Is There Really No Other Alternative? And Why Mexico Stocks Have Been Taking a Hit This Week 10/6/23

0:01Live from the Nasdaq market in the heart of New York City's Times Square this is fast money Here's what's on tap tonight. So good, it's good. Stocks closing near the highs of the day, even as a much hotter than expected jobs report puts another Fed hike back in play. The traders set out to try and make sense of this madness, plus a glittering opportunity. Gold prices catching a bid after hitting seven-month lows. So can this trade get back some of its luster? Oh, man. Mind the chart master for answers. And later, yet another new version of America's favorite fast money game, traded or faded. Today it is fresh or foul edition.

0:36Are any of the bombed out staple stocks like Coke, Hershey, Hines worth a bite? Do they pass the smell test? Are they past their expiration date? We could keep going, but we've only got an hour. I'm Melissa Lee, coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Steve Grasso, Dan Nathan, and Guy Adami. We start off with the surprising surge in stocks today. The Dow ending the day up 206.88 points. That is after the blue chip index started the day down nearly a percent. The S &P 500 seeing its best day since late August, breaking a four-week losing streak, and the Nasdaq surging more than 1.5 percent.

1:12The strength coming despite a bigger-than-expected jump in payrolls for September, the economy added 336 ,000 jobs last month, almost double the street estimate. That strength initially sparked fears that the Fed could raise rates at the November meeting. The 10-year Treasury yield popping on the print, while pulled back from highs, it still stabilized at around 4.8 percent. But take a look at the groups leading today's rally. Technology, communication services, sectors that usually don't thrive in a high interest rate environment, did really well today. So why are investors flocking back into these mega cap names?

1:42And what was the reaction to the jobs report all about, Tim, in your view? Well, bad news. Sorry, good news was bad news. And then good news was good news. And if you look at the payrolls, we've averaged 266 ,000 jobs over the last three months. Let's be clear. There's no weakening in the labor force. And if you hadn't included the additional participation rate, we'd have an unemployment rate of 3%. And reading a lot of economists in there, there's a lot of folks and people everywhere, probably this guy saying, you know, nobody thought the labor market was going to be this strong. And so is this good news?

2:15Is this bad news? It certainly means we're playing out the sequencing longer for a lot of things to unfold. There's no question that the Fed is nervous about a labor market. And I think the Fed is very much back in play for, you know, everyone thought there's no way they can raise. I think they are. That's not the topic. The topic is mega cap tech stocks, which basically have closed now at their highs relative to the S &P year to date. In other words, their all time highs were back down in the end of 21 relative to the S &P. But if you think about this run and all the weakness, we thought we'd lost market leadership.

2:47Well, semis are now up 5.9 percent over the last 11 sessions. Triple Qs are basically at their highs against the S &P. And this is a function of things are at least better. I also just think we were so oversold. Let's be clear. The 10-year bond was off 72 bps today. So, I mean, it was 0.72 of a point today, which was a very big move. And so you have a dynamic here where yields may still be going higher. It means that I think markets were just oversold. Yeah, listen, at some point, though, the volatility or the velocity to the upside, you know, that we're seeing in yields and especially after we got that print on that hot data, it's going to actually take its toll on it.

3:28It just has to. And you can say, well, you know, yeah, we've gone from three and a half to four, you know, four, eight just in the last month and a half or something like that. And stocks are only down six, seven percent or something like that. You know, sooner or later, it's going to matter. And maybe it's that five percent round number if we get there in the 10 year. And if you're in the soft landing camp, and to Tim's point, okay, you know, you're doing okay right here. You know, like, if you look at the technicals, right, of the S &P 500, it came down to that breakout level from June 2nd or something like that.

3:55And it found some support at an uptrend. It found some support at its 200-day moving average. The sentiment got really bad. We're heading into earnings season. We had the quarter end, you know, all that sort of stuff. I get it. But, like, let's just say this, okay. At some point, you know, maybe just this jobs picture is the wrong thing to be focused on. because if you're looking around and if you look at through the lens of the stock market, a lot of these sectors, we talked about it when I was on earlier in the week, some of these sectors are not trading particularly well, right? So it's transports.

4:20We don't even need to get to staples and some of the consumer-oriented stuff and discretionary. The list goes on and on and on. So to me, I think the market under the hood is saying something different than the rush into the stocks that did really well and dragged the market up today. So I thought you were going to go a different way when you originally started talking about rates. I thought you were going to say that the rate spike had to subside. Something had to give there. So that's the camp I am in right now. So whether it's at five or a little below five, if that subsides, then the market should, in fact, rip higher.

4:51Right. You would think because the biggest headwind, I think, to the market right now is still rates. We sort of forgot about the Fed. But if hike happens in November, which this jobs report seems to indicate or point to, then how can that subside? So I think that's where Tim started with the Fed is back in play. I think the fact that rates have spiked higher so quickly, that puts the Fed out of play. So the bond market did the work with the Fed. Exactly. It's not about the actual rate issue anymore. It's about where we are in the rate issue. You know, it was a hotter-than-expected number guy for the month of September, but also the prior two months were revised higher.

5:30I mean, there are a lot of things within this report that seem to indicate hot markets still. And we play this game often. I know we play a lot of games. But a game in which I tell you what would happen and you guess the direction of the stock market. If I told you what this jobs report was going to be, would you have guessed that this would have been the reaction of the stock market? No, absolutely not. The early action is what I expected when I saw the numbers. The late action, not so much. But if you watched the show last night, Tim Seymour played the role of Tom Cruise in A Few Good Men as he questioned Marco in an elegant way.

6:03And the line of questioning was about current positioning. And, you know, as we talk about all the time, fundamentals matter. Sometimes positioning matters more. And I think everybody seemingly got themselves on the one side of the boat. We have talked about 41.90 being the line of the sand. It didn't get there, I know. But, you know, the market defended that 200-day moving average a couple times now, which is really encouraging. Of course, the problem is the Fed is in play now. I think there's now a 45 % of a hike in November. And these numbers just make their job, I think, that much more difficult.

6:34and, oh, by the way, Rick Santelli on earlier this week, you know, he talked about a close above four and three quarters being potentially problematic. Well, you got it. And the bond market's closed on Monday. I don't know what they call that holiday anymore, and I don't want to offend anybody, but it's going to be interesting to see how things shake out. It's an indigenous people's day now. Yeah, I get it. That's why I said I'm not sure. By the way, I'm half Sicilian, half Italian. But the spotlight on CPI is even greater at this point now that we have this jobs print. It is. And I didn't realize I asked Marco, did he order the code red yesterday?

7:10But, you know, look, I think there are things to be looking at here. I also just think that the bond market, you know, Steve's bringing up an interesting point. We don't know where it's going to settle out. I think we're in price discovery in yield territory on what, again, term premium you need to give to the bond market at a time when central banks aren't buying bonds anymore. And, you know, there's a lot of supply. And it means we'll probably overshoot. And it means, I think, that the world we had, and I, again, reading a lot of the economists around the street this week where they've sorted through what happened with yields, what's gone on with the last Fed meeting, and maybe those that are now writing after today's payroll number, the world that we had pre-COVID in terms of an interest rate paradigm is gone.

7:49And it's not just gone because the Fed has had to move higher because of the accommodation from. It's what was already happening. And therefore, I don't think we know, and I think this probably plays well to Dan's view, which is equities can't be worth this year. But I think it's going to take us a while to get there. And I just bring us back to where we are on the calendar, where we were with positioning, what kind of leadership. And, you know, you can feel pretty good buying Apple and Microsoft today, even though I didn't. But I understand why they were. Why isn't it enough to talk about QT at this point?

8:21The Fed seems to avoid QT, but it's to the tune of 95 billion, which is the equivalent of 25 basis points. So they're tightening without tightening. So Japan, China, they're not buying any more treasuries. The Fed is not going to be buying. They're selling. Institutions are not buying any more. So why don't you think rates will go higher? Because at a certain point, you have to cover that short. And to Guy's point, everyone gets to the wrong side of the boat. And if now all of a sudden we're not in a rising rate environment and we're just focused on QT, then it's a different it's a different narrative, a different environment that allows equities to lift again.

9:00We've got a wall of issuance coming out. We've got to see. I don't even do you think it's short. Do you think it's shorts, though? I mean, I think it's a lack of buying. I mean, I think it's people on hold. Could be both. But, you know, to Mel's point about the CPI, I mean, like even with crude, the way it just came in over the last week or so. I mean, with this sort of hot jobs data, if we do have other inflationary readings that stay hot and, you know, the stock market down 7 percent from its all time highs is, you know, the Fed, they got a lot of room at that point. I mean, they can get more hawkish, you know, and let's just say they do this 30 percent chance of a 25 basis point hike at the November meeting.

9:31Let's say that starts to inch up and we start seeing cuts being pushed out in 2024, which we have already. Yeah, right. And so so then they take a more hawkish stance because they're going to have to take them. They're going to have to jawbone it. And so at some point, I'm just saying that's why I said that nice round number of 5 percent. As we get closer to that November one meeting, I think the chances of further hikes start to get priced in and the stock market has to pay attention. I just think that there's no interest that the Fed would have in even giving out a sniff of dovishness at this point.

9:59Right. The markets would have earned this. They don't have to. They don't have to give out a sniff of it. I mean, just a little tiny bit and the markets will take off. I mean, that is not what they want here, Guy. Why? There's no reason for them to be dovish in any way, shape, or form. I mean, they're getting what they want in this environment with the rhetoric that they're currently using. So why not continue that rhetoric and continue the pace effectively until something breaks? And that's what's going to happen. And if you look quickly, I mean, not that I'm suggesting people should trade it, but the HYG, which we've talked about forever, which had really gone nowhere for months north of 74, actually traded down to 72.

10:33Now, people say that's not a big deal. It's not in the context of percentage, but this is an ETF that doesn't really move. And it showed signs earlier this week. So keep an eye on that and just keep an eye on how the banks trade. I mean, again, everything bounced today. I get it. But up until today, the banks, specifically the names we talk about, and it's going to be fascinating to hear what Bank of America has to say, but BAC, Citi, Wells Fargo, and some of the small and regional banks starting to roll over have not traded particularly well. Didn't the regional banks break, though? Well, you know, when you sit there and you say, OK, we're going to continue on this path until something breaks, you could make the case that something broke and it was sort of wiped under.

11:11It was a it was a mini flash crash. Something broke. Something was mopped up and we just made the bigger banks get bigger. So the whole idea of what what it actually transpired is probably what the Fed doesn't want. You think we've seen the full damage? No, I don't think we see there's long and variable lags. And the only person that doesn't seem to know about the long and variable lags is J-PAL. Every one of us talk about it, and we haven't seen that. And those long and variable lags are going to be coming a lot closer a lot sooner. For more on what today's jobs report means for the Fed, let's bring in CNBC's Steve Leisman.

11:43Steve, it's always great to get your analysis on a day like today. I don't know. We played the game with Guy before. If I told Guy or whoever here on the desk what the jobs number was going to be, they probably would not have guessed what the stock market reaction ended up being. No, and nobody guessed what the number would be either. What's interesting, Melissa, and it's interesting about playing the game, I don't know if Guy won or lost. Maybe we can figure it out later. We'll look to be a rout in the bond market, turn into just another lousy day in a string of lousy days. And maybe providing a little hope that a top could be near in yields.

12:19The 10-year shot up almost 14 basis points with the news of the strong jobs report. then it rallied in the late morning before drifting higher towards the end of the day, just up eight or nine basis points on the day. That's a bad day in normal times, but not the worst that could have happened, given how much yields have risen and how sensitive they've been to better economic growth. Still, the reaction of bonds to the data underscore one of the three main reasons yields are going high. You've got stronger economic growth. You've got larger debt issuance by the Treasury. And of course, that Fed hawkish mix may be responsible for half of these gains here.

12:52The idea the Fed might do less, though, suggested earlier this week by two Fed officials, helps take some of the sting off the rise in yields. It also helped that wage growth remained muted and gas and oil prices have declined, lessening the inflation concern. You guys were just talking about this. While the probability of a final rate hike this year edged higher, they remain below 50 % for both November and December. Both of these percentages have been higher. So the market is not really going there when it comes to a Fed rate hike this year. The Fed's not going to be comfortable with job growth remaining this strong.

13:23They want the labor market to cool, but they'll be a little less concerned if it comes with falling inflation. Of course, we have those numbers this week, Melissa, and a lot of Fed speak next week. How do you think the Fed thinks about higher for longer in the context of sort of just the structural issues going on in the bond market with a tremendous amount of issuance that is yet to come into the market still and the thought that there are fewer buyers out there? So regardless of what they do, this higher for longer regime could still be out there. Yes. First thing I think they're looking at is whether or not things are breaking.

14:02I really think your discussion on that was really important. That's the most important thing. I think they're watching the internals of the financial system to see if these high yields end up being a shock that creates liquidity concerns. That's in the first instance. Then I think they're going to take a step back when it comes to the macro impact of these higher yields. And what they're going to think is, you know what, I could raise a quarter here, but why am I raising a quarter? The only reason I'm raising a quarter point on the short end, remember, the Fed controls just the one rate, the overnight rate the banks charge each other, is I want to affect the long end.

14:37I want to affect the real economy. I want to affect the rates that banks charge customers for loans to expand or that customers borrow at. So why would I raise a quarter if the market already raised a quarter or more for me here? And remember, if you go back, take a look back at the 10-year chart back to mid-July. What you find is that half of this 100-base point gain in yields comes from the issuance concern and better economic growth. Because what have we done? Effectively, we have raised the outlook for the third quarter up near 5%. And I don't know how much of that's thought to carry over to the fourth quarter.

15:16So better economic growth, surprise on the debt issuance. The other half of that came or began when the Fed went and said, you know what? We're not taking away so much of the rate hikes next year. We're going to be a lot more hawkish than you guys thought. The market has been mispriced, the bond market, for stronger economic growth. It's been mispriced for a Fed that's not going to ease up as much as it thought. And when the bond market got mispriced and started to reprice, the stock market was mispriced. Yeah. Steve, thank you. Great to see you. Have a great weekend. Steve Leisman. In our discussion of what breaks or when will things break, you know, we think of breaking as something definitive, something that happens.

16:00But it could actually be just sort of a slow-moving, you know, roiling through the economy sector by sector. Boy, that's what it feels like. Look at the move we've seen in utilities. We're going to talk about staples again. But when you're talking about businesses that rely on funding and there's certain math that has to work, and a lot of that math just doesn't work in this new paradigm, I also don't know why we don't overshoot to the upside. I'm going to be – I know we've had a big move. I think maybe we are exhausted, and I think in the short run. But, again, this price discovery that's going on in the Treasury market is not something we've had to do in a decade.

16:34And we've been waiting for this day forever. Have we been talking about this? But, Tim, think about this. So the S &P was down 18 % last year. It was up 12 % this year. And all of a sudden now, we have an alternative to buying stocks. So when you say, I don't know why we don't overshoot, and I'm not – you're probably right. We're probably going back to new highs. Have at it, people. You know what I mean? But what I'm saying is – No, I mean the bond yields. That's what I'm saying overshoot. I'm not sure about that. So if that happens, then you just think about it. Like the further we get into this, the more – the lack of visibility that corporates have about funding, about inflationary inputs, about demand, you know, about all these sorts of things that, to me, that just makes a worse case for stocks, you know.

17:12And so if we do. Not all stocks, though, because now if you talk about the mag seven, then you have those that already have fortress like balance sheets who don't need to access capital and they become even more a sense of safety for the overall. I agree with that. And that's why I think those things have outperformed so dramatically. I'll just say this, though, if we do go into a period where enterprise spending slows, they're going to be vulnerable. And those are very crowded trades and they're trading at multiples that don't make sense in this interest rate environment. So to me, I just think that we can go back and forth on all of this.

17:44But right now, they continue to hold up the stock market. If you look at almost every sector, how much they are down off of their highs and where the weakness. And I got to tell you, I know we're going to talk about it. But what happened this week in Staples, what happened today in Walmart and Costco, what does guys say? Footnote this. This is something's going on here. I mean, Staples are really expensive. And these stocks were bid up because they were safety and because it was COVID. But they've always been expensive. So it could happen to Apple and Microsoft trading at 27 times just as easily it happened to them.

18:14That's what I'm saying. It is amazing that the Magnificent Seven in times of duress guy can hold up as defensive plays. But on a day like today when the market rallies, because good news is good news, they also rally. They're just magic. I mean, right here, they're magic. I say sarcastically. You're doing that again. It's Friday and I'm in a great mood and you're doing that to aggro. But it's not going to work. That's not going to work. But I'll say this. Steve's point is spot on, and I think Dan and Tim are saying the same thing. I understand why there's this flight to perceived quality in the form of these names.

18:44They're not affected by interest rates themselves. Of course, the problem is their customers are. So it's a question of at a certain point, you're going to see the continued demand that it needs to have for the valuations that they're trading at. And I would submit that interest rates moving to the magnitude that we've seen are going to have an impact on their end users. All right. Well, perfect segue to gold. Yesterday, the chart master said the precious metal was due for a bounce. Since then, the gold miners ETF has jumped more than 2 percent higher. So let's bring in the chart master Carter Worth of Worth Charting for more on where it goes here.

19:21And you actually put out a note also remarking on the decline, the quick decline that we saw in oil. You think the dollar is next. Is this part of the corollary trade? I think so. I mean, if you set the scene, of course, it was two weeks ago, and the 10-year yield was at 4.3 percent, exactly where it was a year ago. Does it? Does it not break out? It did. It went from 4.3 to 4.8, almost 4.9. And what happened? We had a lot of movement. The two biggest reciprocal trades, utilities, cracked 15 percent, and gold dropped 7, but gold miners dropped 15. That's overdone. And so just as you're seeing rebounds, I think you play for rebounds.

19:56And we have charts, but GDX, of course, is the miners, and I would play that for a rebound, and GLD. And you can see it here on the screen. I mean, the decline in the miners, and Steve, you often talk about that. The leverage in an operating company is always greater than the commodity itself. So the two biggest plunges in the entire equity complex, utilities and gold miners, and those are the two that got some of the bigger bounces off of the low. So I think there's more to come. So, but part of this call is also that rates are going to come down. And that's what you see for the 10-year yield.

20:27Right. So there's this, I mean, there are relationships that are inverse and they're direct, right? And we talk about that often. All of us, we've talked about it on the desk. And it's not always quite as perfect as one would think. Because if it was always inverse, then when the dollar was surging, oil should have been collapsing. But that's not what happened. And sometimes, over the past year, we've had a great dollar strength and a great move in the equity market. There is somehow this belief that you cannot have a weak dollar, lower rates and lower stocks. But of course you can. And so I think ultimately rates come in.

21:00And I think today's spike and reversal and the reversal and other things is basically the market starting to feel like this is we're getting to a peak. So you sort of just answered it. But if you have the 10 year, you have the dollar and you have oil, which have been the headwinds toward the market. just talk about the S &P. If you've seen those as headwinds and now those start to dissipate, are you going to have where you just left off? Where do you see the S &P going with that backdrop? Actually, that's it. No one wants to think that you could also have a lower equity market, but I think you can.

21:28Okay. We shall see. So the MAC7, we were pointing them out. Yes. And you're sort of chuckling as well. We've had that before. It's called.com or it's called Nifty 50, Polaroid, Eastman Kodak, Xerox. They're always great winners. But here's the thing about them. Let's talk about that. If you go back the last 50 years, the concentration in the market, we always have it. The top five stocks are typically, top 10 stocks, 20%. Right now it's 30%. That's the problem. They're still just too big. Can you make the case so that ETFs have changed it, that the weighting will have to be different because of the role ETFs play now?

22:02Well, one of the things we know, and I speak to a lot of clients who have been perpetually underweight Apple because the thing at 7 % of their benchmark, by mandate, they can never be more than four or five. So they're constantly stuck playing chess against something that they can never properly wait because their mandate doesn't allow it. We have a lot of things like that that make it curious. All right. Carter, thank you. Carter Braxton, worth charting. Coming up, big oil buyout. Exxon eyeing its biggest takeover since buying mobile nearly 24 years ago. The mega deal details and what it means for the energy space next.