JPMorgan’s Sharp Reversal… And The Latest Entry To The Weight Loss Drug Battle 5/20/24

0:01Live from the Nasdaq marketside in the heart of New York City's Times Square. This is Fast money. Here's what's on tap tonight. From the diamond bottom to the diamond top, the J.P. Morgan CEO telling investors with prices where they are right now, he's not a buyer. Should his hold rating keep you from diving in? We'll debate that. Plus, off target, the retailer's stock struggling ahead of earnings, and now they're cutting prices on thousands of products in the store. Is this move a good sign or a warning shot ahead of results? And later, shares of him's and hers skyrocket on news. They are jumping on the obesity drug boom.

0:33But can they compete in a market where finding these GLP-1s and making them is a real challenge the company is set to weigh in. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Bono and Eisen, Dan Nathan, and Guy Adami. We start off with a sharp reversal in shares of JP Morgan today, the big bank hitting an all-time high early in the session, but then taking a tumble midday. The drop coming after CEO Jamie Dimon at the company's Investor Day said this. I think we're in a very good position to continue investing in our future, and we're not going to buy back stock now.

1:06Chair, buybacks have been as a big driver for stocks this year. Just take a look at the gains in Alphabet and Apple since those companies announced massive repurchase plans in their latest earnings report. But with stocks at all-time highs, the Nasdaq posting a record close today, the Dow sending a new intraday before pulling back. Have valuations gotten ahead of themselves? And if Jamie Dimon's not buying shares at J.P. Morgan at these levels, the question is, should you? Why are you laughing? Because you're in my head. It's like you read my mind. Like I'm thinking to myself, if Jamie Dimon is up by, why should you?

1:37And then you just said it. But the reversal today is very interesting. It was a lot of volume, 175 percent of the average daily volume. This reverse. Yeah, two more than two times. You're spot on with that. I'm glad you pointed it out. And we talk about price to tangible book, price to book. And he obviously watches the show from time to time because that is Zenith. J.P. Morgan got almost 2.35 times tangible book, almost two times book value, which historically is expensive. I mean, that's levels of traded at pre-financial crisis. So it's not an indictment of the bank. It's a great bank. It's just gotten to be a very expensive bank.

2:09So it's not me saying it. When you hear from him, you have to take notice. Well, I'm not sure I want to hear from J.P. Morgan. They're buying their stock back right now either, though. I mean, as an investor, I'm happy to. It doesn't mean I go out and sell J.P. Morgan because they're not buying. And I think there's an important difference. I also think that at times, Jamie, Jamie, Jamie Dimon, J.P. Morgan, he stepped in to buy his company when it has been, I think, absurdly cheap or at times when there's been places in the market to to inject confidence into the shares. I think about where companies, especially banks, are vilified for buying back shares.

2:43I mean, for him to get out there right now and say, I'm buying back stocks, I don't think Jamie Dimon is that concerned about public backlash. But I also think he's a guy who thinks about the big picture and thinks about every word he says. And I don't know that this is a place that he needs to say, I'm out there buying stock. So, again, we're talking about anywhere from a 60 to a 90 percent move in some of the biggest money center banks in the world, not just J.P. Morgan, which has actually underperformed some of those. Citi banks move 75 percent. You name it, a lot of these banks, European banks, some of the biggest banks in the world have had this move.

3:12Why are you buying back your own stock? It says you don't see anything else out there. And I don't I don't I don't think there's anything wrong with that. Yeah. So we're saying that or he is saying, you think, that it is fully valued. And I think that's a fair. So if you had a fresh dollar to work put to work in the markets today, would you be buying JP Morgan's stock? Or would you take a look at it and think, you know what, maybe I'm not going to do that because Jamie Dimon is not. Probably not. I mean, listen, you know, his strategist, his equity strategist has a forty two hundred dollar price target on the S &P 500.

3:38OK, so this stock, while it might have underperformed some of its money center peers of late, it's trading, a guy said, at a premium valuation price, a tangible book. And again, it was making new highs after that 6.5 % gap after its earnings lower on April 12th. It was down 10 % from then all-time highs in early April. Filled in the gap on what? I don't know. I mean, maybe some folks thought that they were going to kind of adjust this net interest margin a little higher. They obviously saved that for the investor day. So to me, I don't think it's a buy right here. Jamie's saying they're not buying it.

4:10They have other places to invest. The last thing I just say is that I think the stock obviously took that leg lower because of the succession comments. He's obviously been a Teflon sort of guy. He's basically dictated so many different things in the financial space over the last, call it, almost two decades or so. But this is a bank that has$4 trillion in assets. And when you think about succession, it probably goes in the hands of multiple. I could see two CEOs for this bank. When you think about how big it is and how divergent some of those businesses are. So that's something I think we're going to spend a lot of time talking about over the next couple of years.

4:42$4 trillion in assets and flush with capital, right? So I think this is a situation where you appreciate where this bank is coming from. Not to mention, Jamie Dimon has a long history of playing things on the conservative side, perhaps exorbitantly so. And so for me, given the fact that we've had the financial crisis, given the fact that we still can't get a read on inflation, we don't know where interest rates are going, I essentially want someone at the helm of the largest. And the reason why it trades with its premium valuations is because it's perceived to be the best bank approaching things with a cautious tone.

5:11Not to mention the fact that it's not as if they're sitting on this cash doing nothing with it. They continue to invest in technology. So for me to get behind someone that's saying, listen, we want long-term investment that's going to kind of bolster the stock over the long run. Sure, if you're trading it day to day, perhaps you're not jumping in today. But actually, this gives me even more confidence, you know, why I want this to be a core position in my portfolio and continue to invest going forward. I think key to this discussion also is the context in which this pronouncement is being made, and that is the macro context.

5:40And they talked about, first of all, they raised their net interest income forecast. But then they also said it's not going to be an even path. There's going to be tailwinds that turn into headwinds. And that's going to be when the Fed starts cutting rates. Eventually, whenever that happens, it will, in fact, be a headwind. And so in an environment like that, where you see the headwinds coming down the road, even if they might be a few quarters away, do you buy it at 1.8 times book? No, I don't think so. I mean, it's me. But I said this a while ago as well. I mean, it got more expensive on the way up.

6:08Obviously, it was just basically a market. It was a multiple expansion thing, which is fine. I mean, it works. But historically, that's sort of the deep end of the pool in terms of valuation for not only that stock, but for banks in general. With that said, I mean, I remember it was a Friday in February of 2016. The market was getting schmizeled. And about two o 'clock in the afternoon, J.P. Morgan, I think it was Jamie Dimon, announced that he personally was buying J.P. Morgan stock. I think this price was 58. Never saw that price again. I mean, he put his money where his mouth is. That's eight years ago.

6:38Now, this is not a reversal. I get it. But there's some subtleties here that makes you think, hmm, he saw something then, obviously. He sees something now. So if he was right then, it's probably smart to believe he's going to be right again. I guess we are right to think about every word he says. It's kind of, you know, Jamie Dimon is often like one rung below the Fed in terms of we think about every word he says. But I don't own J.P. Morgan so they can go buy back their stock. I own J.P. Morgan so they can go out and be in businesses that I think are a very diversified. This is the other part of the investor day.

7:06They talked about a business that's got such diversification. There's so many places where they are spreading that capital across. They also announced a buck 15 in a div, which is an excellent div. And look at the growth they've had in the dividend as a shareholder. I want to get paid. I want to get I want to get a dividend. So I guess I just look at it in the context of they told us that the credit card or NCOs were stabilizing. They told us that NIMS were better. What could I have wanted to hear after a 70 percent move in the stock? I mean, it's to me, it's what you're supposed to hear. If they say they're out there buying back their shares right now, it tells me there's not a lot of opportunity for their business.

7:41And to your point, they are spending on technology specifically. They raised their CapEx spend for the year. Part of that's going to be on, of course, AI, as everybody else is spending on AI. So they are investing in the future. But in terms of what this means for the markets, I mean, if we're thinking about a JP Morgan that trades at 1.8, fair. It could be fully valued. We're talking about markets that are at all-time highs, effectively, across the board. You talk about a utility sector that's trading at 1.7 on average in terms of price to book. So if you're thinking about J.P. Morgan versus a utility, I mean, put it in the context of the other valuations surrounding J.P.

8:15Morgan. And does J.P. Morgan start looking expensive or not as expensive? Well, you know, it's interesting that you mentioned the generative AI. Like, this is an industry that you could see taking tons of costs out, right, like using generative AI. So like if one of the first use cases is customer service and that ends up being something that could allow them, I know it sounds horrible, to replace, you know, thousands and thousands of workers with generative AI bots, then you're going to see a re-rating of some of these companies. If you see them make better loans, whether it be to individuals or just across their institutional, you know, this could go on and on and on where maybe all these banks get re-rated.

8:48It doesn't happen from here as a bank like this is at all-time highs. It's going to take years to figure that out. But again, a lot of folks have made the argument since post-crisis, I guess, that these are like utilities. They should trade at big discounts to the market and the like. And this is one story that actually could change. And it could change very quickly for the banks, but not right now. Not to mention back office and compliance. Staying out of the target of the FDIC, SEC, any of the other regulatory bodies. I think, listen, I think that tech spin is being allocated for a reason. We can talk about, you know, some of the chips or some of the other tech names.

9:20And, you know, they were kind of laughed at for the allocation to CapEx and allocating dollars that way. And it's paid off, at least in the short term. The last thing I'll say is, you know, kind of to Tim's point, I really don't want to see a CEO of the premier bank chasing short term performance, particularly at the all time highs. It's really about, you know, risk reward. If you're going to get an additional 3 % or 4 % kicker from a stock buyback versus being able to weather any potential storm that's coming down the pipe, I just think I'd prefer that cautious approach going forward. Real quick, I don't know what the – you're playing your phone?

9:55I mean, see, now people can see what goes on. What's the ringtone? You've got to tell us what's the ringtone. I think it was a concert. I mean, I saw a flash of video on it. No, don't be sorry. I mean, it happens. I mean, see, typically it usually happens to me, though. At least it's rated G. Anyway, let's move on. No, you can't pretend it doesn't happen. I mean, I was going to use my calculator. How about I turn this into just a natural TV moment? It's beautiful. As you were saying. Because we have to get Julian in here. I don't know the context. Was he asked the question? But I'd rather him say nothing at all than actually go out of his way to say.

10:27And again, I don't know what the context was, but it's just something to think about. Evercore ISI's top market forecaster thinks it is a wrong time to go bullish on stocks. Julian Emanuel is a firm's senior managing director. His S &P 500 price target is more than 10 percent below today's close. Julian, welcome. Is it harder and harder to stick by that forecast as markets go higher and higher? Well, by definition, it is. There's no question about it. But let's think about it, right? The first 10 minutes of this conversation, we've been focused on valuation. It is something that I would say in the course of years of me being with you all, we've talked about very, very little.

11:03But the point being that, you know, whether it's the consideration of earnings estimates that in our view are far too high, even though we had a good earnings quarter, but good earnings quarter was up five and a half percent. The market thinks the full year is ten and a half percent at twenty three and a half times earnings. You know, whether it's the premier investment bank bank stock in the world or it's the market in general, we just think this is a time to really think about risk reward here. And, you know, Goldilocks, despite the fact that we're either at two or one or zero cuts, continues to be priced very aggressively.

11:44Guy hates Goldilocks, by the way. Yeah, it makes me crazy. I'm giving Julian a pass because I love him. We just don't talk about it on Turkey Day. We'll talk about gold in a minute, so please. But, I mean, in terms of where we are right now and the risk-reward, one of the big risk events in the markets we've been talking about for weeks now is NVIDIA's earnings, which are coming up this week. Volatility is still extremely low right now in general for the markets. And so I'm wondering how you reconcile that and if you also think that, like many of the traders here, that NVIDIA is actually going to be sort of the thing that either sets this rally higher or sets us back.

12:18So it is one of the most unusual environments I think any of us have seen, because the amount of dispersion among stock returns is really record, which is why the index doesn't move. Think about today, right? We saw, you know, Jamie Dimon's bank sell off the way it did. At the same time, we had two plus billion shares in a number of meme stocks that, frankly, people don't know what the companies do and never even heard of them two weeks ago, buying and selling them. So it is a very unusual environment. And to us, in total, it says that risk in general is perhaps overpriced here. And we just it's not the end of the bull market in our view.

13:04And I think that's the message we got from from Jamie Dimon today. It's just a time to sort of let things settle in for a while. Julian, what's the deal with the VIX? I mean, we talk about the headwinds all the time. geopolitical stuff, blah, blah, blah, close below 12 on Friday. It's incredible. It goes to the dispersion. It also goes to the fact that the game has morphed for now into one day options, zero day and one day options. The one day VIX today traded in the fives, the lowest ever for the two years plus that it has been calculated. And from our point of view, when you think about it in the context of NVIDIA, it is true.

13:42That stock has been the market for the last year, and it's going to move. We're not sure which way, but the options market says it is going to move, and we expect the S &P to move with it. All right, Julian, the stock market hasn't worried too much about where yields are, right? And again, even when we started the year and there were six cuts that were priced, and now we have maybe one or two this year. Let's talk about inflation for a second here. So if the Fed keeps saying that, you know, 2%, they're going to stay the pat, you know, stay pat with higher for longer, that sort of thing. At some point, do you have to start figuring out what the cumulative gains have been since we got above that 2 % and kind of took off into 2022?

14:23Because, you know, do they have to actually keep yields much longer for, you know, higher for longer than a lot of folks think that they might have to do because of those cumulative gains over the last few years? I think that's some of the dialogue. And as much as we may not want to acknowledge it, there's no question about the fact the feedback loop from equity prices into confidence, into financial conditions is definitely there and has been for a number of years in central banking. And, you know, people want to compare this to 1995, the dawn of the Internet revolution. We're fully behind the idea that generative AI is going to be a game changer over the long term.

15:02But the difference between now and 1995, where you basically had a straight shot up for three years uninterrupted, is the Fed started cutting rates into the kind of economy we have now when inflation was already 2.1 percent versus 2.8 now. and stocks were trading 14 times, not 23 times. Julian, always good to see you. Thanks for coming by. Julian Emanuel, Evercore ISI. $47.50, you see that in the cards, Tim? It's possible. I tell you what, I think there are a lot of places where we are overextended. I give Julian and his team credit for also, you know, Julian at times has been very bullish on this market at times when it hasn't looked so great.

15:41And meanwhile, there's a strategist over there named Rich Ross who's been bullish the whole time, and he's been totally right. Right. So you have different dynamics here where I think and you mentioned the inflationary impact of where we are. I mean, when copper behaves like a meme stock, you have a strange dynamic for markets right now. Another record day for copper. That is inflationary, folks. It is Dr. Copper for a reason. It's woven throughout the economy. Commodity prices are moving higher. I don't think you get off that train, by the way. But inflation is an issue. We've got an earnings alert here on Palo Alto Network.

16:10Shares are falling in the after hours despite a beating at the top of the bottom line. It's a guidance that's getting them. So you can see Julie Borst has got all the details. Julia. That's right, Melissa. It does seem to be the guidance because the company's fiscal third quarter results beat on the top and bottom line. Revenues were just a tiny hair above expectations. And guidance for the fiscal fourth quarter was right in line with expectations despite that fiscal third quarter beat. CEO Nikesh Arora is saying on the call, which is still going on right now, that with AI, they do expect cyber attacks to come at a faster pace.

16:40He also said that their customers are responding well to their approach of cybersecurity consolidation, saying, quote, demand is robust. And my expectation is that we will continue to see it be that way over the next many quarters. But even with this afternoon stock declines, shares of Palo Alto Networks are still up 58 percent over the past 12 months. And Palo Alto Networks CEO Nikesh Arora will be joining our colleague Jim Cramer in an exclusive interview coming up on Mad Money. Melissa? Thank you. Julia Borsten for us. Guy, P-A-N-W. Yeah, I mean, it's all time high, not that it matters, but I think it was February of this year, 380-ish or so.

17:19It hasn't traded particularly well since. Problem, I think, is valuation. The quarter was fine. The guidance wasn't what people were looking for. Me, the question is, where do you get back in this thing? I think the recent low is like 268 or so. I mean, given sort of the market dynamics around now, I think 268 might be in the cards, Mills. They've had some recent misses, specifically on billings. And so there was a question about, I don't know, do you believe management? I think there's an issue still, given the guidance. Especially given where I think they sit in the middle of both the hardware, but more importantly on the software side of their business.

17:50And this is three straight billing quarters where they've had weakness. So I think this is kind of a problem. I am of the view, and if NVIDIA holds, and we just look at where the dominoes fall or are raised from NVIDIA, if that's the opposite of dominoes falling. But, I mean, software tends to follow semis. And semis closed today at all-time highs. Software has lagged. You're talking about Palo Alto. You're talking about Adobe. You're talking about the biggest and most successful software dinosaurs of the world. Not dinosaurs because I think they're yesterday's news, but because they're big. And they haven't really responded.

18:22This is disappointing. I think this is setting up for an opportunity. I think it's a bit of a cautionary tale what happens when you have a fully priced market and there isn't a guide forward. If we don't get that continued pull forward of earnings and are able to kind of present value that into today's terms, I think that's what might lead us lower. But as long as these things continue hitting on all fronts, and I do think NVIDIA will beat, but that will be the thing that cracks the market. Yeah, and it's worth noting. I mean, Tim kind of alluded to this. I mean, the genre of AI trade has been very narrow over the last year and a half.

18:51It's been basically the chip companies that, you know, predominantly NVIDIA, but then it's also been these large platform companies or these hyperscalers that have been able to benefit from that. And if you think about some of these SaaS companies, like, there's no doubt about it. Like, cyber is going to be a thing to combat a lot of stuff that's moving at much accelerated sort of paces. And so, again, the billings are not there. I think you're probably seeing some people stealing from Peter to pay Paul as it relates to their enterprise budgets right now. But ultimately, I think this is probably one that makes some sense.

19:21Coming up, Microsoft stepping up its AI ambitions, the tech giant's latest reveal ahead of its Build Developer Conference tomorrow. And the new class of PCs putting AI right at your fingertips. That's next. And a retail reduction from Target. The company slashing prices on thousands of items as inflation tightens consumers' wallets. What it could say about the competition and could a price war be on the horizon? Don't go anywhere. Fast Money is back in two. This is Fast Money with Melissa Lee right here on CNBC.

19:59Welcome back to Fast Money. Microsoft unveiling what it calls its smartest PCs ever. The lineup, a Surface Pro laptop and a Surface Pro tablet with Qualcomm chips that allow the devices to run AI features without draining battery life. The reveal coming just ahead of Microsoft's Build Conference, which officially kicks off tomorrow. CNBC's Steve Kovac is there, comes to us live from Redmond, Washington. Hey, Steve. Hey there, Mel. Yeah, so Microsoft announcing their new generation of PCs ahead of that Developers Conference kicking off tomorrow. They're calling them Copilot Plus PCs. Coming from manufacturers like Dell, HP, Samsung, and Microsoft itself, they come with a new PC chip from Qualcomm capable of processing Microsoft's AI tasks on the device.

20:42Whereas before, you needed an internet connection, and Microsoft says it expects this crop of AI PCs to convince people to upgrade their old devices and plans to sell 50 million of them by the end of the year. They start shipping next month. But the hardware really means nothing without AI capabilities. On top of that, on the software side, and Microsoft's co-pilot assistant is getting a number of upgrades on Windows, including automatic photo editing, real-time translation of languages, and a new feature they're calling Recall that can remember basically everything you've ever done on your PC.

21:16Windows will also incorporate OpenAI's latest version of ChatGPT, which was announced just last week. That's coming soon. And Microsoft also took several shots at Apple, claiming these AI PCs are faster and more capable than Apple's latest MacBook Air that launched just a few months ago. Microsoft also undercutting Apple on price, a couple hundred bucks cheaper than what Apple sells, depending on the model you get. Apple also doesn't yet have a generative AI tools like Copilot on Macs or iPhones. The message here from today's event for Microsoft, Apple's behind on AI, while Microsoft, which is considered the current leader for the tech, keeps pushing it forward, Melissa.

21:54All right, Steve, thank you. Steve Kovac joining us from Redmond, Washington. Is that the right thing? I mean, do you accept that, that Apple's behind, Microsoft is ahead, and here's proof of it? Yeah, I think they're clearly behind, but I just think the hardware aspect of this is just a marketing thing to give Microsoft, I guess, you know, some more time to kind of explain how far ahead they are. When you think about Apple's market share on the high end PC front and on tablets, you know, they're dwarfing, you know, on the high end, dwarfing what's going on. I think Apple will probably catch up pretty quickly.