Magnificent 7’s Moment of Truth, and What Florida’s Proposed Social Media Ban Could Mean for the Stocks 1/26/24

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. We are counting down to next week's mega cap earnings bonanza. More than$10.5 trillion worth of market cap set to report in the coming days. Will the results live up to expectations or will the magnificent rally lose some of its steam? Plus, social welfare. Florida legislators approving a bill to ban social media use for kids. Can the measures go through and what impact would they have on the biggest social stocks? We'll debate that. And later, Amex at an apex. Shares of the credit card company hitting record highs on the back of earnings.

0:36What do the numbers say about the strength of the consumer and the future of financials? I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Carter Worth, Dan Nathan, and Julie Beal will join us in just moments. We start off with what might be the moment of truth for the MAG7, Alphabet, Microsoft, Amazon, Apple, and Meta platforms all on tap to report earnings next week. And most of these stocks have been rallying ahead of the results. MediShare is, in fact, hitting a record high today, up nearly 170 percent over the past year. Amazon trading at highs not seen since spring of 2022.

1:08It is up 60 percent over the last 52 weeks. But will the results support continued gains? Will we rally off of them? Are we in for a terrible setup here? Tim, what do you think? I think the most important ones are kind of split here. I think, you know, Apple, I don't think they're going to wow us with anything. They're probably going to have some surprises on the capital market side. The capital return story continues to be really positive. And the margin in their business around services is something that's interesting. Microsoft, though, look, Azure, we've kind of been guided 27 to 28 percent.

1:37I think the whisper is that it could come in a little higher than that. Commercial cloud up 16 percent. The dynamics around AI and the 365 platform and what that's doing to ASPs, they're coming higher. So their margins are getting better. The economies of scale are working for them. And even though it's hard to say, hey, I love Microsoft here, I think fundamentally that story is the most interesting. And then Google, to me, and Meta are the ones that obviously on valuation are easier to get behind, even despite that move on Meta you described. Google, probably the most interesting for me on some level, even though Amazon has the best chart.

2:09How did we do? We did it. It's over. That was a really great recap. All right. Drop the mic. We're done. No, but I mean, in terms of Meta, the interesting setup, the setup is interesting because last quarter they actually posted a pretty good quarter. And then there was a commentary on the conference call that really spooked investors. And you sort of want to see if there's a continuation of that in terms of the softness they flagged in the ad market specifically because of Israel, because that can have real ramifications for a lot of others, including an alphabet, for instance. Yeah, no, it was interesting.

2:36That was like a little bit of a pause. I think investors were looking for a reason to kind of take their foot off the pedal a little bit, especially after that run that it had over the last year and a half or so. To me, it really does come down to the market cap ones. It comes down to Microsoft and it comes down to Apple. And when you think about Microsoft, that stock has rallied 10 % just in the last few weeks alone. You know what? That is equal to$300 billion in market cap. It has rallied 30 % since late September. That is equal to$1 trillion in market cap. So whatever great story that you want to lay out about generative AI and what it is doing to their existing business and what they're going to be able to charge for it and what the margin framework looks like, it is trading at 35 times this year's expected earnings.

3:16They're going to grow, let's say, mid-teens, maybe at best high teens. OK, on kind of mid-teens, you know, revenue growth. This stock has never traded at that multiple again. And it's traded before, excuse me, and it's trading about 31 times next year. So you just have to come up with a narrative that gets rosier and rosier every quarter without any hiccups to justify it right here, given where the stock is trading. And listen, there were times last year where the stock had come off 10, 15 percent. And you'd say to yourself, all right, maybe the sentiment isn't appreciating what might come over the next year or two.

3:47That's not the case right now. So the biggest are the biggest concern to you. Apple is not a big concern to me because there is nothing in and around generative AI. If anything, they might be able to surprise on handsets. They might be able to surprise on China. And that might be the thing that causes that to make a new line. Of the big names, though, Apple is still the crowd favorite, right? I mean, it has been always the largest until this recent thing with Microsoft. And this is a testament this past week of why relative strength as a factor, as an investor, is one of the most robust over time.

4:15The ones that have been struggling, Apple and Tesla, are still struggling. Apple's relative performance peaked almost six quarters ago. And the ones that have been performing continue to perform. The question really is, I think this week, Amazon and Apple. Those are the two that I think are the most important. So, Chartmaster, great having you here. It's always great having you here. But you talk about relative strength here and the weakness in those two. But I look at the NASDAQ 100 and the relative strength against the S &P. This week, it made an all-time high. It did. And so, you know, that to me, in terms of the leadership of this market, once again, tells me we're going higher.

4:47Well, so what's interesting is we only made a slight new relative high, right, compared to the peak of 4 January 2022. So more than two years later, just now in the past eight to ten sessions, the Qs have exceeded the relative performance high of the S &P. But to your point, all eyes are on this group. And this also I would point this out. It's only in the last three years that they've typically reported all in the same week. They didn't used to, and that's been clustering. The way we always, Alcoa was always first. And on average, the week when they do all, do report, it is flatter down fairly consistently.

5:20So we shall see what happens this time. By the way, it's so funny to think about, like, Alcoa versus Apple. Think about that. I'm sorry. Sorry, Alcoa. I'm sorry. Always reporting first. That's right. My things, how things have changed. And Julie, you know, the setup for Apple, fortunately, maybe, you know, the sentiment on Apple was so sour at the beginning of the year and has only turned sort of a little bit better, rosier more recently. There's so much concern about, you know, handsets, about saturation, about who's going to hold on to their handsets longer, about China, et cetera. Yeah, I think, you know, Apple, just like any kind of marriage, it's a function of how low are your expectations.

5:59And that's how you really kind of succeed. And I think in this case, it's in a much better position in terms of expectations being more reasonable than a lot of the other players. Exactly why Dan was saying there is no Gen AI over here. And I actually think that they have access to data that would allow them to be very persuasive in generative AI. And they have a much higher safety component with people where people feel comfortable with their having the data. But it's the one that I think I'm paying the most attention to strictly because expectations seem more reasonable. Amazon, I think it's a really important play, not in terms so much just of the consumer, which I think we kind of have the data that we need for how the consumer did over a holiday, but really for business spend and the appetite for business spend.

6:45Yeah, as a read on enterprise, as a read also on cloud, Mizuho had a note out recently, I think it was just last week or this week, saying that they're very confident in terms of the revenue acceleration line for AWS going to 2024. Meaning the uptake in cloud is going to be even greater. The comparisons get even better. And you wonder sort of at whose expense does that happen here? Yeah, you know, it's interesting. So we talk about these five names. You talk about the market cap. You talk about where they are. Relative strength or not. Absolute where these stocks are driving the S &P and they're driving the NASDAQ.

7:17If you look at the QQQ one week from today. OK, so let's say it closed at 424 today. The 424 put that expires next Friday. OK, it costs you one percent the at the money one percent to to ensure the QQQ between now and that. I mean, that is like ridiculously cheap, unheard of, complacent, whatever adjective you want to throw in and around there. If you own these stocks and you love them and you love the long term stories, but you were nervous near term, there is a way to protect them very cheaply. right now. Absolutely. And there's a case to be made that regardless what happens this coming week, you put in an intermediate high.

7:52Think about it. The numbers are fantastic. All of them do what Netflix did, right? And do what IBM did. What's the follow-on? That's it. We've priced it in. We go up 2-3%. Or they all miss and they pull the opposite. But either way, the case can be made that either it's now or in the coming week that you put in an important intermediate high. One of the things I was doing with a client this week who's got bedrock positions in all these names, obviously, but if you think about the momentum and the deltas in these names on the upside, this is such a great time to be selling upside out a year. And if at some point you're going to get called away, you have an opportunity even to go in there and get it.

8:23But you're well paid. After a 60 % move to 100 % move in all these companies, they're not going to do that this year. And there's no way they're going to do it. But you're paid to sell upside. But think about this. What day was it? The day before in Tesla's earnings. Remember, we detailed, so if you were long that stock, and we did it on the show, and we talked about it. You could sell out-of-the-money calls, and you could take those proceeds of that call sale, and you could buy a put. And you could buy a put that actually was in play. We were looking at that 192 half put when the stock was 209.

8:52Where did the stock close on the week? $184. So there's definitely ways. I mean, I think the options market right now, we haven't spent a lot of time talking about it. Premiums are really low. The VIX is below 13 or whatever. There are ways to protect single positions. There are ways to take in yield against those positions. And then in some instances, use that and buy some put protection. Let's talk a little bit more about options. Oh, seems like an OA. Oh, wow. You know what, look, man. The options market feeling very bullish, in fact, on a couple of magnificent seven names set to report. Mike Coe joins us with a look at the action.

9:24Mike, what are you seeing? Yeah, so Dan was talking about AI. And, of course, a name that wasn't really being discussed that much but definitely has been in play in the AI space lately is AMD. Of the names that are reporting next week, that was actually the busiest single stock option. And that one's implying a move of about 8.3%. And that's actually significantly larger than the 7 % or so that it is averaged over the last eight reported quarters. Meta is the second biggest move basically in this category of stock. That one's implying a move of about 6.7%. That's lower than average, but that's, of course, because over the last eight quarters, they've had some absolutely wild moves.

10:03Both cases, it was the upside calls expiring next week that were busiest going into earnings. In the case of AMD, it was the 180 strike calls. We saw just shy of 20 ,000 of those trade for about seven and a half bucks. That would take the stock to a new all-time high. Of course, everyone will remember it hit a high yesterday. And Meta, it's basically the same story, that 395 calls expiring next week. We saw over 6 ,000 of those trading for just under 15 bucks a contract. So those traders are obviously betting that the stock could exceed 410 or so after they report. Wow, that's a lot of activity.

10:38So, Tim, what concerns you about next week specifically? Well, we have a couple. It's a massive week. We do have a Fed meeting, folks. I don't know that there's going to be a whole lot there. And if anything, I think the dynamics around some of the data we got today, we had PCE out. So the core PCE inflation that's very important to the Fed was the best number we've seen in over a couple of years. I am worried about this Treasury funding announcement. So the TRA, as we now all know it, nobody knew those initials met together before. The Treasury refunding announcement will show what we're going to do in the next quarter in terms of what this government is going to do to finance a deficit that's never been larger at higher rates.

11:15And we've known that at times that's been a significant event for the equity market. I realize the Fed, if anything, has some support to get more dovish. I don't think they're going to I think they're going to be very careful about how they they talk about that. But but again, long yields where we were with rates back in October, the market bottomed basically, you know, a couple of weeks after rates topped. So I think that's a very, very big moment next week. Yeah, I mean, in terms of the Treasury refunding announcement, I believe the size of it is announced on Monday, and then the cadence of it happens on Wednesday.

11:45So on Wednesday, we can really get the fireworks. And we saw that last time, right? Exactly, exactly. And that was a huge catalyst for the market. Julia, how about you? I mean, given what Mike was in, by the way, Mike, thank you, Mike Coe. Given what we're seeing in terms of the option market, the expected moves are a little bit bigger for a couple of these players, AMD as well as Meta. and then what Tim had outlined in terms of the overlay of the potential volatility in the Treasury market. It seems like a very treacherous week that we're headed into. Yeah, it's going to be pretty spectacular, I think.

12:13You know, I think that what's happening in the Treasury markets is really, really pretty critical. And I think it's connected to what's going to happen with the Fed. The Fed is feeling a lot of pressure to cut rates, and that makes sense because, you know, we've seen a major increase. But we're not at, like, crazy historic highs at these levels. And the Fed is very well aware that there is almost no stimulus left to give, right? We're already at these record deficits. So why would they give back the one tool they have to fight any kind of economic weakness or any exogenous event? There's not really a need when the labor market is as strong as it is.

12:48And I think that's what people need to keep in mind. And I worry that a lot of people are going to continue to get their hearts broken expecting a March rate cut when I just don't think they want to give up that one weapon. The cadence, by the way, I misspoke Thursday. Thursday, which is the day, by the way, that Meta and Amazon reports. So just add that to the heap of things that we're going to be watching on Thursday. Yeah, you know, it's funny. The Fed, you know, again, we have a Fed funds futures that's pricing a 0 % probability of a cut there. Obviously, March has come down. I think it was as high as 75%, 80%.

13:19Now it's below 50 % or whatever. And when you think about, you know, the 10-year yield at 415, you look at crude oil, the way it's rallied over the last few weeks. You look at a dollar that's rallied a little bit. I mean, there are some things out there that could cause equity volatility from a very complacent level right now. And so it wouldn't even have to be any big misses of any of these big names. It could just be not the sort of guidance that people were hoping for to justify these sorts of valuations in a way. So to me, I just think there is a lot of complacency. And might the Fed say something in the Q &A that, you know, where there's no expectations that could cause a little volatility?

13:54Maybe. Let's dig deeper into the charts here and how we're set up. Best and worst charts among the MAG7. The chart master is taking a look. Well, just to reiterate, I mean, Apple really is the worst by far. In terms of relative performance, that's just a fact. And the question is, can that improve? I don't think so. So we're retaining that underweight. But the favorite is Meta. And we might have some charts here, but if not, and you can see Meta has just now returned to its prior high, which is the case for the S &P and the case for a lot of stocks. But whereas many super cap names have made substantial new highs, Meta is just now eking out slight new gains.

14:34So I think the setup here is good, especially for... Now, the chart on the screen is another way to depict this story. This is how bad Meta's been. It's a ratio chart. So it's one thing divided by another. That's simple. And what it means is that Meta's been underperforming the mind-deficit 7 for four or five years. But guess what? but it's starting to bottom and turn. And so it's a laggard that has catch-up potential to its other mega cap brethren. Carter, how relevant are those highs in an Amazon, so back of the November, December 2021 levels into 2022? Whenever we peaked out, they all did it at slightly different times, but all around that time, but some of the mega caps, is it a foregone that Amazon, which has not gotten to those all the time?

15:14I mean, should we, because, again, and can you oversimplify it? and I know you can't, but if you think about who got there first. That's right. And then who went through and who should be following right through the gates. So think about it. So we know that semis, NVIDIA, I mean, if you think about it, the QQQ dropped from its peak 37 % versus the S &P 27. And so they had to catch up that much more. But we know that semis are through, right? And we know that, for instance, an IBM. Microsoft's through. Microsoft is through. Whereas something like an Adobe, no. Something like an Amazon, no. And so the case is, do you favor those that have made it through, or do you double back and find a laggard and play it?

15:51And I think that's the better player. So that would be like a meta, and we shall see about Amazon. It's crazy to think that meta is a laggard, given its performance this year. The stock was death. Remember, it was death. And, you know, a lot has changed, but what has really changed, right? I mean, I realize the metaverse was thrown out the window, and we kind of stopped talking about it. Year of efficiency changed. But that's what Alphabet can actually do, outline more year of efficiency. that's the one company that really hasn't embraced that narrative as much. They also have some of the biggest risks as it comes to Gen.AI, right?

16:21So if you think about how they started last year, I mean, people thought that this was a company that was spending billions of dollars on machine learning, on generative AI, and the lead up to that GPT launch and everything like that. And then when they went out and they launched their Bard, it was just a disaster. This is a year ago. And then think about how they ended last year with a disappointing Gemini. That was the evolution of Bard and what they're meant to do and compete with Open.AI. So to me, yes, they do have, I think, you know, less expectations as it relates to a Microsoft. But they also, for some reason, have not been able to execute or at least demonstrate what they've been able to do.

16:54And I'll just say one thing, because you said it, Tim. Meta sold off nearly 80 percent from its highs in late 2021, 80 percent. And now it's come all the way back. You know what else also sold up about 75, 80 percent? Tesla also did. And it's been stuck in the mud. And it's really a bad story. I think we're going to talk a little bit about that later. You know what else sold off 75 % from its latest 2021 highs to its lows? NVIDIA. So these are names. Like, just think about how much enthusiasm was encapsulated in those names two plus years ago, how much they sold off, how far they've come back, and in NVIDIA's case, how far it's overshot.

17:28But just remember, people, that they can do that. I mean, like, right now, they seem so great. But Tesla's telling you that it can do it again, too. Has NVIDIA overshot? Yeah, I was going to say, overshot is a word I'm not sure a term people would all use. I mean, I wouldn't. Let's say there's a gentle experience. Some people say it's expensive or rich, but even more nuance is full. NVIDIA is full. So you think NVIDIA is a nice, wow. You guys, you're getting my jive here a little bit. Okay, I don't know. I mean, these are much-loved stories. They're much-loved then. They sold off. They lost three quarters.

18:02Julie, you're nodding your head here. I totally agree. I think that the thing is, is like when you get to a stock that's priced like this, everything has to go right. When in anyone's life has everything gone right, right? Well, you've made a couple of references tonight. And that makes it very, very difficult to make money if everyone owns it. Someone else has to buy it in order for it to continue going up. It sounds like everyone owns it, right? That makes it really hard. But didn't Netflix sort of change? I mean, I know Netflix is its own sort of idiosyncratic story. But we went into this quarter thinking Netflix had its run.

18:35It had its run on the back of the ad-supported tier. And here we are, Netflix with a gain of 18 % on the week. And we thought everybody owned that one, too. Doesn't it make you hopeful? It's high. Still not back to its all-time high. You still like Netflix. I think Netflix will. 680, 690. But still well off its highs. No doubt. Coming up, American Express cashing in on strong guidance before the bell. We'll debate whether to buy the hype around this name that is so closely tied to the consumer. Plus, earnings season heats up next week. As we mentioned, it's not just about tech. There's Novo Nordic, Starbucks, GM, ExxonMobil, all in the hot seat.

19:09We'll return to the charts for a look at how these names could fare. Stay tuned. This is Fast Money with Melissa Lee, right here on CNBC.

19:27Welcome back to Fast Money. American Express topping the tape, closing at an all-time high today after issuing better than expected full year guidance. While the company missed estimates for the current quarter, it did say it anticipates revenue growth between 9 and 11 percent in 2024. Amex shares up more than 7 percent for its best day in a year. Travel and entertainment spending was also good, up 9 percent. Julie, what's your read through on this? One thing that I thought was kind of interesting read through for the airlines is that the T &E spend looks pretty solid, but the airlines are not.

19:56So you're seeing a sequential decline there. And I think that's kind of important, and I think it's speaking a little bit to the nature of how work is changing, where we're spending a little bit more internally and trying to have more happening, but locally. And I think that that's kind of an interesting trend. It looks like the credit quality overall at American Express is still very, very high. And I think that's what's giving the stock a lot of support is that people feel very confident that this higher-end demographic is one that American Express really knows, really understands, and can underwrite to correctly without causing a lot of downsides.

20:30So it's a well-positioned. I mean, the bifurcated sort of narrative has really gained a lot more steam with that Discover News, Capital One Financial, though, did well in today's session, and then LVMH. So you really see the picture of the sort of lower-end consumer having some difficulty in the higher-end consumer, still spending, still okay. It's interesting the segments that you get a little bit more insight into. So restaurants still remain very strong, Travel is kind of normalized. They said some of the other trends are normalizing. What I think drove the stock is the sense that there's a lot of operational leverage in the story.

21:01So they're cutting expenses. OpEx is kind of staying where it is. Maybe it's coming down a little bit, but yet they're going to grow EPS 13 to 17 percent. And I think that's part of where you are. It's again, this could have been part of our conversation in the A block, which is that Visa and MasterCard, I'm sorry, Visa and Amex have performed a little differently. But they both talked about a consumer that was very resilient, and that's huge. I mean, one thing to point out, this is a classic example of why there's no such thing as good or bad news. There's only news, and it's how the market reacts.

21:30They missed on their earnings. They missed on their revenue. But the stock surged, which is to say, how do you square that off? You don't have to. The answer is it was good news. Obviously, it was good that they missed and good that they missed the revenue because otherwise it would be down. Really simple, which is to say it wasn't as bad a miss as maybe people feared. And then the second thing I would point out, that Amex's relative performance to S &P peaked a decade ago. You know, this is more of a bond. It's a pretty good dividend yield, but I don't think there's anything exciting here. So not a pair of twos.