held those policies. And as of right now, we've seen red flag warnings in effect. Those Santa Ana winds returning, they're expected to pick up and be very strong tomorrow. And this is a neighborhood, a town, a city, really, that is on edge. Melissa? And Contessa, in terms of the fair plan and what it has in reserves, how does that compare to what is now the estimated insured losses of about 30 billion?

20:02Well, remember, we were talking about Pacific Palisades and how as of last year and, you know, we're months behind on updated numbers, but it had some six billion dollars in exposure in the Pacific Palisades. Now, that doesn't mean$6 billion worth of homes that have burned, because as I said, there are some that are still standing. But it had hundreds of millions of dollars statewide in reserves. So how that plays out when there's just so much damage. Melissa, I have not seen damage like this since I covered the aftermath of Hurricane Katrina, and I have never seen it from a fire, ever. Wow. Contessa, thank you.

20:44Contessa Brewer bringing us the latest from California. How should we start thinking about this? I mean, the economic, the impact to lives, which means economic impact, is almost unfathomable at this point, Guy. Yeah, and remember what we're tasked to do. So I don't think any of us want to be, you know, deemed or looked at it being insensitive. That's not the case at all. But in terms of the show and the purview, if California was a country, depending on the day, it needed to be the fifth or sixth largest economy in the world for perspective. So you look what's going on there and you start to connect the dots and say almost by definition, this is going to create a bit of a slowdown.

21:20I mean, it's horrific. And Contessa just said it really well. But in terms of the economic impact, I think the market's going to start to come to grips with it soon. Yeah. Insurers didn't go down today, but that doesn't mean that they bounced in any fashion off of the losses that they saw yesterday. There are a lot of questions here in terms of the insurance market, how this is structured and why there can be such vast, you know, tracks of homes that can be left to the last insurer, you know, basically. Well, and if you look at, again, as Guy's saying, this is this is just trying to assess the insurance market and not in any way comment on the devastation because it's been extraordinary.

21:59And if you look at the the insurance ETF, KIE, for example, what gives you some sense and it runs across, you know, not just property casualty, but a number of other different dynamics. You can see that this was already off about 15 percent coming into this. And we had not only the the tornadoes in the hurricane season that was devastating also on the East Coast and the Caribbean. But but what's what's really clear here is that a lot of these insurance companies were already assessing risks well before this. And that, in fact, as we know, both in terms of they priced premiums significantly higher over the last couple of years coming into this, in some sense, their risk management teams were were hard at work.

22:38And I know that, again, this is a very controversial area, but a lot of these folks were already cut loose. And that's part of the horror here. I mean, a whole middle class of people have seen essentially their life savings in their homes wiped out. There is a lot more fast money to come. Here's what's coming up next. Foe's forging ahead. Unlikely partners coming together to make a bid for U.S. Steel as the deal with Nippon hangs in the balance. What it all means for the U.S. industrial giant. Plus, a huge day for health care as some big pharma names make even bigger stock moves. The sounds and sights from J.P.

23:16Morgan's Health Care Conference. Ahead. You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.