Looming Port Strike Threatens Trade… And The Latest Comments From Fed Chair Powell 9/30/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Port strike countdown. We are just hours from a massive work stoppage up and down the East Coast and along the Gulf Coast. How much damage could this strike have on the economy and what retailers are most at risk for an extended strike? We'll go inside the numbers. Plus, unspeakable devastation. The death toll from Hurricane Helene continues to climb and the damage to towns, homes, roads is almost beyond words. An on the ground report coming up in an early look at just how much the recovery could cost.

0:32And later, China's rally rolls on. The S &P gets set for the spooky month of October and Tesla riding high ahead of its delivery report. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Courtney Garcia, Karen Feinerman, Dan Nathan and Guy Adami. We start off with a countdown to a potentially massive labor stoppage that could royal trade across the eastern seaboard. In just about seven hours, longshoremen from New Jersey to Houston are expected to go on strike. Truckers and rail operators have been scrambling to move the billion dollars of cargo at these ports, affecting industries from retail to electronics to autos.

1:06Nearly half of all goods imported to the U.S. go through these ports. Earlier today, the Chamber of Commerce urged the Biden administration to block the strike, saying it would be, quote, unconscionable to allow a shutdown to shock the economy. What kind of impact could a strike have, especially as we head into the all-important holiday season? Guy. It's a huge deal. 36 ports. I think it's 60 percent of all traffic. But let's not quibble over a couple percent. It's a huge thing. Five billion dollars a day potentially. And I don't think it's amazing to me that the market doesn't seem to either recognize it or take it into consideration.

1:43And I think if they were to go once they go, it's probably going to be somewhat drawn out. Now, I don't know if the Biden administration come in and say, you know what, this is illegal, whatever. You're going to force them to go to work. I have no idea how that that works. But the fact that the market is seemingly whistling right past this on the back of inflation theoretically being tamed. This could be a very inflationary thing going forward for the next couple of months of the year. I mean, the silver lining of that idea, though, is that this inflation caused by a strike would be transitory.

2:12Transitory. Truly transitory. Yes. Yes. I think that is the case. I mean, I think that, you know, they they are in a pretty good leveraging situation right now. Right. But the longer it drags on, if it drags on long enough, then they start to lose leverage. So I think the Biden administration is loath to step in here. We know that. But even election year, do you think that plays a role? That is a difficult question. I don't know. I don't know that Harris would do that. I'm not really sure. I think they've at the moment, let's just see how it shakes out and hope they can get them to the table behind the scenes.

2:48They must be pushing very hard. Yeah. Court. Yeah. I think that the biggest risk here is what it's going to do to inflation, which the Fed has gotten down to good levels. That I always expected they're going to continue to lower interest rates. But if this kind of negates some of that, I think that's what people are worried about. I think really the reason markets are not pricing this in is there's been a lot of pre-ordering. There's been a lot of like extra traffic that's gone through the ports recently because people realize this is going to happen. because back during COVID, people realized like how much these disruptions can affect the whole economy plus these companies.

3:16So yes, it'll have some disruption. If it goes longer than a week, people are expecting Biden probably will step in. So I think that's what's getting priced right now. There could be some inflationary impact right now because as things get rerouted, there can be surcharges because of this port strike that have already been, you know, seen because they had to reroute through trucks or rail or whatever. Yeah. I mean, put that together with some of the issues that we've seen just from a geopolitical standpoint, obviously what happened, you know, in Europe a couple of years ago, we've seen kind of the knock on effects that for that a while, you know, that you've seen different trade routes in the like here for, you know, energy.

3:50And so I don't know, at the end of the day, I think about this and obviously inflation is the main focus. But if there was a bigger flare up, obviously in the Middle East, you put all these things together and you say to yourself, OK, like at some point the market should start to price in a little risk. We have a VIX that's still in the mid teens. It's probably heading lower, the higher the stock market goes here. But at the end of the day, what does it mean for earnings? What does it mean for these companies to be able to pass through these additional costs? We thought we were kind of done with that maybe a year, year and a half ago.

4:18So again, we just don't know. I mean, I think we could all hope that there will be some sort of resolution. But, you know, at the end of the day, you know, think about how Biden, you know, he went and walked a picket line with union workers in Michigan. What is that, a year, year and a half ago or something like that? So it is a kind of a dicey issue as we're like a month out of the election. Just, you know, we sort of translated to do. All right. Well, what's the play here? So the stocks reacted FedEx. Yeah. UPS. I mean, if they if transportation switches to expensive air. Right. That's great margins for them.

4:48So stock was up nicely today. That would be transitory as well, though, if they did have a big FedEx Express subsidiary had a big quarter because of that. But today looks good for them. But you're saying the longer the strike goes, the less leverage they have only because the damage will be under the damage is done at some point. You can't save Christmas. Right. So if that's the case, then there's less leverage. Oh, that's interesting. Oh, the strike ruined Christmas. That's a good fact. Yeah. And I think really what we want to look at here, too, is like, what is this going to mean? So when they're really like trying to change all these ports and everything here, we want to make sure that inflation is not going to come.

5:29It's not going to get jeopardized. And that's really where you're seeing a lot of these retailers. they're already starting to put on all their Christmas sales, and they're really trying to get people to buy in now because they're already starting to see this coming. And I think that's the reality of it. It's interesting. I mean, the bond market is worth watching. We've talked about it. But since they lowered rates, September was the 16th. I'd lose track. But TLT has only gone lower. It's bounced a little bit along the way, but the TLT continues to go lower, which means yields are continuing to go higher in the longer end of the curve, which I think, again, the market's not paying enough attention to.

6:00Typically, when we get this sort of re-steepening of the yield curve, that's been a sign of bad things ahead. We'll see how that plays out, too. Yeah, you know, we're going to talk, obviously, a little bit later about what Fed Chair Powell said. But when you think about this, he kind of, you know, left himself some room to kind of lower rates at different things. So if they start to lower rates to counteract this and it ends up being transitory, it is going to have like kind of a double effect on inflation when you have increased demand in the short term. And then you have this idea that rates are going to be coming down.

6:27You could just have a big surge, right, for folks who are going out and buying stuff again. And it's something we dealt with a couple of years ago. For more on the impact this could have on retail, let's bring in Telsey Advisory Group CEO Dana Telsey, who's here on set at the Nasdaq Markets. Dana, welcome. It's great to see you in person. Thank you. Great to see you guys in person, too. Should we be worried at all that Christmas will be ruined for the retailers? How much stuff is already here? You have a bunch of stuff here already. A lot of things got brought in in July and August. But to your point earlier, look at Best Buy Christmas in September.

6:58Look next week, Amazon, Target, Walmart. Look at even Bloomingdale's friends and family, 19 through the 30th of September. So it is a concern because anything that's going to make prices move up or delay Christmas, when already you're having a consumer who's so bogged down with other things, geopolitical or elections, it's a headwind for the retailers and a headwind for the consumer. Dana, you're in the Hall of Fame in the space. Thank you. Is it a first time in almost 18? Maybe in person. I like the in-person thing. Yes, it's good. It's amazing. So let me ask you this. We're trying to figure this out.

7:33The dollar stores have been disastrous now for a while. Is that more tell on them, or is it sort of a tell on the lower-end consumer and the economy by definition? It's a tell on the lower-end consumer and the economy. Take a look at the strength that Walmart and Target have had. Take a look at the off-pricers. The dollar stores are losing share to these other players. And Dollar General is going to get hurt from this port strike also if they didn't bring in goods early enough. Who doesn't bring in goods early? I mean, I would think that the bigger ones, they've learned their lesson from the pandemic.

8:04They do it proactively. But who is sort of more of a just-in-time retailer, if that even exists anymore? Apparel. I mean, you have a lot of apparel companies that are just-in-time. The Abercrombie & Fitch is doing just-in-time. You have a lot of, whether it's the others, the Gaps are doing just-in-time. The ability to chase with agility is one of the things that after you had the headwinds of supply chain from two years ago, They've all become better at having inventory that meets what the customer wants. Let's see holiday 2024. So let me ask you about high end. So we saw a big rebound just on the China news and sort of, you know, OK, maybe they'll save the day.

8:40But what do you think of it's been a very difficult year for high end? What do you think of that market right now? I'm concerned about the high end. I think when all the European luxury goods report their sales middle to end of October, I think China's sales are going to be down 30 % plus. It's a headwind. When Tiffany is closing or reducing the square footage of their Shanghai flagship by 50%, what does that say? And it's not like you're getting the pickup from Europe or from North America. So it's a sluggish time in high end. But some from Japan. Yes, because the Chinese are going to Japan. That's a benefit.

9:14When I always think about high end, who's going to benefit over time? You want to be with LVMH. They are the bellwether because of the different category extensions and the strength of their brands that they have. Dana, you just mentioned that obviously holiday season is kind of coming earlier. We've seen that for years now. What are you expecting as far as discounting? Because that seems to be a trend that we see. The earlier that the holiday season starts, especially online, it seems like once the discounting starts, it really never ends. And it actually goes through early into January. Exactly.

9:42When you think about what holiday is, that month of January is key because don't forget it's the redemption of gift cards, too. I think we're going to have a more promotional holiday season in 24 than 23. It's starting already because also getting this consumer to unpack their wallet. Look at the savings rate that we've had, where savings rate has come down to, and that aspirational consumer of the middle income level. They're going to watch those prices. So I think it will be more promotional. And there's the haves and the have-nots. You look at the haves, Birkenstock, Decker's, Abercrombie and Fitch, and the off-pricers and the discounters.

10:14That is where the action's at. Is there any concern about the notion of restocking and if they have to get more goods, they cannot because of the port strike? Some of them, but most of them have already brought in enough goods. And you know who the benefit of this is at the end of the day? As goods come in, because we've all heard the statistics, every day it could be another week to 10 days or even up to six months until you get the flow correct. Hello off-pricers. TJX, Ross and Burlington, they're going to be the beneficiary of goods that won't come in on time. Oh, I know where to shop now. How do you see, so my understanding is Walmart is actually the most exposed to the poor shutdown, but on the same end, like they're probably better capitalized than a lot of the other retailers.

10:56Like how do you see them faring or like more exposed to the strike? Well, let's not forget also what is Walmart's biggest percentage of sales coming from? Food and grocery. So yes, it's discretionary too, but food and grocery is going to bring people in there on a regular basis. and the trade down or the go-to to Walmart from the dollar stores will only help them this holiday season. So how do you see the consumer overall? I mean, do you buy into the forecast for holiday spend because they've been all pretty strong? Overall, a couple months ago I was saying this consumer is squishy. I say the consumer is measured now because your rate cuts will help you, but you need four, five, and six rate cuts.

11:34It takes a year in order to get the benefit. But the labor market, you're still in a pretty good place, and wage growth is ahead of inflation. It'll be a much more measured holiday season. And maybe at the low end of that, are we going to be up 1 % to 3%, something in that range? But inflation is baked in there, and you can never discount the fact that people want to feel a good factor for the holiday, and they're looking ahead to lower rates. Dana, real quick, in terms of some of these stocks, TJX, you mentioned, we've talked about this stock forever on this show. But at some point, valuation will matter.

12:04and it's probably trading maybe almost 27 times next year's numbers. Is there a level where you say, you know what, they're a great operator, but it's just too rich in terms of a stock? They're continuing to open up stores and they're getting better productivity in their stores. The stores they're opening and also you're going to see the benefit of home goods continue to do even better. I'm saying it's a train right now and you want to ride that train. What is your absolute favorite retailer? I mean, TJX is definitely one of my favorite retailers because it does well in so many different environments.

12:33and that works. It's hard to find retailers that do well in all environments. You've got to look at Costco also. And Costco is one of the companies that overall isn't as impacted by the port strike. They're already prepared. Dana, great to see you in person. Thank you. I look forward to doing it again. Thank you. Dana Telsi, Telsi Advisory Group. What do you think of TG? I know you're a maxinista, but in terms of the stock, is it a bargain? It is because, and Dana, Telsi Advisory raised their price target right after earnings, I think, and she's here. I didn't go buy her yet, but I think they have a$134 price target on it, and it does make sense.

13:06You look at this stock and say it's parabolic in terms of the move, it's expensive in terms of valuation, but they continue to grow into it. So I agree on TJX 100%. Yeah, we've been worried collectively about the consumer for some time. Are you feeling a little bit better now that rate cuts are fully in effect? It's funny. What I hear from her, though, is not different than what we've been talking about. There really is two sort of economies. There's two sort of consumers right now, and I think it kind of plays out with some of the names that she's talking about. And on the valuation side that Guy just mentioned, you know, you look at a TJX trading about 28 times this year, you know, double digit-ish, maybe high single digits, earnings growth.

13:40And I look at a target and I say to myself, you know, they had such a bad period for so long. Maybe they got things under control a little bit or at least they're not executing as poorly, trading about 14 and a half times this year. That looks kind of interesting to me, especially after the quarter and guidance they put up just a couple months ago. All right. Moving on here. We continue to monitor the devastation in the aftermath of Hurricane Helene. The death toll now over 100 people, with thousands more missing throughout the southeast. More than 2 million customers are still without electricity in several states.

14:07NBC's Jay Gray filed this report from Boone, North Carolina. Good evening. We want to give you a firsthand look at some of the devastation Helene left behind. You can see power cables across the roadway here. They are down. They're not operating. And you can see how it happened. Water filled this entire area. It was underwater in a matter of 30 minutes, residents say. The power pole was knocked down. This entire community caked in mud right now. You can see that water high enough to lift that SUV, throw it into this tree. And we've talked to a lot of people here. There are hundreds missing and a very real concern about what that may mean long term.

14:48Now, emergency officials do say some of those missing just don't have the ability to communicate with anyone. All the cell service is down. No power for more than 2 million. We know that more than 100 have died as a result of this storm, and more than a third of those in the Carolinas. They are choppering some essential supplies into those areas that are still too devastated to get into either on the ground or by water, and they say they'll continue that for as long as necessary. As for restoring the power in places like this, what we're hearing is not days, but perhaps a week or more. That's the latest from here in Boone, North Carolina.

15:26I'm Jay Gray. Now back to you. Our thanks to NBC's Jay Gray in Boone, North Carolina. Meantime, as the rebuilding effort begins, a couple of names will be front and center in this effort. We'll be Home Depot and Lowe's. Piper Sandler upping its price target on both stocks today. Let's bring in Piper Senior Research Analyst Peter Keith. Peter, great to have you with us here in person. I think it's a first also, so it's a very historic day for our show. You upped the price target, though, mainly because of what's going on with interest rates. This is sort of another story, but can you sort of walk us through the impact historically storms like this, devastations like this have had?

16:00Because you imagine the preparation and then the rebuilding. There's a couple of phases to this. Yep, that's right. So, yeah, hurricanes always drive some lift to home improvement. Obviously, tragedy aside, we're just trying to analyze the business case here. What we look at with Helene is it's not actually as big a storm as what happened two years ago with Hurricane Ian. And that at the time maybe had about a 40 to 50 basis point, so call it half a percent lift to same-store sales at the likes of Home Depot Lowe's. Now, that lift can last a couple of quarters because there is a rebuilding effort.

16:34Also with hurricanes, you look, is it a wind hurricane or is it heavy rainfall? When there's flooding, there's a lot more damage. So this is probably similar, but a little bit smaller than what we saw two years ago with Hurricane Ian. Peter, you've done your work on Home Depot and Lowe's tremendous. I think your price target was$387. You raised it to$455. You've been in front of this. Here's my question. I get the rates component. How important is the unemployment rate? At what point does Home Depot start to sort of wane on the back of an unemployment rate, maybe going towards closer to 4.7 percent than 4.2 percent?

17:05Well, you know, unemployment is important. I do think we talked earlier in a segment about the bifurcated economy. So the upper income segment of the economy are the homeowners. And so they are seeing lower rates right now. And this is where we get more bullish on Home Depot lows because not only will that drive housing activity home buying But we see a refinance element too that's kicking in and that was a big headline last week where Mortgage refi applications were up 175 percent year on year now. It's off a very small base mortgage rates are about six point Oh eight percent Optically when they get sub six and people can refi to a rate that has a five handle We think you're gonna see further acceleration So that also just creates more monthly income for homeowners because now you can lower your interest rate.

17:48Or in the case of a cash out, now you are flush with a large cash balance to do some type of home improvement project. How about where do you think the existing home inventory shakes out? Where do rates have to go to get that supply on the market, which would be great for the home devoid lows? Yeah, it's a very important question. It's a very tough question to answer. the problem right now is people don't want to move because they're locked into really attractive low 30 year rates. If you look at the mortgage data, it's about two thirds of homeowners have a rate that's below or at or below 4 percent.

18:19OK, and we're at six point eight percent right now. So you have a ways to go until someone says, OK, I can swap from my current rate to an equal rate. But there will become a psychological decision that someone says, I really need to move. I need more space. I need a new job, whatever it might be. And so maybe you're willing to go from that three and a half to a five percent. So we do think as rates come down, it's just going to be more parabolic in terms of the demand. It's interesting because I think just last week, a competitor of yours said that the refinancing cycle, lower mortgage rates, it's going to there's going to be a substantial delay to this actually kicking in.

18:53I mean, historically, what what have we seen in terms of when rates are cut and when it actually hits? I mean, we did see that increased activity for one week. But, you know, what is the longer term trend? Yeah. So I've looked at the refi dollars for 10 plus years. So I can tell you, it takes about a quarter or two for it to show up. And you think about someone who's going to decide, I want to do a$50 ,000,$100 ,000 remodel. You're typically going to line up the financing before you start to engage with a contractor. So there is a little bit of a delay, but this will be important because it's a big ticket spending at Home Depot Lowe's that's been abnormally weak for the last 12 to 18 months.

19:30and you drive some stabilization in that. And that should be about a point and a half to two points of same-store sales improvement that could happen as early as Q4 or by Q1. Wow. Peter, great to see you. Hope you'll swing by again. Great to be here. Thank you. All right. What do you think of the valuations here? Expensive, but I like the trend, though. I feel like they will sort of grow into it, particularly Home Depot, or both, actually. Yeah, and I do agree it is expensive compared to its historical average, which I think is what puts me on pause here. And I completely agree with the whole idea that rates coming down and refinancing is actually going to boost your home depot on lows.

20:03But on the flip side, there is still a risk, though, right, that rates are going to come down in the short term, but they may still stay more elevated. And so at a certain point, if you see some of that get pulled forward, I think that's where you might want to be a little cautious at higher valuations. By the way, Peter has been on this desk before. He has? Yes, and I know that. Oh, I feel so proud of you. Because you guys are high school buddies. We went to high school together. What? Yes, the first time in a very long time I saw him. We were downstairs. How long ago were we downstairs? Years and years ago.

20:28Oh, that's so long ago. So he's the man. And Guy just said, is he on the Mount Rushmore? Peter is. Well, Dana is. Of analysts at large? Maybe Peter is in your high school. There is a plaque for Peter Keith in my high school, right next to mine, I think. Really? You did not have a plaque, did you? No. For lacrosse? Please. Okay. Anyway, what's the trade here? Do you have a trade? Or is this just a ramble? No, I do think the point he made about the refinancing and the HELOCs, you know, we have this issue with the saving rate. It's stuck in there. So if you have an economy that hangs in there, you have an employment rate that doesn't go far above where Fed Chair Powell says is going to be at the end of the year, 4.4 percent.

21:01It probably lines up pretty well, especially if you have, you know, some more inventory come on the market with rates going down towards 5 percent or so. I mean, it sets up pretty decently. Last week, Oppenheimer raised their price target from 345 to 500, citing similar reasons. Now, here's one quick caveat. Long term chart go back to December of 2021. You will see we're right up against those prior all time highs. So that's going to take some work. But, you know, valuation is stretched, but they probably continue to grow into it. Coming up, auto stocks heading downhill as Stellantis gets crushed after a profit warning.

21:33The competition from China, that's dragging on that name. And speaking of China, the country's main index seeing its best day since the 2008 financial crisis, where you should be in the overseas trade when Fast Money returns back in tune.