Making Sense of Friday’s Action and What’s Next for Tesla 1/2/26

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0:47So no matter where you're starting from, you can move forward with confidence. The key to being rich is knowing what counts. Let's find your rich. Edward Jones, member SIPC. Live from the Nasdaq market site right here in the heart of New York City's Times Square. This is Fast Money. The 2026 kickoff, a mixed bag. The Dow and S &P closing higher. Nasdaq down a touch, but the upside? Markets all lower much of the day until some buyers rolled in. So does today give you any clues as to the rest of the year? Tesla taking a hit. Deliveries drop, but with all the talk of robo-taxis and even robots Do investors even care?

1:31Take a closer look. Plus, a big bounce for Baidu. One new analyst downgrading Apple. And Trump giving some furniture stocks a nice pop. You're in the market for a new sofa. It's good news. We'll explain it. Happy New Year. Happy Friday, everybody. I am Brian Sullivan coming to you live from Studio B at the NASDAQ. On your desk tonight, Karen Feinerman, Bono and Eisen, Mike Coe, and Stu Kaiser. He is the head of equity trading strategy at Citi. Stu, welcome. All right, we begin with what else? The markets and your money. Because while big tech did not perform, small caps did. Maybe on some economic optimism heading into this new year.

2:13The small cap stocks popping more than 1 % the NASDAQ. Basically flat, but even as some mega cap tech stocks have wobbled a bit the last few sessions, there were some positive signs. For example, NVIDIA up more than a percent today, along with upside reversals and AI-focused stocks like SanDisk, CoreWeave, Micron, ASML. They were not alone. Companies associated with AI power generation also making a move. Names like G. Vernova, Constellation Energy, Vistra, all higher. So obviously, folks, we've got a lot to digest and dissect. So Karen Feinemann, kick it off. I know today, on Friday, coming off a massive holiday, a lot of people still off the desk.

2:59I get it. So is there anything we could read or take away from the action today? And extrapolate into the future. Why not? One day. That's what we do. I would say no. We take small data points and wildly exaggerate them. Right. I would say no. We probably have another 250 trading days left for the year. So we're not. Who's counting? Just to throw it out there, maybe it's close. So, no, but it is interesting to see. I mean, we know the year ended with the AI story sort of not at its peak, let's say. And so today there was a little life there. TSM kind of got us going. And so some nice traction.

3:36And I wouldn't extrapolate too much into it. But I also feel like just because the year has turned into a new number, I'm not going to redo my portfolio. I don't know what's changed, really, until I see something else that makes me think, all right, something's different. then I'm going to stick with what I've got. And I like what I have. It's nice to have a good year behind you. It makes it a little harder. Things got more expensive. But I'm sticking with what I got. Yeah, it's like the honey badger market bottom one. It doesn't care. It's a family show. I didn't know where we were going. That's what I do.

4:10It doesn't care that the calendar turned to Karen's point. It's January 2nd, same as December 31st. But you know what? I also don't care if volumes are low. If stocks go up, they go up. What's your general feeling in Reed? heading into the new year. Yeah, I mean, I'll take a gander at extrapolating and hyperbole, I guess. And I think it's Karen's point. I'm just going to put it in a loudspeaker that just because you turn the page on a calendar does not mean that now all of a sudden there's like some massive structural shift. I understand that there's a bit of jostling at the end of calendar year 2025, rotation away from some of the high flyers and AI into some of the more value-oriented sector on the back of speculation that the big, beautiful bill will kind of spur along perhaps retail, both investment and consumption.

4:56So I think there are some of those things at play on the margin that you will continue to see. But AI, data center buildout, power grid usage, these things aren't going away just because we're now in 2026. And I think some of the same playbook. Now, Karen made a point earlier, expecting the same returns that we saw on 2025 is likely a bit of a fool's errand just because we've run up so much. But to completely, essentially reverse course on what has gotten you through 2025 is probably not the playbook for 2026. No, and to be fair, and what's also interesting by Coe is that you're the options guy.

5:32You look at, let's say, the VIX, and maybe we could throw a one-year chart of the VIX up. The VIX is at 14.5. It's not quite the lowest in 12 months, slightly lower for a couple of days. in the middle of August of 2025. But we are coming into the new year with, I don't want to say no fear in the market, but certainly option spreads pretty tight. How do you read this change in calendar and where we are right now? Yeah, well, it's interesting. I mean, if we look at VIX, you know, like a five-day moving average, for example, for the first time in a year, actually. It did dip below 14 at the tail end of December.

6:14That was a level that it didn't reach in the same period last year when volatility was also quite low. Look, when volatility is low, as measured by the VIX, that's basically how much premium is baked into the S &P 500 over the next 30 days, so how much volatility options markets are anticipating. What this tells you is that investors are still quite sanguine, And generally speaking, that's a good environment for stocks. So I think that kind of to Bono's point, it doesn't make a huge difference just that the calendar switched over in terms of the fundamental backdrop for stocks. There are some things, though, that can impact it.

6:52So, for example, you will at the tail end of one year potentially have some tax positioning. And you may have some repositioning right after the calendar flips over as people are sort of readjusting their portfolios to accommodate that. But we also have had a very retail-driven market, and some people may be getting bonuses. They may deploy some of that capital into the equity market. So I think those things are also potentially positive. Stuart Kaiser, you should be positive. And by the way, you should be smiling because you work for Citigroup, and I've seen that stock. So on a personal note, hopefully you had a very, very good year.

7:24What do you see for at least maybe not the full year, but the beginning of the new year? What kind of positioning and strategy do you guys have at Citigroup? Look, I think if there's one thing that maybe does change with the calendar you're flipping, it's portfolio managers have a little bit more risk tolerance and a little bit more risk appetite than they would have at the end of last year. You know, there's a lot of folks we talked to in November and December saying that 2025 was such a difficult year. If you were up, the last thing you wanted to do was stub your toe or make a mistake, you know, kind of going into your end.

7:52So I would expect, you know, PMs on the institutional side to maybe reengage a little bit more through risk than they were kind of late last year. If you're going to take any positive signal, I think, away from today, and I agree with Karen, you have to really squint to get any signals out of this. I do think the move in small cap and the move in regional banks is encouraging because, to Bono's point, there is a focus on the big, beautiful bill. That is a domestic stimulus bill, basically. And who's going to benefit the most from that? It is smaller cap in regional banks. I love this idea. So, and if shorter Stu Kaiser, I don't want to misquote you to you.

8:29The idea being that fund managers, maybe like a Karen Feinerman, they did so well in 25. You get a little cautious or I want to say cowardly, but you want to protect your gains. And then maybe now you can change. You've got more room to play at the beginning of a new year. Yeah, I think that's right. You have a longer investment time frame, number one. And number two, given what happened last year, if you managed to fight your way through that year, you know, with a decent return, you know, the last thing you wanted to do was take any chances. So our kind of view into year end was you would rally, but it's what had worked in the beginning of the year was what's going to work into year end because we didn't expect people to get all that creative.

9:08A lot of PMs I talked to did not want to hear our creative ideas, right? It was much more a discussion of, hey, what's going on with this AI trade? Hey, what's going on with retail trading? It wasn't, hey, do you have any new idea I haven't heard of yet and I'm going to put that on for the last two or three weeks of the trading year. So let me ask you a question. In terms of flow of funds into the market, is that generally even all year where you see a higher amount of money coming in at the beginning of the year? You said the bonus part. But I mean more broadly than that. Is there something that would make the beginning of the year just structurally a time where more money has to go to work and therefore stock prices would likely go up?

9:40Honestly, I think the biggest flow you see at the beginning of the year tends to be a rotation out of winters and into laggards, right? Out of winters, tax selling after the new year. OK. And, you know, the dogs of the Dow type situation, I've got to buy what's lagged. Then you get tax day. So I agree. I think, you know, bonus season matters. I think tax day matters. And I'm sure we'll get into it later. The big, beautiful bill and the potential tax refunds is an enormous story. So I think, look, I think you have a little bit extra risk tolerance. I do think you have people that are willing to play around in some of the laggards.

10:10And then when we do get bonuses, you know, later this month or early February, yeah, that might help a little bit incrementally. Stu, in your opinion, is that a reason to kind of look at the trends early in the year and try to extrapolate what might happen over the course of the year? Or is that more a reason for you to perhaps fade some of the things that are happening earlier on the year because they tend to be one-off? As you mentioned, you're willing to take a little bit more risk on the, what is it, the dogs of the Dow type of trade. Because, yes, you have much more time and you have, you know, law of large numbers.

10:40But at the same time, there could be a recency bias to that that may not necessarily play out because I doubt that most people are going to elect to buy losers and add to losing positions over the course of the year. So how should we be looking at that trade? Yeah, if you look, if you think of like the momentum rotation or something like that, that tends to be quite short lived. It's the first two or three weeks of the year and then it kind of calms down. Another way to think about that might be Europe the last few years. Typically, you've had Europe rally really strong in January. And then once the initial people buy that, you know, that trend kind of fades.

11:12So I wouldn't necessarily, you know, think of the early year being all that indicative of what happens the full year, unless there's a meaningful change to your investment thesis. Like, as you mentioned, the calendar year changes. It doesn't change your base case. So but but OK, I know we got to get Steve Leesman, but I will say that what does change on January 1st are the tax laws. Yes. And that may influence the way people invest because small caps benefit from more people getting tax refunds. So maybe something actually does change on the calendar. This year, look, you've had a meaningful change in the underlying policy backdrop.

11:43And if you believe that that has legs to it, yeah, we do think there is a trade there. And we'll get into it later. I mean, we believe people are going to take a shot at this cyclical trade early this year. They're going to be very sensitive to tax data in early February. But we do think it's a real thing. Okay. As you noted, we will get to that in just a bit. But let's move on, because one of the big questions among many for the market this year, what will the Federal Reserve look like after Chair Jerome Powell steps down? And, of course, who will succeed him as chair of the Fed? Now, Kalshi still putting the betting odds on Kevin Hassett, but it's getting a lot closer because the other Kevin, Kevin Warsh, is at 35 percent.

12:20Christopher Wall rolling into 13 percent. Rick Reeder at 4 percent. Steve Leesman, I would put you on that board. But right now, we're happy that you're with us. So you join us. What do we know about the 2026 Fed? Because the calendar is changing and so will the chair of the Fed. Yes, but there's another question. What happens to the existing chair of the Fed, Brian? Fed chair Jay Powell has been pointedly mum about the question of whether he will stay on the board after his term as chair ends in May. So it could get interesting. Both Ben Bernanke and Gianna Yellen, they left quietly with time remaining on their governor terms.

12:57Powell, he could stay on the board for two more years as a governor if he wants to, but he's declined to say what he'll do, raising the question of whether he's even, he's actually considering staying. At stake, the makeup of the rate-setting Federal Open Market Committee and the powerful Board of Governors, and whether President Trump will have a majority of appointees on the board, including the new chair, of course, one of the Kevins, or somebody else, a relatively new grandfather. father, Powell's thought by Fed observers to be more than ready for civilian life after 13 years at the Fed, including eight as chair, much of that tenure coming with unprecedented and, of course, withering criticism from President Trump.

13:36But Powell also holds a deep loyalty to the institution and likely concerned about its fate under the challenge posed to its independence by the president. Three Trump appointees currently sit on the seven-member board, Governors Waller, Bowman, and Myron. Either Lisa Cook's removal by the Supreme Court or Powell's departure, that would hand Trump a majority that could vote for ultra-low rates almost immediately or even fire district bank presidents who don't vote to cut rates. There's no guarantee, of course, they would vote along with the president on those issues. For Powell, staying could be labeled a political move by the president's supporters.

14:13Leaving could clear the way for unfetter control by the president. Most Fed observers we talk to, Brian, think that Powell is most likely to leave, though none would rule out him staying for perhaps even a short time. I've got to imagine, Steve, that Mr. Jerome Powell could make a sizable pile of money for he to go to the private sector. I don't think that's outside of the realm of possibility. He could also spend a lot of time playing guitar, which we know he's an avid guitar player. I'd like to go to concerts. But, you know, you leave behind and you look and you see what could happen to the Fed.

14:50And maybe he has some colleagues or other people in the business urging him to stay out of loyalty to the institution. If you could have made a difference and stop it from becoming a problem or stopping a problem, then maybe you think about staying for a bit. Steve, it's Karen. So it clarifies something for me. If he were to say, I'm not going to stay, who decides to fill that how that seat is filled? Does he have a say in that at all? No, he does not. I mean, he might in a different world be asked by the administration for who could who would be a good Fed governor. But I'm not sure. I'm pretty sure that this administration and that Fed chair are not talking about those sorts of things.

15:33Guitar and a pile of money. Both sound kind of good to me. Steve Leesman, you can have both. You can have everything. Steve Leesman, thank you very much. Have a happy new year and a good weekend, Steve. All right, let's go around the horn now and maybe take the temp of the traders. Karen, do you care who the next Fed chair is? Do I care? I feel like whoever it is is going to have the similar agenda to whoever else it might be. Would you change your – let me ask more directly. Would you change your investing strategy or portfolio – get ready, Bono. Same question is coming to you. Yes. Based on who gets nominated and I would assume confirmed.

16:06No, because I think in any case, short term rates go lower and the 10 year is still going to do whatever the 10 year will do without regard to that. So you asked me this question earlier in a different way and I refused to answer. I'm going to keep asking. No, that's fine. You know, I kind of grown a little bit fatigued on the politicization of this. Like, I'm essentially here tasked with coming up with investment theses and giving our viewers what I think my opinions are based on, like, academic, economic or financial data. And I just felt like we've made such a circus about this. I didn't really want to get sucked into this.

16:45I think this question is framed in a way where actually there is some investment outcome to be handicapped. I think, listen, I think Hassett actually is very capable. I do think that he opens himself up to actually being influenced very heavily by the administration. And I think that is an issue. And I think that it's being reflected in commodity prices, your silver and your gold, coming full circle back to that conversation. So that would likely be how I were to play that were I to think that despite economic readings, despite inflation readings, that we're going to continue to try to press down on the front end of the curve.

17:21I'm probably going to get a little bit more long commodities within the portfolio. And I'm probably also fading longer term yields because I think that it is going to be inflationary. But I think that is going to be somewhat balanced by the fact that you're likely going to see strains on GDP if we run this economy too hot right now and allow inflation to get out of bounds and are unable to bring that back in line. I love Mike. I love Bono's thinking because and I'm not going to speak for the entire bond market, but I talk to people in the bond market and they say kind of the same thing. and Stu obviously jumping as well.

17:55But Mike, if the market perceives the next Fed chair as simply somebody doing the bidding of the president and not what is best for the bond market, the economy, inflation, or jobs, it may revolt, right? We had Guy Adami on Wednesday night say he thought that the 10-year could go to 4.5. Today on Power Lunch, Rick Santelli said 4.75 is possible. You get my point. Is there a possibility that the Fed nominee is too political, and therefore the bond market ignores that person. Well, I would say that the bond market has already ignored the person who's sitting there right now, because what we did in fact see in the most recent cut scenario, as the two-year has dipped, the 10-year has held in there and actually gone a little bit higher.

18:43So we've seen the yield curve steepen. That, I think, is to be expected. I mean, also people should kind of throw away the ZERP era 10 years and sort of dismiss that from your mind. We're not going back there. So I think that if you imagine that we're going to live in a world where the 10 year is going to float around three and a half to five and a half, I mean, above five and a half, I have a feeling that you actually need some intervention simply because it creates other big problems. But yeah, I mean, I'm not that concerned about who's going to get the job. I think if you're interested in what rates are going to do, follow the two year, and that's probably going to be your best guide for now.

19:21All right, Stu, so I saw you nodding on the Fed thing. I know you've got a tax thesis. I want to get to that. But as head of equity strategy for Citigroup, do you guys have a point of view on the Fed chair? Or are you just going to roll with whomever is nominated and theoretically confirmed? Look, I don't think, to answer your question earlier, it wouldn't change our investment framework or thesis, assuming it's one of the top two or three people that have been bandied about already. So if it's Hassett or Warsh or Reeder, it's not going to change our base case. And the bottom line is, if the market was really worried about one of those people being appointed, you wouldn't have rate cut odds below 50 % for the next three meetings.

19:56You wouldn't have the 30-year yield where it is. You wouldn't have bond volatility where it is. The market is sort of telling you that those three candidates are credible enough that it's not going to create a big risk premium in the bond market. And I would expect that to continue. So we don't have a favorite amongst the three, but I think as long as you're choosing from that pool of people, the market is already telling you that they're not particularly concerned with those three candidates. Okay, so quickly then on the other side, we talked about a little bit, there are real tax implications to the economy and thus the market.

20:27Yeah, 100%. I think, you know, our economists are a little bit more conservative about this, but I can tell you investors we talk to are very positive on the amount of stimulus that's going to hit the economy in the first half of 2026, particularly from the tax refunds. And, you know, just to give you a quick number, the average tax refund over the last 15 years or so has been about$2 ,850. There's discussion it could be$1 ,000 higher. So that is a massive increase in the size of tax refunds you might get. And people are definitely putting trades on that would benefit from that. Trades on where?

21:00Small caps? Because people spend that extra$1 ,000 on average, goes to the earnings and bottom line of some of these companies we don't talk a lot about. Yeah, I think it's two categories. One would be your more discretionary spending category. Your dine away from home, your travel and leisure, your lower income retail stocks. And the second would be, I think, more what you're talking about is your traditional cyclicals, which might be a little under-owned. And I'd put the materials sector, I'd put banks, and I'd put potentially small cap in that category. So it depends who you talk to. But people want to have, you know, under the umbrella of a cyclical trade-on.

21:33And it's just a question of do I go after the consumer at a time when the unemployment rate is rising, or do I play it a little more close to the vest and just go with traditional cyclicals so I have that exposure on? Oh, Russell 2000 was up 1 % today. They always do these head fakes, though, so we'll see what happens ultimately. All right, coming up, Tesla turning over its title as the world's largest EV maker. But should you, the investor, even care about cars at this point? But ahead of that, Baidu ripping higher. What it might mean for other big China tech names. We'll hit that and more. Don't go anywhere.

22:07Fast Money, live on a Friday, back in two minutes.

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