Market Impact from Mideast Conflict… And Holding Cash On The Sidelines 10/1/24

0:01Live from the Nasdaq market, in the heart of New York City's Times Square, this is Fast Money. Here's what's on tap tonight. The Middle East on the brink. Iran launching nearly 200 missiles into Israel in response to the killing of a Hezbollah leader. We'll have the latest on the attacks and go inside the market's surprisingly muted reaction. Plus, on strike, port workers up and down the east and Gulf Coast walk off the job. Could an extended stoppage deal of blow to the economy? We'll debate that. And later, jewelry maker tarnished by a C-suite change inside China's continued new bull run. and the reason Boeing stock had a rare good day.

0:36I'm Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Steve Brasso, and Guy Adami. And we start off with the latest escalation of tensions in the Middle East. Iran confirming it launched a ballistic missile attack on Israel, this after Israeli ground forces entered southern Lebanon and killed a Hezbollah leader. Markets dropping on the news, though, did close off the lows of the session. The S &P 500 down just about a percent. The Dow is shedding 173 points. Nasdaq, the biggest lag, are dropping a percent and a half. It had been down two and a quarter percent at lows.

1:09Meantime, crude oil and gold prices were both higher. Volatility hit its highest level since mid-September, and the yield on the 10-year briefly dropping below 3.7 percent. Let's get more on the developments in the Mideast with NBC's Keir Simmons. He's in Doha, where tomorrow's Iran's presidents, along with senior officials of Hamas, are expected to arrive. Keir. well Melissa we're told by officials with knowledge that uh Pazeshki and the president of Iran who still come here to Qatar tomorrow morning less than 24 hours after Iran once again have fired on Israel from across the water there almost 200 ballistic missiles were hit out of the sky by Israel, by the U.S.

1:54and allies of Israel. There was very little damage inside of Israel, but strong words from the Iranians, from the Revolutionary Guard saying that this is one salvo, that if Israel responds, vowing a crushing response. Israel at the same time tonight saying it does plan to respond. So watchers worrying about the potential of an escalation here, is both sides do not appear prepared to stand down, despite the fact that Iran's attack does not appear to have been successful. That's worrying, Melissa, markets, as you mentioned, driving the price of gold and oil. Melissa? Kier, thank you. Kier Simmons joining us from Doha, Qatar.

2:39The markets, as we mentioned, have muted response to what has gone on. But as Kier had mentioned, the ball is in Israel's court at this point in terms of what the response is to these attacks. Benjamin Netanyahu said, I'm quoting, Iran made a big mistake in attacking Israel with missiles, and they will, quoting, pay for it. So it appears as though there will be an escalation. Obviously, we're not rooting for that, but we're tasked to try to figure out how you look at this through the lens of the markets. And listen, defense stocks have been doing extraordinarily well. You throw up any one of three, Lockheed Martin, Northrop Grumman, Raytheon, they all did extraordinarily well today.

3:10I think that continues. But energy, you know, regardless of what you think about the space, and I get it that the market's effectively at all-time highs, But you wake up and look, Exxon at 119 is within a whisper of its all-time high, which I think is pretty remarkable given the lack of love in the space. So I think energy stocks are showing signs of life as well, Mel. So, I mean, it goes without saying, I mean, there's a human side to this. Yes, of course. But our job is to try to figure out the market's reaction and what to do about it. So the rhetoric to me seems almost exactly like the April rhetoric and, you know, that Israel shouldn't respond.

3:46And if they do, that will be terrible. And so I think the market rallied on the somewhat muted impact of the attack. And then I think we will see if Israel has a measured response like they did last time. That was sort of an all clear for the market for a while. So that's what I am hoping will happen here. We'll see. Israel was expecting this for a while, so we know they're expecting to respond. I agree. The parallels and comparisons to April are very, to the market's perspective kind of where I think the market reaction has been. And in fact, because of that, I think we've gotten a more muted response in oil prices.

4:27I think we've gotten probably a bigger response in gold and some of the trades that I think are more indicative of just secular trades that are going on anyway. I think this also comes at a time, you know, back in April, we were in a shakier place in the market. I mean, right now we have dynamics that include the unexpected China stimulus bonanza, which we'll spend some time talking about again, but we talked about it all last week. But generally, a weaker dollar, generally a pathway in terms of the Federal Reserve and the rhetoric that we've gotten out of the Fed. So where are markets now relative to where we were back in April, even though, unfortunately, back to both the human side and the political side, this gets more complicated by the day.

5:09And that's really what's concerning. And I think markets at some point could be caught a bit offsides here. But again, we are at all time highs through the end of last week. And this pullback to me is a function of what's going on in the Middle East. Otherwise, I think we'd be going higher. So I think energy should have been higher. I think in a normal, we're not in a normal world, but I think energy stocks should be higher. I think crude should have rallied more. I think the defense names probably are worth investing in here because I think there's going to be still budgeting to go towards defense names going forward.

5:41What is Iran's goal? Just to retaliate? Because this is sort of what they did, to Karen's point, in April. And what they're saying is, don't retaliate because then we're going to loft a crushing blow. So that's all rhetoric. Do they have the ability to hurt Israel right now, or is the Iron Dome getting in the way? Because if they wanted to hurt Israel, they probably would have done it now. So it seems like this is just posturing. So it's a limited response. And that's what the markets are banking on. I would think, but I think Israel is going to respond. So I don't think they're playing for that.

6:18So you could have an extended if Israel responds and forces their hand. For as long as this is going, I mean, Tim made a very good point in terms of being at all-time highs effectively. Yet we have this potential brewing war in the Middle East. We have a port strike that is crippling trade in our country, having a direct impact on GDP by the day that the strike goes on. We've got a Boeing strike, by the way, and we've got an election coming up. I mean, the fact that we are still close to all-time highs is a remarkable statement to make today. Speaks to, again, yes, because if you had told me all these things would happen, we'd play this game a lot.

6:51It'd be like, well, we're going to be significantly lower in the S &P and within a percent and a half, two percent of an all-time high. With that said, you know, the VIX showed signs of life today. And it speaks to, and we've talked about this a hundred times, passive investing flows take none of this into consideration whatsoever. And my concern along unfounded it has been when passive becomes active, it's never active on the way up. It's active on the way down. So we'll see. You know, the market, and this is going to sound glib. It's not meant to be. It doesn't care about things until it does.

7:19Today showed glimmers of that. Yeah, although I do think some of these are transitory, to use a word, that could be so loaded, right? I do think ultimately the strike thing will be resolved. So that's one. I think, I hope this Middle East situation is somewhat contained with a muted response. That would be another one. But it sort of goes to the point of you can't fight the Fed, that that is the most important factor in the market. Right. And the base case that Chair Powell outlined yesterday is less than what the markets are anticipating to year end in terms of rate cuts. Yes, I will say that we had some ISM numbers today.

7:53We've had some ISM numbers around the world that emphasize why policymakers around the world are throwing a lot of stimulus and at least support to markets, to asset prices. So it's an interesting day. You could make an argument that anything that went on in the Treasury market and certainly the dollar was a function of a flight to quality. But the ISM numbers are ones that also could give bears another opportunity. We've got a huge payroll number suddenly looming on Friday. So let's think about that. Think about the setup. Think about the setup that that could be geopolitics, which, if anything, I would argue were further down the road.

8:29You can make an argument that possibly what China is doing in terms of the stimulus side is playing. You know, first of all, they're playing defense, but they will be emboldened by anything that goes on around the world, even though I am not making that call on China here. I'm just simply saying we think about geopolitical escalation. And as far as I'm concerned, we're certainly in a place today that is at least as dangerous as it was back in April. So I do think you have a setup for markets. Again, we're almost 13 percent up on the S &P from that intraday low on August 5th, which marked, again, the low in sentiment and the low in positioning.

9:07I think some of that is something to be taken seriously based upon the numbers and the fundamentals we could get going into Friday or on Friday. I think the Fed stays away from November. I think yesterday, listening to Chair Powell, he didn't seem like he was in a rush to cut again. So I think he front loaded 50, stays away from around the election, maybe 25, maybe 50 in December. But I think the market has to get used to not seeing another 50. And I think that's the most important. So it is notable you're saying that because you're you're I thought 75 basis points for the whole year cuts. But I did get that.

9:44I said 75 basis points. I did get the 50. You got it. So is that your way of complimenting me, you sweetheart? Well, no, I'm actually it really is notable. And simply that I think they stay away from November because there's a way to look political in November. And I think he front loaded 50 to stay away from November. It's funny you mentioned August 5th because August 5th was the day that the VIX hit an intraday high of 65. And we were nowhere near that today, even with the spike that we saw. No, but we had we had Katie Stockton on prior to that, about a month or so before that. She thought you'd see a spike in VIX.

10:15None of us thought that. But I also believe, and I do as well, that she thinks you're going to have another round of it. I don't think we're going to 60, but I think volatility will be a theme. And real quick, Stan Druckenmiller, who we talk about all the time, I think he was speaking at a grants conference. This is him quoting. Bipartisan fiscal recklessness is on the horizon. He short bonds the equivalent of 15 to 20 percent of his portfolio. And he's embarrassed that he's not short more, which means he thinks rates are going higher for some of the reasons that I thought incorrectly for a while.

10:45Well, I know one should be arguing with Stan Drunkenmiller, who's proven not only over the last we're talking about multiple decades here. But but the argument in the construct around deficit unfriendly administration, which one doesn't really matter. And the fact that both sides of the aisle have been deficit unfriendly now for probably 15 years is something that you think about stimulus. It almost seems like it's free money. It's certainly proven to be. And with the global central bank backdrop right now, the U.S. is in a position also, the dollar is probably in a position to get away with more rather than less.

11:18So I agree with that. I think, you know, shorting the Treasury market with the muscle memory that markets have here also for flight to quality, though, especially in a world where you could have some growth concerns, is something to be cautious about. All right. We want to get to an earnings alert here on shares of Nike. Nike is near the after hours lows right now after just announced it is withdrawing full year guidance. It's down eight plus percent. Sarah Eisen joins us now with all the numbers, the very latest from that call. Sarah. The calls just began, Melissa, and this is an awkward one for Nike because the CEO, John Donahoe, still has two more weeks left.

11:52And then he will be replaced by Elliott Hill, the 32-year veteran of Nike. So John Donahoe was not on the call. It was led by Matt Friend, who is the CFO and executive vice president. He said that they are withdrawing guidance, as you just said. So there was some risk that that was going to happen, either that or reducing guidance to set the table for the new CEO. They're withdrawing the full year guidance altogether, which leaves analysts now guessing, I think, on the numbers. Other headlines from the call. He thanked John Donahoe for leading the company through the pandemic, through the digital transformation.

12:24And he's excited. Friends said to welcome Elliott back to Nike, said brings a power connection to our employees and culture. He said the employee response has been tremendous. And we do know that, that he is very well-liked within the organization. We know that he was, for instance, an intern at the company, worked his way all the way up to the head of the consumer marketplace. As far as the results, Melissa, in line in terms of revenues, down 10 percent from the year before. China actually was a little bit better, only down 4 percent. But key market of North America, down 11 percent from last year.

12:56Earnings were a lot better, but Nike often does this, can flex its muscle really on earnings per share. And gross margins were a little bit better. But the key is the outlook going forward. And right now that's blurry. The other piece of news from the release is that Nike is postponing its investor day. That was supposed to happen November 19th. It makes a lot of sense because they've got a new CEO coming October 14th. So he has to figure out how to turn things around. But Nike has been very clear about the goals and some of the problems. The innovation has lagged. They have missed on the strategy toward focusing on direct-to-consumer and need to focus more on the wholesale partnerships.

13:35And Friend, even in the release, and I expect him to talk more about this in the call, has said that they are starting to see some early wins with the transformation, though a company as big as Nike is a big ship to turn around. And one thing I can tell you sort of anecdotally, they released a new shoe, the Peg 41, this quarter. And there was a lot of momentum, and it did really, really well. And that was key because Nike lost share in its running business. And so it does have to turn things around starting there. So a little bit of wins, but clearly too early. And they're looking ahead to the next CEO, which comes in just two weeks.

14:05Yep. Sarah, thank you. Sarah Eisen at the New York Stock Exchange for us on Nike shares down 8%. You were saying from the get-go there's going to be a kitchen sink at the very least. Yeah, I'm surprised it's down this much, actually. So the quarter, as Sarah said, was fine, but that's not relevant. What is relevant is what is the new CEO going to do? Why not withdraw guidance? Why do you need to stick to that guidance or miss? That just doesn't make any sense to me. Totally agree with Sarah on why do the investor day. He's got other things he's got to focus on. So those two pieces of information, I think, are sort of being overly punishing, I guess, to Nike.

14:41You know, things weren't going well. That's why they have a change in the CEO's position. So I don't think I feel like this is a bit of an overreaction. I guess it sort of underscores, though, the notion that maybe a turnaround at Nike will be longer in terms of time frame than one. Because we're not even going to get a game plan or blueprint for a turnaround for a while, for months, probably. I don't think you're going to see an EPS high watermark above where they hit in 24 until 27. I think the CEO has the impact in the short term outside of the sentiment in terms of what the analyst community can do to the multiple.

15:16and the analyst community has nudged it higher, there's very little that they can do. I don't think that there's a whole lot here that investor day, that would have been the first investor day in seven years. Why would you have the first investor day in seven years with a new CEO who has nothing to say? So the market's response here is maybe the mere opposite of what it did on the day he was announced. So I don't think you get too worked up over it. But again, I'm going to say, you know, we talk about an economic recession and the definition of what's a recession. I mean, Nike's got an earnings recession.

15:44Nike's got an EPS recession that's going to go from it's going to they're not going to get past 2023 where they're around 320 a share, probably until 2027. And this is at a time when also people are concerned that their DTC business, which was lauded and an important part of that multiple, is part of why they're out of touch with the consumer. And that's something that I think people are thinking about. Inline quarter has nothing to do with it. I mean, sales growth, I think, was down about what I'm looking at at 10.5 % year over year. Inventory is only down 5%. So maybe they're going to have some margin constraints going forward.

16:18But go back and look since November of 2021. I mean, this stock made an all-time high around Thanksgiving of 2021. Since then, it's been lower lows and lower highs. And the problem with the stock, given this announcement, is the fact that it rallied from$71 to$91 since, I think, middle of September or so. So a lot of good news was baked in. The first level of support is 78-ish, which was a recent low. Then 71 again, I think, is sort of in the cards. Yeah, I think you get a shot at that 70 level. It's the August low. And it looks like it's down a lot now, but it could probably go down another 15 percent before you get some footing.

16:53All right, coming up, we'll get more on the tensions in the Middle East with retired U.S. Army General Jack Jacobs and the latest report on port strikes and how the weight loss drug supply is getting caught up in the East Coast trade shutdown. Don't go anywhere. Fast Money is back in two.

17:10This is Fast Money with Melissa Lee right here on CNBC.

17:24Welcome back to Fast Money. For more on the situation in the Middle East, let's bring in retired U.S. Army Lieutenant Colonel Jack Jacobs. He is a recipient of the Medal of Honor and is an NBC News and MSNBC military analyst. Colonel, thanks a lot for joining us. We do appreciate your time and your patience with us. What is your assessment in terms of the situation in the Middle East, and what do you think Israel's response could be? Well, first of all, by the way, I've been promoted to colonel, but as long as they pay me as a colonel, it doesn't matter what you call me. In any case, I think, you know, I think we're going to see we're likely to see what we saw in April, the attack by the by Iran, a counterstrike by by Israel, but a muted one.

18:09Back in April, an airfield in Iran was struck by Israel in retaliation, really close to where Iran's putting together nuclear weapons and putting together plutonium, but made it a point of not hitting that facility. The same thing is likely to happen now to demonstrate that Israel can do it if it wants to, but decides to defuse the situation at the moment. Iran had to do this, they felt, because of Israel's taking such a huge toll on Hezbollah, its principal ally in the Middle East, Iran's principal ally in the Middle East. took out not only the chain of command, but also destroyed ammunition stores, command and control nodes, and so on.

19:03Iran felt that it had to, it had to respond. And this is what we see. It's likely that it will dissipate. But the animosity obviously is not going to change very much. And Israel will continue to clear the area north of the border between Israel and Lebanon. over the foreseeable future. Israel has got about two divisions on the ground. It's very difficult terrain, but they've got to clear the area north of the border because Netanyahu is under significant pressure internally to make it safe for Israelis to get back to their homes near the border with Lebanon. It's unlikely that there will be an enormous growth in the exchange.

19:56It's liable more likely to dissipate than it is to expand. But the United States has significant assets in the region. We've just moved several thousand more people there to make sure that we can defend Israel and defend our own troops. We've got about 40 ,000 troops there in the region. defend our own troops if either Iran or its proxies decide to attack. Colonel, the only thing that's different that I see it is what you just touched on, the fact that the Lebanon aspect has entered into this conflict. So do you see any timing based on the U.S. election, why Israel is sort of ratcheting it up?

20:37because I feel as if they have that learning process from April and they want to ratchet it up purposely at this point. Well, I think it has less to do with the election than the cascade of events that started it a year ago. The collection of intelligence information that gave Israel information about exactly where the chain of command was located. Don't forget the whole business about exploding walkie talkies and pagers and so on. That was several years in the making. I mean, putting that all together took a great deal of effort, shell companies left and right and so on, to disguise what was actually happening.

21:25That took a great deal of planning. So I don't think it has anything at all to do with the election cycle, But it does have to do with the perception that that that the Hezbollah was perfectly capable of invading Israel, certainly coming across the border and causing as much damage, perhaps, or maybe more than was caused by Hamas about a year ago. And they decided that now is the time to put an end to it before it had a chance to get even worse. Colonel Jacobs, we appreciate your time. Apologies on getting your title wrong. Hope we've gotten it right now. At least we promoted you instead of demoting you.

22:08You're welcome to any time. Thanks for having me on. See you next time. Jack Jacobs. All right. So in terms of the equity, we sort of walked through the muted response. But in terms of the impact on some of the other asset classes, they were much longer lasting. So do you think that that persists? I think there are ingredients in this that are contributory, though. I just, again, I look at oil, I look at the dollar, and I look at rates. And I can make arguments why those moves that were made today are moves that arguably the dollar strengthened. I think the dollar has been on a low ebb. But the move in rates in oil and gold are a function, really, I think, of where we have been more broadly in markets.

22:48So I guess I think markets will remain cautious. And I think there's some other news this week. But I think ultimately we will move past this. Coming up, how the port strike is impacting the weight loss drug space. The name's caught up in the middle. Next, you're watching Fast Money Live from the Nasdaq Marketite in Times Square. Back right after this.

23:18Welcome back to Fast Money. About 50 ,000 ILA longshoremen walking off the job today, kicking off a massive East Coast port strike that threatens to halt nearly half of all trade coming into the United States. Our Frank Holland has the very latest on the labor stoppage. Frank. The economic impact of the East Coast and Gulf Coast port strike could be as much as$4 billion a day, according to an estimate from Jeffries. There's a number of other estimates out there. The conference board pegs it at over half a billion dollars a day. Oxford Economics says the impact to GDP of a one-week strike would be$4.5 to$7.5 billion.