Market Rally To Keep Climbing?... And Underwater Auto Loans Growing Larger 10/16/24

0:02Live from the NASDAQ market side in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Rally on from banks to industrials, utilities. We are seeing strength across a wide swath of sectors today. What it means for the broad market. It is not just technology that is leading. And streaming gains. Shares of Netflix trading near all-time highs. Their earnings out tomorrow. Will the results keep shares soaring or will Netflix get chilly? Plus, Amazon getting in on the nuclear energy trade. One old school tech name hitting new highs for the year. And our car prices collapsing.

0:44What it could mean for the auto trade as well. We got a lot to do. I'm not Melissa. I'm Brian Sullivan. Thanks for joining us here on Fast Money. As always, live from Studio B at the NASDAQ and on your desk tonight, Tim Seymour, Karen Feinemann, Carter Braxton Worth, and Julie B. Welcome, everybody. All right, so let's begin. Welcome, Brian. Thank you. It's good to be back. Good to have you. I missed you all. All right. We begin with some signs that the market rally may still have legs even after 46 record closing highs for the S &P 500 this year. The S &P 500 up half a percent today. The Dow gained over 300 points.

1:23And yes, when you're at a record high, Tim, and you go a little higher, what do you get? A new record high? You did go to Georgetown. I mean, once in a while, a squirrel finds a nut. It's amazing. The small cap Russell 2000 indexed up 1.6%. And today, it was not tech leading the way. Banks popping. Some of the session's biggest winners, the KBE Bank ETF, up more than a percent, led by Morgan Stanley. Morgan Stanley soaring, by the way, 6.5 % to an all-time high. They had their earnings surge in deal-making and trading activity as investment banking revenue soaring more than 50. You heard that right.

2:02Five-zero percent. Get more on that in a minute. Utilities, materials, industrials, all higher today. All three sectors at new records. I feel like we just Tim named every sector in the stock market. Other than technology. And I think that's kind of the point, right? You don't necessarily need mega cap tech to take you higher. It's nice to lead without NVIDIA, right? Who is NVIDIA? I don't know. We didn't learn about that. I've never heard of them. But I think the point is that you have had essentially this barbell approach to the market. You have a lot of cyclicality that's getting a lot of life.

2:32I mean, look at a 3.5 % move in the dollar from the start of October. That's telling you something not just about relative central bank differentials, but something about the economy that there's more confidence here. That's an economy that also these bank earnings have been they've been fine. They haven't been so extraordinary. But what they have allowed the analyst community and the investor community to do is to begin to upgrade their expectations. When we hear from Bank of America, when we hear from Citibank that their securities portfolios are yielding 3.6, 3.7 percent, and that actually their deposit rates are 2.1, we can do that math.

3:02There is this dynamic around net interest income. Banks came into earnings season flying, and they're coming out of earnings season flying. Look at regional banks. They're back to where they were. They've taken finally back to where they were before Silicon Valley Bank. That's a good sign. It also is a message for commercial real estate. Quick follow-up of what you said. And to quote the great movie Margin Call, explain it to me like I'm a golden retriever. Okay. What is the dollar? Or a small child, I think. Or a small child. Yeah, well, that's another famous same-sayer. You knew he knew, but wanted to see what the other guy said.

3:33Great underrated movie. Anyway, quickly, what is the dollar's move telling you? You said it sent a signal. What is that? Well, often a weaker dollar is at times a risk-on moment, especially for certain asset classes. It's a case where I actually think that there's confidence in the U.S. economy. We came out of a Fed meeting where the Fed guided the 2 percent GDP growth to 2027. I don't know if we're going to get that. But if we get, you know, trend or slightly above trend growth or slightly below trend, depending on which trend you're following on GDP, that's great news. That's full steam ahead for banks.

4:02That's full steam ahead for consumer stocks, which have also been part of this rally. So I think there's been a chance for the market to have a different perspective on some of the same story, which is that we didn't have recession. This was the worst kept secret on an economy that really wasn't that bad. Yeah. So, I mean, to me, it all starts with banks, not just how the banks are doing, which was well across the board, but also their look into the economy, which is pretty good. And especially in this, you know, long in the tooth, no recession, soft landing, no land, no land. Right. No landing to still have things look pretty good, particularly credit quality looks pretty good.

4:38And, you know, we saw JP Morgan had a nice beat on loan origination. So that's, you know, a sign of the economy doing nicely. So I like earnings season. It gets a little tiring sometimes, but I like focusing on the fundamentals and not all about what's the Fed going to do this or that, but what's actually happening in the economy in these businesses. I mean, the thing that's really important, I think, today about the Morgan Stanley, two things. One, the Goldman and Morgan Stanley, the big heavy broker dealers, have been trailing substantially the boutique shops. So this would be Evercore, Piper.

5:09But they've still done well. No, no, done well. But on a relative basis, they are making new 52-week lows relative to the boutique. So the Goldman and Morgan Stanley's coming to life is a happy thing in terms of at least they're starting to participate. But one thing to note about the banks, if you look at the BKX index or the KRE, despite this strength, they're below where they were on July 30 relative high. So with all of this, they're still behind the market. And so that's what alpha is, as you know. It's not about what you picked. It's what you could have picked instead. And so the question now is with this huge lift in Morgan Stanley, this huge lift in Goldman, what's the follow-on act from here that would deliver alpha for a general manager who is overweight in an area that's still underperforming the market?

5:53So let's quickly. It's always these ETFs, okay? So you mentioned the KBW Bank Index and the KRE and everything. They got a lot of stocks. They've got a lot of mid-cap, small-cap banks, banks that you've never heard of in central Arkansas. And the big caps are the heavier weight. So is that telling a bigger story about banks in general? Or are you trying to focus in on just the supermajors, the investment banks? Well, making the point that the news is the supermajor news today. Yes, Morgan Stanley is the supermajor. But why should Morgan Stanley lift a bank in Arkansas? You get my drift. But the point is, it's a bank in Arkansas.

6:27Yeah, we're not talking about Arkansas, really. And we're not talking about a bank in— Are you a Razorbacks fan? My grandmother ran a restaurant. They've had a couple upsets this year. It's a nice place, Bentonville. They've got a little retailer that's based there. So it's not about a bank or an S &L or a lender. It's about one broker-dealer, commission-generating investment banking operation versus another. The big heavies have lagged the boutiques. And the question is, is this now the catch-up that continues or are they still going to lag? There's really more alpha than the smaller name. We're not talking about the money center banks.

6:56No, we're talking about the news today was Morgan Stanley. That's what we're talking about, right? Well, I wasn't. I mean, we were. I was insulting Arkansas. You would never do that. You would never do that, though. I just did. Julie Beal, save us here because here's the thing. Small caps, kind of your jam. And you've got to be happy to see small caps. I mean, we've been waiting for the small cap outbreak seemingly forever. I don't know. Maybe you will call it an outbreak or not. You must have been happy with today's market action. Breakout. Yeah, absolutely. Breakout. I don't know. Breakdown.

7:28I'm trying to call an outbreak. I was going to go with Tom Petty tonight to break down. It's a little rude to call my ad tech left an outbreak. I try not to do that. Yeah, but no, for sure. I mean, you know, we had our first breakout in July. That was really where we saw confirmation of the growth. And then that kind of settled down. And now we're seeing it take on again. I think that's just a function of earnings, right? And most of these sectors within small cap are finally starting to show earnings growth. We're hoping to see more of that and more clarity of that for 2025. But if you look at growth expectations for small cap as an asset class, they are well ahead of what large cap is able to do, which makes sense, right?

8:03They haven't been participating. They've been lagging large cap up until this point. And so their comparisons are easier. Financials on the small cap side, I think that's really going to be when we figure out the strength and health of the financial system because we have so many of these small regional banks that have had a really hard time. I'm really curious to see how they are doing. Not because I want to invest in them, because that's not really my thing, but mostly just to get a sense of the overall financial picture. But it does tell a story, a picture, I think, of money coming into all parts of this market, Julie, not just five stocks.

8:39Absolutely. I think seeing the relative levels of breadth expand in July and continue to expand over here, I think it gives everyone a lot of comfort that you're having a healthier market if it's not being driven by just a few handful of stocks. But it's still the main story. NVIDIA is still 20 % of the growth in the S &P this year. So there's still that. But I think the opportunity, both on valuation and earnings growth, tends to favor small cap. But you have to be selective with 40 percent of the index still not even profitable. Well, I think after a small cap outbreak, you often need to be comforted.

9:14You're confined to bed for a couple of days. Well, usually after a long outbreak, you certainly get a breakout at some point. And I think that's what we have. But I would just take it back to the banks, which have been so loathed over the last couple of years. It's been so easy to pick on the money center banks like a Bank of America that that obviously still fighting to get back to kind of pre-crisis levels. And there's a lot of different dynamics at work with some of the big money center banks. Citibank will never get back there. But Bank of America has outperformed the S &P by 18 % in the last 12 calendar months.

9:4018 % for Bank of America over the S &P that has the MAG-7 at the top of their balance sheet. So, you know, I think this is the case. Look at utilities. Look at the move in utilities. That's a fundamental story in addition to an interest rate sensitive where rates are coming down. Look at even the AT &Ts and the Altrias. I mean, at times, and Carter's been talking about this. It's hard to get too excited. I think the sponge is full there. Is that the expression? Yes, that's the expression. I do find that we don't want to go to utilities now, but I find the move odd given that many of these companies are their profits are regulated effectively by the government.

10:10But still, people must love the dividends. Let's broaden out this conversation. Bring in another voice. That is our friend Dan Suzuki. He is the deputy chief investment officer at Richard Bernstein Advisors. All right. So, Dan, you think that the market has has not put in its top for the year? You remain optimistic. Yeah. I mean, listen, there's like two months left in the year. so anything can happen, right? But I think that - There's also an election. There's also an election. Bring that up. Yeah. But when you think about it, I mean, the things that matter most for the markets are probably profits and liquidity.

10:41Profits, as you guys have been talking about for the last 10 minutes, profits are accelerating and they're broadening out. And liquidity is actually really strong and the Fed's cutting interest rates. So I think with that, those two levers, the market still is likely. Do we look at the banks and their earnings? And they were good. But do we look at them as a measure of anything other than the health? Because Goldman Sachs, I don't think, represents the American economy. Is that a fair statement? No offense to Goldman. So the bank earnings have been good. That's nice. It's a good start. Wall Street loves it.

11:11Does it tell us anything more about how every other company is going to do? I think it does. I think there's a broader theme happening here. First of all, it wasn't just the investment banks. You're seeing it from all the financials that have reported so far. You're seeing better than expected results, and things are pretty good. Are they going to the moon? No, but things are pretty good. But I think it extends beyond the financials. I think even the non-financials that reported already, which is just a handful, are telling you that things are not as bad as people were expecting, and things are actually getting less bad in the areas that have been beaten down.

11:43And I think that's the big opportunity. People forget that huge portions of the S &P 500 are still in a profits recession, but they are exiting that profits recession. I think that's the opportunity. that everybody's left these for dead because their growth has been terrible, but it's getting less terrible on its way to good. So, Dan, we talk about the elections, we know about geopolitics, and I say this, I mean, you at times have been concerned about this market, and I think at Bernstein you guys do a great job of actually being cynical and trying to figure out where the problem is. Why has the market turned the corner out of this Fed meeting?

12:13Did the Fed give us the green light? Because we get this sense that, and I agree, look, I think the market's going higher into year-end. I don't see any surprises from the Fed. I think there could be a bad data point or two. But outside of a political cycle and geopolitics, I think we're going to set new highs all the way through. How have you gotten more constructive? I think that it's really just been a function of the market moves in these sort of one - to two-month narratives. And the narrative shifted way too far to things are terrible, growth is slowing down too fast, and that's why the Fed has to cut 50 basis points.

12:45If you look at all the data that we've gotten since then, it's telling you that things aren't that bad, Whether it's from the earnings companies, the economic data, you're seeing economic surprises pick up. And on top of that, you have this sort of China stimulus story that's also playing into this growth recovery. So when you put all that together, we're looking at a world that's actually growing pretty decently with actual upside relative to beaten down expectations. I think it's just fundamentals. So, Dan, just looking at the market and thinking there's upside, do you think the rotation moves things around or we get upside from different places?

13:17I mean, absolutely. I think the risks lie. The biggest concentration of risk is going to be in the most crowded, expensive names. So I think I'm excited because a narrow market is an unhealthy market. And I think as it broadens out, it's really just following the fundamentals. It's not like it's happening in a vacuum. Earnings growth is broadening out. I think this quarter, you're probably seeing more sectors and more companies report positive and improving earnings growth. And in that context, it makes sense that the performance will follow through. A lot of love around the table. I'm going to have to throw a little cold water.

13:51You know, the late, great Charlie Munger had a process of thinking called inversion. And he would basically look at what could go wrong and work backwards from there to try to come to a – he didn't start with the bull case. What's the worst possible outcome? And then he kind of worked down from there. I think it worked out for him, by the way. Yeah. What are the risks to this market? There's a lot of geopolitical stuff. I get it. We've got an election. I get it. Your job is also to look at the risks. What's the downside risk here? Well, I think, first of all, it depends on your time horizon, Brian.

14:21I mean, like, again, on such a short time horizon, anything can move the needle. And, again, these things move in two-month narratives. But, you know, fundamentally, probably the biggest risk is that, you know, things actually, the slowdown that people are worried about actually comes through. And there's a million things that you can point to that would actually support that. I think there's also a million things that support the opposite. But listen, you're seeing credit stress among the low-income consumers. You look at sort of the retail earnings. Everybody's excited. The consumer's strong.

14:50But they're all negative numbers that these companies are posting. And so when you put all that together, if the China stimulus doesn't come through, there's a lot of reasons to think that the U.S. economy, everybody knows, is consumption-driven. That consumer is – the drivers of that consumer are slowing gradually. I don't think they're falling off a cliff, but if that continues, you know, that's the worst case scenario, that this broadening out is sort of temporary and it's a headbake. That's the concern. Well, thank you, Dan Suzuki. My cynical take would be if China stimulus worked, they wouldn't have to keep stimulating because every couple of years they re-stimulate.

15:26It's like an outbreak of stimulus. Yeah, we are outbreaking again. You know what's coming here. Dan Suzuki, Richard Bernstein advisors. Thank you very much. Julie, let's keep again. And let's broaden this out. You heard Dan's thing. And I wasn't trying to be negative and say what could go wrong. But that's everybody here. That's their job. Right. There's all there's always a risk in every market. How do you see it? Yeah, I mean, I take pride in being the gloomiest investor. Most of most of my clients, me, just because I mean, look, really what I am paid to do as a portfolio manager is to say no, not to say yes.

15:59Right. Because I'm most concerned about downside capture and protecting my clients. So I think there are things that make me a little bit nervous. I think Dan did a great job mentioning them. You know, I also worry about just the level of deficit spending, and neither candidate obviously has any interest in talking about that. So what that means is just we don't quite have the level of cushion to address any kind of economic shocks that we could foresee or not foresee, right, pandemic or otherwise. That's the thing that makes me just a little bit squidgy about this market. But, you know, I think I feel more optimistic.

16:30I feel more optimistic about the consumer, given that it sounds like they're really saving more than we thought they had been. And so there's enough here to kind of keep me interested, keep me interested. Good stuff. I think it's rational. Wasn't too bad gloomy. I would never say that. So you brought the realism, but there was some optimism tucked away inside there. All right. We've one block down. Got a long way to go. Coming up after the. What's that mean? It just means. Wow, that sounds like I'm actually intrigued. I feel like we've only just begun to fight here, Brian. Okay, we have only just begun.

17:03Strap it on. Let's do this. Let's go. Carly Simon. Coming up, charting the airlines. United flying high after reporting last night what the chartmaster, Carter Worth, sees in the trades ahead and Amazon going nuclear, or at least it wants to. The latest big-name tech trying to turn to nukes for power. An update on what they're doing and whether to work. Pass money back in two.

17:35All right, welcome back. It was the very friendly skies, at least for investors today. United Airlines with some good news on earnings, and the stock took off again. United's already had a heck of a year. It's up 75%. Now back to its pre-pandemic highs. The question, of course, is what is ahead? Let's ask the chart master, Carter. What do UAL's charts suggest? Sure. So we can answer the question right away. I think you'd maybe take some profits here. But before we do, let's look at the whole space and then work backwards and end with UALs. We might have some charts. The first is looking at the New York Stock Exchange ARCA Airline Index.

18:12And that goes back to 1994, 1995. And you'll note, of course, that it is the exact same level it was some 30 years ago. So this is a trading vehicle. And the question is, is it a time to be long or short if one is a trader? I think it's time to be long, and hence the arrow depicted. Now, if you look at the chart of UAL, whereas the index has not moved out of that well-defined formation, UAL has exploded, right? It was 37, and it's August low. It's up almost 100 % in a matter of weeks. That's the very definition of an overbought condition. And if you look at the next chart, you'll see a price oscillator that depicts that.

18:55That's RSI. Looking on that five-year chart, it's a bit much. I would sell calls. I would trim. I would take some measures before, as they say, someone does it for you. In terms of the relationship between UAL and the ETF jets, you'll see a comparative chart. And what this depicts is shows that the correlation is about 92%. But UAL has really taken off, has gone so far ahead of its peer group that I think one is right, if one has profits in one, to get out and double back and pick up the other, which was I'd rather be long jets than UAL. So you sell UAL by jets. That's right. And the final chart looks at a long-term comparative chart of that exact same circumstance.

19:40And you can see how tightly correlated they are. And then there's UAL literally exploding going back to the inception of JET's ETF. My hunch is it's overdone, overbought. It's full, expensive, rich, whatever word one chooses. If you're long, I would take some measures. Now I'm seeing Karen a$1.5 billion buyback, first buyback since pre-pandemic. What do you make of United's move or anything on the airlines in general? Well, I mean, Timmy is more well-versed, but they are really trading instruments. And I think, I mean, that chart really shows it just going hyperbolic. It's just up 100%. Right.

20:17That that pairs trade would really be a relatively low risk one. I think so. Because you've got to think it would revere more. There's a bit of auto-correlation in the sense that UAL is the largest component of the Jets. So if you could net that out. But either way, that relationship would just highly correlate, 95%, 92%. One is so far ahead of the other. That's the thinking, pair trade. Yeah, but if you look at, to me, the overall, both the business model and the dynamics around the airline sector overall for investing, I get the sense that we've now really worked off COVID. I know that sounds like just kind of a bland statement on, well, stocks are higher.

20:51No, but, I mean, you've had a lot of different opportunities. Delta's certainly traded at a lower multiple with more profitability, more free cash flow than it did pre-COVID. I would make an argument. But the reason why airlines are trading vehicles, and I think you tend to dance by the door, except for now Delta is breaking out through that 54 area that was really had been resistance at its last spike about a year and a half ago. I think you're buying this move, as Carter said. And I think you dance by the door, except for the fact that airlines have shown you in the past they want to find ways to show you how inefficient they will be with the next dollar they make.

21:22And that's really what the analyst community is waiting to hear from them. Where are they adding too much capacity? Where is essentially chasm or, you know, essentially their capacity for available seat miles? There's all kinds of great acronyms, by the way, in the airline sector. RASM, TRASM, CHASM. You don't want that chasm going higher and they get penalized for it. You wonder, too, Spirit Airlines got some problems. You wonder, like, if they if there's no more. You know, we don't know what's going to happen. Right. Stick around. But if some of these low cost airlines don't do as well, just money in United's pocket, I would imagine.

21:52Yeah. No, I mean, I think it's it's becoming a case where some of these the big three have more pressing power than ever, it seems. I'll be on United tomorrow. So I'll do some on the ground reporting for you, Tim, if you'd like from Newark. I would. Where are you going? Arkansas? No, I'm going back to what's going on. OK, OK. Just asking. Going to Guam. All right. There's a lot more fast money ahead. Here's what's to come. The nuclear trade heating up. Amazon Web Services making a huge investment in the alternative energy source. How much they're spending and just how much AI will drive power demand.