Investors Count Down to Retail Earnings and Is It Time to Buy Regionals? 5/12/23

0:01Right now on Fast. Stocks closing out the week with another round of losses as investors await the kickoff of retail earnings next week. Will it be the consumer to the rescue or will it be the consumer to the consumer to the consumer. sector and debt ceiling uncertainty continue to weigh across the board on markets. Plus, to the penny, the chart master has been spot on with his calls on where shares of Apple are heading, what he's saying you should do with the iPhone maker stock now. We're diving into the charts to find out. And later, it's Friday, which means we've got a chart of the week for you.

0:30Not one, but two of our traders see a buying opportunity here. So should you dip your toe in too? I'm Courtney Reagan. In this evening for Melissa Lee, this is Fast Money Live from the NASDAQ market site in the heart of Times Square. On the desk tonight, we have Tim Seymour, Steve Grasso, Guy Adami, and Jeff Mills. It's wonderful to be here with you gentlemen. Tonight, we are going to start with another day of losses to end of all the week, despite an attempted rally late in the day. The Dow closed lower for the ninth time in the last 10 sessions. The S &P and the Nasdaq also ending in the red.

0:59The weakness comes ahead of a big week for retail earnings. On tap, Home Depot, Target, TJX, Walmart, and Foot Locker. A key piece of data out today, already flashing warning signals, though. An early reading from the University of Michigan finding consumer sentiment felt more than expected this month. So will next week's reports confirm that the consumer is in a crunch or will there be relief in store? Tim, you know, when Walmart came out with their investor day, they gave us a lot of details about the long term forecast, but also sort of reiterated the fact that they're a little bit cautious about what's to come for the rest of the year.

1:32Well, I think and Walmart from a sentiment and a positioning perspective, and I would say this is probably the most crowded long of the broad lines and the folks that are going to be reporting next week. I just and as someone that's long Walmart, it's been a great trade. It's been a great trade because of the environment, because of the things that you talked about in the consumer, the trade down the grocery disinflation, I think not deflation, but disinflation from at least levels and difficult comps on that, I think are something to watch. And I look at Target versus Walmart. Target, certainly valuation makes sense.

2:04Walmart at some point here is really difficult. I stay long on Walmart, but on Target, I think you're going to hear some concern about just the overall mix of the basket. You're going to hear a little bit about some of the shrinkage on inventory, some things that have been at least plaguing them. So I think you've had some of these trades that have been very defensive trades in O 'Reilly and AutoZone. And I think those are places where people, frankly, need to be careful because I think some of those have been places to hide out. Steve, you know, earlier this week, Under Armour said that they were able to drive sales because of deeper discounting.

2:35And I'm wondering if that means the consumer is again looking for discounts, which I wonder then, is that going to benefit TJX? You know, TJX on a one-year performance is up 40%. So it's not as if they haven't been performing already. They haven't performed this year, year to date. I think Walmart, if I was forced to choose Walmart over TJX. Nobody forced you, by the way. Yeah, I know. I forced myself. I have a strange personality defect. So if you look at TJX and Raw Stores, they were the early winners coming out of the pandemic because everyone who couldn't get goods wound up over-ordering. What do you do with the over-order?

3:16It sits, doesn't sell. You take that and you sell it to the other stores. So they benefit from that. That phase is over with. So the raw stores and TGX have had their day in the sun. I think right now you're going to get a bigger performance out of Walmart, and they have that grocery component as well. Yeah, absolutely. And the grocery component has been very helpful in driving sales, but Walmart did also point out last time around, of course, those are lower margin sales. Now, they're still profitable, but if they don't sell more of that general merchandise mix, it does pressure the margin, and that is an area where Walmart is focusing right now.

3:50Guy, what about some of the other names? We've got Dow Component Home Depot reporting. Always a good read through there for what's going on with the American homeowner. But we also know that the spring weather wasn't wasn't great. And Tractor Supply pointed that out as a big ding for the products that it sells that have to do with the outdoors. Expecting the same thing from Home Depot. What do you think? It's interesting, though. Home Depot on Monday, I believe, if I'm not mistaken, or Tuesday. I'm sorry, but I'll say this. You know, the stock has sold off significantly from that December 2021 high 400 and change.

4:21And here we are to 90 to 75. has been supported a number of times. So everything you just brought up might already be in the stock. And at 17 times next year's numbers, Home Depot doesn't get a lot cheaper than that in terms of valuation. So for a flyer, I think Home Depot looks pretty interesting. I hear what Tim and Steve were saying about Walmart. I'm curious to what Jeff thinks. But, you know, Walmart at 22 times in this environment is not ridiculous. However, it's up against the levels we saw in April of last year, that 158 or so level, which was a prior all-time high. So there's a real opportunity for Walmart to have a major double top.

5:01But Home Depot might be the one that really gives you bang for your buck at these current levels into earnings next week. Jeff, you can go wherever you want with this and pick any of the names that you want. But I just noticed as we were talking here that Target is down about 7 % in three months. So since they last reported, they had a pretty decent quarter, but also were a little nervous about what was to come for the rest of the year, much like Walmart. Any of these names stand out to you as opportunities ahead of the results. Yeah, so let me start with this. And I'll go back to what Tim was saying, because I do think retail is a little difficult here.

5:36Because I go and look at names in this sort of environment when I have a view that the economy is going to continue to slow. I want to see retail names that have some sort of negative correlation with leading economic indicators, or at least a lower correlation than maybe some of the more cyclical names. So that would be a TJX. That would be a Walmart. That would be a Dollar General. That would be an AutoZone. That would be a five below part of my fame trade. So you have those names that I think you should probably be sticking with. But at the same time, they're getting crowded. The valuations are high.

6:04So it's almost like, where do you go now in retail? And, you know, you start to sound like the boy who cried wolf relative to the labor markets. But, you know, I think it's clear now that initial unemployment claims are going up. And there's a really high correlation between initial unemployment claims and consumer confidence. I think we saw that today with consumer confidence coming in lower than expected. I put together a chart. Maybe we could throw it up on the screen now. But you have this relationship between the senior loan officer survey. So are banks tightening or loosening lending standards?

6:34Obviously, now banks are tightening lending standards. So that leads initial unemployment claims by about eight months. So if you look at indicators like that or small business hiring plans or challenger job cut surveys, it tells me that the labor market's going to continue to weaken. So as far as retail, I think you probably still huddle in those safer names, but they are more difficult because of the valuation here. Interesting thoughts. You know, Tim, there's so many cross currents going on. We heard some strong comments about the consumer from some of the casino names like Wynn called the consumer flush with cash, which was an appropriate word for a casino, I suppose.

7:07Yes. Marriott, Norwegian, they had some really good things to say. But then you had Hershey talking about, well, actually, we're seeing some trade down to some lower price points. Obviously, the cautious comments we had just recently out of Walmart's Investor Day. So when you're looking at the consumer in general, how are you sort of sizing it up? As we know, the recession very well could be right around the corner and inflation still remains high. I think the trade down will continue. And I think that Walmart's issues really are the ones that are more related to both the performance. I think it's just positioning.

7:39I think it's very crowded long. Guy's right. The valuation is not difficult. If you think about their grocery business, there is some relief in the pipeline, at least in terms of grocery prices. But those retailers that at least have had pricing power are the ones that really have outperformed. And I just don't know that they're going to have that same pricing power over the next couple of years. I also look at some of these Home Depot versus the Lowe's. Now, that's been a pairs trade that people have looked at, just like they have with Target and Walmart. Home Depot's really underperformed Lowe's.

8:05Home Depot's sentiment around that, positioning around that. So, again, I agree with what Guy said on that. I think that's how I'm thinking about the consumer here. I think the trends of last year are the trends of next year, frankly. But I think there have been places to have been more defensive and the comps get a lot more difficult. Grasso, do you have any thoughts about that Home Depot versus Lowe's idea? I think that Lowe's sort of was a come-from-behind name for a while, also kind of made sense that they've been outperforming Home Depot because Home Depot has been stronger for longer. I always wind up going, leaning towards a Home Depot on that.

8:35But to piggyback what Tim was saying on the trade down, McDonald's chart has looked great for so long. And everyone uses that against it, saying it's got to fail at some point. But when we see people jumping down, when we saw what happened with Tyson and jumping down to the next level or drop down on food, I think McDonald's will actually level off here, flatten out, and then rally again. So it's definitely a trade down of food as well. Interesting stuff. Well, meantime, even with losses today, big tech has been on a tear of late. Amazon, Alphabet, Meta, Microsoft, and Apple all handily beating the broader market over the past month.

9:09But the chart master warns that not every stock in this group will keep up their run. So let's bring in Carter Worth of Worth Charting. What do you see here, Carter? Right. So the note to clients was a pairs trade. We have a lot of long, short institutions. And so this was simply looking at the four largest constituents in the QQQ. We know the names. Apple, Microsoft, Google, Amazon. But what we did, we looked at each as baskets. The total market cap of Apple and Microsoft, now$5 trillion, versus Amazon and Google at$2.5. So it's now double. And if you look at that relationship, it's about as wide as it's ever been.

9:42So the premise of the note was that you want to, as a basket, fade Apple and Microsoft and be long Google and Amazon. We have some charts. So here's the first one. This is a comparative chart. And you can see two lines. It's very straightforward. The first, the leader, is a two-stock weighted basket, equal weighted, of Apple and Microsoft. And the laggard is Amazon and Google. Now, if you put the next chart, you'll see that the QQQ is right in the middle. Meaning there's auto-correlation here, but you're looking at the two largest constituents plotted together versus the second two largest and then the index.

10:15Now, the way to really do it is to hold the QQQ as a constant. And if you do that, you see how bifurcated and how much of a spread you have. And the premise is that you want to be long the laggards here at this point, Amazon and Google, and fading the leaders, Apple and Microsoft. Fascinating stuff, Carter. You've been spot on with Apple, we know, so we better pay attention to what you have to say here. We will see you shortly on Options Action. Steve, what do you make of this note from Carter? Can't argue. Can't argue with anything that he has said. I don't disagree. The only thing, the only pushback, so I guess I do disagree.

10:49Well, when you drop a double negative, I know there's something coming. Yeah, so don't disagree. I am long, I'm long Apple, and I think the, you have to tell me if you think the banking crisis, it's rhetorical, I'm going to answer my own thing. Okay, there you go. So you have to tell me if you think the banking crisis is over, it's probably not. If it's not, then people are going to pull to safety. These companies have a ton of free cash flow. They have great products. They have a ton of cash. And I know the valuations are stretched. But when people think about safety, where to put their money, they're probably leaning towards more Microsoft and Apple, even though they've been on fire and they've been the leaders.

11:29So I'm not necessarily ready to buy the laggards in this guy. I understand. And not disagreeing doesn't necessarily mean that you do agree to Tim's point. But I'll say this. I happen to agree with what Carter said. And, you know, at a certain point, valuations do matter. And I understand why both Microsoft and Apple are great companies. We've never denied that. The question is, is enough in the stock in terms of valuation? And I thought that many percentage points ago, but I still think it now. Nothing's really changed. And the real story for both Microsoft and Apple has been multiple expansion, because it's really not on the back of their earnings releases, if you really go back and look.

12:07In terms of Google, you can actually make a pretty compelling case on valuation. And I think you're starting to see that. And Amazon, obviously, you've had that stealth rally as well. So I'm with Carter Braxton Worth on this one. Jeff, what do you think? Are you interested in what you see at the levels for Amazon and for Google? Yeah, so we were actually in the market today as buyers of Amazon. So we're putting our money, I guess, where my mouth is today. And the chart is very interesting. I mean, it's finally punching above that 200-day moving average, which it had a problem doing a couple of months ago.

12:40And if you listen to our analysts basically saying that you get AWS, you have advertising alone that gets you to the current enterprise value. So retail, other services, you know, basically for free, at least the way he's valuing the company. And for me, all along, the story has been these higher margin non-e-commerce businesses now making up 55 % of sales and rising. So even if there are macro headwinds ahead, which there probably are, I think this is a company that continues to improve margins and continues to take share. So we like the stock at these levels. Tim, you're nodding. Do you feel like these are safe plays?

13:14Well, I see Amazon has underperformed the S &P since July of 2020. And I look at that downward trend and like some of the things also that Jeff's pointed out, though, it's right up against some serious levels here. No question Amazon has underperformed Apple and Microsoft and Carter's rate on that. I look at all of the cues, and Steve's rooting this back to a banking dynamic that will keep people defensive. I think Apple is certainly one that is up against, on a relative basis, its position to the S &P on a ratio, again, of Apple divided by the S &P or the opposite, however you want to do it. And that, to me, looks like a place where Apple starts to fail relative to the market.

13:52Amazon has underperformed to the market for a long time. And I think the burden of proof is still on Amazon, even though I totally agree it's underperformed. Well, coming up, make way for a new chief tweeter, Elon Musk taking to, well, Twitter, of course, to announce the new hire. What does this mean for all the other companies that Musk runs? We'll break it down coming up next and later on Options Action. Mike is mowing into deer ahead of earnings next week. What's the action and how should you trade it? Those details are ahead. Stick around. Much more Fast Money ahead.

14:26Welcome back to Fast Money. Get ready for a new top bird at Twitter. Elon Musk confirming reports today that Linda Yaccarina, who resigned her post as NBC Universal's global advertising chief this morning, will take over as CEO of the social media network. He went on to say in a separate tweet that, quote, obviously bringing on Linda allows me to devote more time to Tesla, which is exactly what I will be doing. Tesla shares initially rose when the news of the appointment broke, but ended the day in the red more than erasing yesterday's gains. So what do you make of the stock traversal guy? I know there's a lot to talk about here.

14:58was a big talker today all around the horn. Well, it's clearly not encouraging. I'm sure he thought you'd get a much better performance on the back of that tweet alone. And early he did. But I'll say this. You know, it comes down to a margin story, I think. And they told us, they being Tesla in the fall of last year, that margins were going to start to come down, but they were not going to get down to the legacy automakers levels of about 16 percent. For me, the line in the sand has been 20 percent and probably going to be below that. And I think that's things going to start to get dicey for Tesla.

15:29If you look at this stock, obviously the move from 100 to 220 was heroic in a word. But over the last three and a half, four years, this is a stock that's gone from the upper left to the lower right in a meaningful way. So I don't think today's price action was all that good. And it feels that as another date with that 153 low that we saw a couple of weeks ago. Jeff, I think Twitter stock has sold off something like 50 percent. I'm sorry, Tesla stock has sold off something like 50 % since Elon Musk took over Twitter. Do you think any of that ground can be made up here? And if so, how long does it take?

16:04You know, it's hard to say. I've been looking at this 155 to 205 level. Guy said 153. So I think that's about right. And I think we just might be sort of stuck there for a while. I said if we could hold 155, maybe you drift back to the top of that range. I still think that's a possibility. But to Guy's point, and And they're not completely apples to apples. But still, over the next couple of quarters, Tesla is a car company. So look at Ford. Look at GM. Look at Toyota. They've all been struggling. Even look at a Mercedes. This is a stock that was actually doing quite well. Maybe you say, OK, Mercedes, Tesla, a little bit more similar because of the luxury nature of the product.

16:41But that stock is even starting to lose some momentum here. So I just struggle with the name in this sort of environment. I think you lump it in with those other stocks I mentioned in general. And you probably bounce around in that range I mentioned until something changes. And I don't see that happening over the next couple of quarters. I should clarify that previous comment. This Tesla shares are down 50 percent since Elon Musk took his stake in Twitter, down about 25 percent since the deal closed. But Grasso. Yeah. So I was lucky enough to buy Tesla around that hundred dollar level. I wish I was smart enough to sell it above 200.

17:14I stayed long. I think that we're going to hear more about the battery and power generation in the story's scale and scope. Let's remember, Ford, their margins on EVs, they lose money. And they're hoping to get to an 8 % margin. So they're doing better than any of the legacy car companies or any of the car companies, period, on margins on EVs. And that's the reason why he's playing around with price, because he can. So I think in the next couple of months, you'll probably see a return of the stock. We could spend a lot of time talking about this side of it. But I mean, I think Twitter's a winner today, too.

17:50I mean, Twitter needed the right kind of leadership. And I think this is a really exciting day. And I think you're going to see more moves to fall. Although ironic, of course, that he hires a woman that's quite adept in the ad space. She wins, too. He wasn't looking for that to start, right? He wanted to go a subscription. She's going to help a lot. Well, coming up next, we'll reveal our chart of the week. Is this chart so bad? It's good. Some of our traders are starting to give it a second look. Stick around to find out what it is. And throughout May, CNBC is celebrating Asian American and Pacific Islander heritage.

18:20Here's the global head of Citi Private Bank. It's really important for allies and those not in the Asian community to understand some of the values and the cultural nuances and the cultural beliefs of Asians, right? For example, we're brought up to be super humble, to be modest, to not tout our accomplishments, to work hard, to keep our heads down, to be quiet, to not boast, to not brag. Those are sort of the opposite things that you need to have to be successful in corporate America. But just knowing that and knowing that there's differences culturally is half the battle to understanding more about the Asian heritage and the Asian culture.

19:15Welcome back to Fast Money. Time for our chart of the week. It's the KRE, Regional Bank ETF, closing in green today, but still down 5 % since Monday. PacWest, First Horizon, Bank United, among the group's biggest laggards, all dropping 10-plus percent this week. So with regionals now down an average of 38 % on the year. Is it the time to buy? Tim, what do you think? Well, it's not the time to buy with two hands, and it's the time to think about diversification. But if you're buying a group, and sometimes ETFs make a lot of sense, I just think everybody's on one side of the boat on this trade. And there's no question that, to me, the valuation is at a place where regional banks look really interesting.

19:52And it's really just ironic, because going into 2023, everyone knew regional banks had credit issues on the horizon, that there was going to be a higher cost of deposits. Being able to analyze and model and really even assess risks around deposit flight is not something that I think even some of the most experienced bank analysts can do. I think you have a place here where, you know, I'm not betting on an FDIC. I think they're going to have to do something. But I think more importantly, we've seen through the earnings season that a lot of these banks actually had better deposits than people thought.

20:21I think it's interesting. The deposit outflow has certainly been hard to predict when it's going to happen, where, who it's going to hit. Jeff, what do you make of what's going on here? Regional banks do not normally trade like this. No. And to be very clear, I'm not all of a sudden some big bank bull. And we're not trying to be a hero with these moves. But we are dipping a toe. I think there are certain names that I won't talk about specifics because I think we'll still be in the market early next week. But you look at some of these price to book values, great financial crisis levels. You know, this is not a financial crisis moment for a lot of these banks.

20:52And let's not forget, First Republic was 72 percent of discount window borrowing was almost a fifth of the emergency loan borrowing. So you had one bank distorting sort of the perceived health of the overall sector. So I think if you're adding small positions, if you're picking your spots, it's an interesting time to start looking for opportunities. Got it. Well, it is already time for the final trade. Let's go around the horn. Guys, start with you. Big game six tonight, Court, as you know, but IBM all of a sudden looks Very interesting to me. Hmm, Jeff. Yeah, ExxonMobil really battling with that 105 support.

21:29I think if breaks, I'd be a seller. Steve, what's your final trade? Ambulix, their new drug Relivrio. I want to make sure I pronounce that right. Excited about the potential on that one. And Tim. First of all, happy Mother's Day, Mom. Happy Mother's Day, all moms. Courtney. Thank you. And you as a mom, welcome. And thank you for being here today. Home Depot. I think, again, I think your downside is limited going into those earnings. It's underperformed. We're going to watch all of those carefully. That does do it for fast money. Don't go anywhere, though, because Options Action is coming up next.

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