Market Too Exuberant?.... And Investor Rotate Into Software Stocks Description 11/13/24

0:00Live 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. Trouble under the surface. Stocks trading near records with the S &P pacing for its best month since February. And we're not even halfway through November. But could there be risks lurking in this rally? We dive into the latest signs of struggle for the markets. And from semis to software, a big rotation seems to be happening in the tech space over the last week or so. What's behind the move and will it last? Plus, we're all over Cisco's post earnings move. The chart master says sell the home builders while he's seeing weakness.

0:30And the Premier League, La Crosse, is launching a new league for women. We'll talk to President Paul Rabel about that and the world of live sports. I'm Melissa Lee. Coming to you live from Studio B at the NASDAQ on the desk tonight, Carter Worth, Dan Nathan, Guy Domi, and Mike Coe. We begin with some mixed messages coming out of the market. Markets hovering near all-time highs after October inflation data showed consumer prices rising in line with expectations. The Dow and S &P managed to finish in positive territory while the NASDAQ fell a quarter of a percent. All S &P sectors are still less than 10 percent from their 52-week highs, with consumer discretionary and financials hitting records during the session.

1:04This even in the face of some not-so-good signals, the dollar index hitting its highest level in more than a year as Trump's win sparks expectations for potentially inflationary tariffs. Rates taking higher, too. While the Fed has cut rates by 75 basis points since September, the 10-year yield has risen by that amount in the same period. Consumer debt also on the upswing. Americans now owe a record$1.17 trillion on their credit cards, according to a Q3 report by the New York Fed. So is it possible markets have gotten too exuberant? Guy. Well, through that lens, the answer is yes. And people will be like, oh, my God, Guy, you're always looking for what could go wrong.

1:40And, you know, maybe there's some truth to that. But we're also trying to point out some of the things that potentially are out there that the market is seemingly looking past. And you just said it. Right now, severe delinquency, that's 90 days plus, is at 11.1 percent, which is the highest we've seen since the financial crisis for context. And you just said that number in terms of absolute dollars, 23 percent is the average rate that people are paying on those credit cards. So, you know, the optimist will say, well, people have jobs. The unemployment rate is historically low. Wages have been trending higher.

2:12All that is true. But these are numbers you just can't sort of whistle past. Yeah. You mentioned the dollar, Mel. I mean, when you think about the move that it's had in about six weeks from 52-week lows to 52-week highs, you know, it's 6 percent move. It doesn't sound like a lot if we're looking at some of the way things are moving in the stock market. That's a huge move, right? And you look at the multinationals, the large tech companies that make up so much of the earnings, you know, that we have in the S &P 500. And they have so much exposure overseas. That's the one thing you really want to keep an eye on.

2:39What are some of the kind of, you know, what are these companies telling you about this? And, you know, we hear constant currency and this and that or whatever. But when you have the sort of rotations that we're having, you have some of the potential issues as it relates to tariffs and the like here with rates going higher. At some point, it's going to weigh on corporate earnings. So to me, that's the one thing I want to focus on here. I mean, look, obviously the dollar were to continue much higher and rates were to go higher. At some point, the equity market has to reflect that. It is not as of now.

3:03But it's the U.S. almost uniquely. The Nikkei hasn't made a high since July. If you look at the stocks, 600 in Europe, which is the equivalent of our S &P 500, it basically also hasn't made a high in about four months. And so there's a lot of bifurcation going on, both internally to the S &P as well as globally in terms of the equity complex. And something typically gives when you get that kind of bifurcation. But maybe, maybe, Mike, the rise in the dollar and the rise in yields reflect the outlook for a better economy. Maybe a strong dollar and let's say a weak yen could help the carry trade, which could help those big cap tech stocks, which may have been dinged by a stronger dollar.

3:43I mean, there are cases for this saying, you know, things are great in the economy. Things will be great in the economy. Well, that's what the market is pricing in, isn't it? I mean, first of all, I mean, with respect to the bifurcation that Carter was just talking about, I mean, the fact is that a lot of the sort of headline economic data for the United States has been significantly stronger than it has been in other developed counterparts. So I think that obviously is one part of it. Now, if the dollar strengthens, that can mute some of the inflationary effects that I think we could probably anticipate when you think about the tax policy that the incoming administration has, which I think we would generally view as inflationary otherwise.

4:24You know, just speaking to Guy's point, you know, with respect to where consumers are, first of all, I think we know that there is some distress there. I think the election itself reflects that. But the other thing is we haven't even made it through the holiday spending season. So if it's grim now, it's going to be much grimmer in 60 days. So I'm not trying to be too negative about this. But the truth is, we are at valuations in the S &P that ignoring the big pullback in earnings that we saw during the pandemic plunge that we really haven't seen since the tech bubble in the 98, 99, 2000 timeframe.

4:57And that's a little worse. Everybody is so cautious here on this desk. And been wrong to be cautious. I mean, I want to point that out. I've been cautious for a while, as you know. And the things that we've been talking about have only gotten worse, but the market continues to sort of whistle past it. But as I said, however, I think it's also incumbent upon us to sort of point these things out, because if you don't and things go pear-shaped, people say, where were you guys during this entire thing? You know, when you have 11 percent of all credit cards now, serious delinquency, levels that we haven't seen since 2008, 2009, you have to point that out.

5:31Now, you can sort of explain it away, saying it's different this time, and maybe it is, and maybe rates are going higher because the economy is doing better, Or maybe there's something more nefarious going on. Yeah, and listen, Mel, there are some things out there right now that act pretty well. I mean, look at the banks. So the BKX is trading very near an all-time high. It's just kind of in a runaway breakout. The KRE, the regional banks, act really well, too. Again, we don't know. They acted well when rates were going lower. They act well now when rates are going higher. Look at industrials.

5:57The XLI acts really well. I could go to the guys, IYT, when you came up with the transport, the Dow Jones transport theory. Oh, wait, when he created it? You and Charles Dow. I call them Charles. The Dow theory is what you named it. But look at the transports. They act really well here. So there's plenty of groups that act well. And I guess, but the problem is, is like if you think about the earnings contributors to the S &P 500, it's very heavily weighted to the names that we think could have headwinds with this dollar. Right. So you're citing laggards, right, which is what happens when all of a sudden money is just moving in.

6:28And the transports have been laggards and they've caught a bit. And banks have been laggards and they've caught a bit. Specific to the financials and banks in general, if you were to look at the performance right after the election in 2016, right, you had a surge that was much bigger than this. It went for exactly four weeks to mid-December. And to this day, that remains the relative peak for banks to this day. So there was a whole bunch of money post-presidential election moving into a group that ended up being the exact wrong time to move into it. I don't suspect banks are a great area here.

6:58They're full, whether you want to look at a price-to-book or tangible for J.P. Morgan, a guy you speak of that often, but a Morgan Stanley, Goldman Sachs. A lot of these things have come a long way. They're extended, and I think one is well-served to reduce exposure to that area of the market. I mean, to Dan's point, Mike, and to Carter's point to some extent, you know, rates at some point will catch up with banks, right? I mean, banks are doing well and rates are coming down. on the way up, you would think, you know, name like a Bank of America, not to pick on Bank of America, but with a big health maturity portfolio, they should be feeling some discomfort with seeing rates.

7:33Yeah, well, that's exactly. Yeah. Bank of America clearly is, you know, amongst the money center banks, they in particular did kind of a poor job and took a lot of duration, as you point out, onto their health to maturity book. So just as a reminder to everybody, the more duration you have, effectively, the value of the assets that you hold in that book go down as interest rates rise. And that's what they've been doing. So I realize that this is an accounting thing for some people, but in very real terms, the assets that they hold on their sheets are going down in value. Now, they can always turn them into the Fed, but it doesn't really help you when you have negative carry on that trade.

8:09So Bank of America definitely should be underperforming as long as the long end of the curve starts rising relative to banks that have managed their duration much more effectively like JP Morgan has. Guy, what is this show called? CNBC's Fast Money. It's been on air since January 2007. It's a very long and storied stint. Yes. There's something coming, so I'm preparing myself. So in terms of this market right now, if you were to make a call from now till year end, for those who really love the notion of fast money, what would that be versus making the call today for the next year? So what would the notion of fast money be into year end, knowing that we have NVIDIA reporting, I believe, Wednesday of next week and all the things you just mentioned?

8:54You know, I look at these banks specifically and I say, wait a second, why is Warren Buffett selling out of Bank of America? Carter just mentioned it. Mike Coe just mentioned it. Their hold to maturity does not get any better with rates going higher. And the stock is actually higher now than it was back in the fall when rates were around the levels we're seeing now. So if you're looking to make fast money, you could play it with maybe buying puts in banks. Or if you're long, some of these bank stocks getting out and waiting for a better entry point. Yeah, I'll bet you Carter has some data on this.

9:23When you have an S &P that's up 25 percent, you know, 10 months in through the year, it's not particularly likely that you're going to have some sort of big sell off between now and then. And I'm kind of in guys camp. I think the one thing that could derail this market, when I say derail, maybe come in 3%, 4%, 5 % between now and December, is what does NVIDIA have to say? What does their guidance look like? We know that we see some of these trades in and around this generative AI trade stalling out to a great deal. And so I think the last man standing is kind of NVIDIA, but that stock acts pretty well.

9:52It's acting, you know, really acting very contrary to the way the rest of these semis are acting. Yeah, semis are quite poor. But to your point, look, momentum is a powerful force. If all the factors have ever been tested by big quad shops, momentum and relative strength come out as the winner. And so not only the downside. If you're an Enron, you just keep losing and losing and losing or Walgreens Boots or CVS. And in turn, when something's in a pretty good uptrend, that's the case. As to seasonality, we know there's a strong period. And there is no incentive for people who get paid as a percentage of assets under management and money's coming in off the sidelines.

10:23And they have to be fully invested and benchmarked. There's no incentive for major portfolio managers to start reducing. So the real question is, what happens Jan 1? And there are two things that quite happen. Often January is very, very good. You get a follow-through. Or guess what? Everyone says, whew, turn the lights out. Let's just walk away from this. There's been such a good party. Let's pull back. On all of this, let's bring in Joe LaVorna, chief economist at SMBC, NICO Securities. He served as the White House chief economist during Trump's first administration. Joe, are you going to be going to Washington anytime soon?

10:57Well, I mean, it would be a great honor. But at the same time, I love where I'm at and I'm here to serve in any way I can. But that's very nice of you asking. But we'll see what happens, Melissa. Just curious. Just curious, Joe. So after the CPI print, the chances for a Fed rate cut went up to 80 percent versus 56 percent or so prior to the number. Do you see that as a certainty, basically, the next move? with the Fed? No, I don't. Yeah, I don't see it as a certainty. I'm very surprised. The Fed says it's data dependent. And yet the inflation numbers were in line today. We had the numbers to the second decimal place.

11:33But it's not like inflation is back at 2 percent. We see the price levels up significantly. That was certainly one of the main factors why the public voted Trump back in, is that even though the rate of inflation has fallen, it's not at 2 percent. And it's still up cumulatively well over 20 percent in the last four years. So if I'm the Fed and they're really data dependent, Melissa, they're supposed to at least skip a meeting and see how things play out. Having said that, given where the market is and the Fed's propensity to never disappoint markets, for a reason that I fully don't understand, they probably go.

12:07But I think the best move would be just to wait and skip a meeting. Joe, I know you were sitting backstage listening to the conversation we had in terms of where the consumer is and stuff. Where do you come down on this entire thing, because if you watch business television, CNBC, all you hear is the health of the consumer. And I think at times people confuse the health of their consumer with their want to spend. Thoughts on that? Yeah, it seems to me, Guy, that a lot of the data that's come out shows a kind of a flip in who's doing the spending, where you're getting more higher end consumers doing more of the spending than what took place in the past, which is why you get this bifurcated economy where you hear all these anecdotes of stress at the lower income levels, and yet overall consumer spending is doing well.

12:50And that's being powered by the upper income earners who also have a lot of asset accumulation. And as you know, assets, equities, home prices have risen dramatically, and that's helped fueling the spending, which is why you get this very dichotomy, this anecdotal story of some firms doing really well on consumer spending and others not doing so well. Hey, Joe, Larry Summers tweeted this out this morning. I think what I'm kind of taking away from it, he's saying that the Fed bashing, like if you look at the Trump kind of trade here at this point, so the idea that he might bully the Fed, the idea that he's going to put heavy tariffs in, the idea that he's going to push through tax cuts, deficit spending goes on and on and on, right?

13:32That that's really inflationary. I think Summers is basically saying that's consensus, right? So I'm just curious if that's consensus, and I'm curious if you think that's consensus, what is likely to happen if everyone thinks that way? Yeah, I didn't see Larry's tweet, but look, breakeven inflation has gone up from about 2 percent to around 240. I mean, that's essentially where it's been the last four years. Rates have increased, but they're not particularly high, at least on the long end. Trump 1.0 was not inflationary, and my best guess is that Trump 2.0 won't be inflationary, because if you get the proper supply response and you get the capital deepening and more productivity growth, then you'll get non-inflationary growth.

14:16The problem I have with the Fed is I've always long argued that the Fed really too mechanistically looks at inflation as being driven by workers, how many workers are employed. I don't believe in this Phillips curve concept. I don't believe that high wages cause inflation. Inflation is a monetary and credit phenomenon. And I think the Fed should take a different approach to policymaking. My concern, though, is that it won't. And over time, as it becomes more obvious that growth isn't that great, because a lot of the strength we've had in this economy has been government spending related, the Fed might be too slow in cutting rates, fearful that a Trump economic package will be inflationary, when in reality it won't be.

14:57Joe, thank you. Always great to see you. Thank you, Melissa. Yeah, thank you. Same here. Thank you. So, Mike, what does that mean in terms of what the market is reflecting? Well, if long-term rates are baking in what Joe was just talking about and sort of thinking thoughtfully about the impact of reduced government spending and forecasting that we're going to get significantly reduced government spending and that that's going to be deflationary as an incremental impact, then that's largely pricing and growth, and that would be a positive. As far as the bifurcation between the consumers, we've definitely seen that too, right?

15:32I mean, if you take a look at the dollar generals of the world, they obviously have been hammered because they serve the lowest end of consumer. And they're the ones that have really been feeling the pinch as a result of the inflation that we've seen over the past few years. So if you can bring down longer term rates somewhat on reduced inflation expectations because of reduced fiscal spending, then you could kind of get a Goldilocks situation. But I think it's pretty premature to suggest that's going to happen at this point. That's just my two cents. All right. Let's get to another Trump trade.

16:02That'd be crypto, the post-election crypto rally taking a breather today. Bitcoin, Ether, Solana, XRP all lower today. CNBC reporter Tanea McKeel follows the crypto space. Tanea, what's behind the sell-off? I think you're just seeing some profit taking, Melissa. I mean, look at this huge rally that we've seen across the crypto space over the past week. So today, you know, Bitcoin actually doing fine. It is in the red, but it is about flat. And of course, Dogecoin doing OK as well. But this afternoon you saw stocks, Coinbase and MicroStrategy take a bit of a tumble. And then other cryptocurrencies across the market, other than Bitcoin and Dogecoin, took a pretty big fall.

16:40But I do think that this is more of a pause than a pullback. You know, it may be that this Trump trade is starting to lose some steam, but I do think it will pick back up. All right. Taneya, thank you. Taneya McKeel, I'm sure you noticed the breather that we've seen in Coinbase today. I mean, that's a pretty steep fall. Micro strategies was down. Yeah, it's interesting. The outs is not a huge move in the underlying asset, Bitcoin, but a pretty significant move in some of these equities, which I think is a bit, again, of a cautionary tale. You see how quickly they move lower on a somewhat benign move in Bitcoin.

17:15That to me is concerning. With that said, I mean, to me, the existential risk here, if this is a Federal Reserve, I think, that's going to be more hawkish than people believe they will be, that's where crypto could run a little bit of trouble, Mel. I mean, I think that the main thing to point out, and it was not argued for or believed, that Bitcoin is correlated to the S &P 500. It had its low on August 5th. It's up from 50 ,000 to 90 ,000. It is breaking out, as so many stocks are in software. where there was a thought that it has two things, that it is a store of value and that it is a defensive asset similar to gold.

17:52That part is not true. And whether it's a store of value, whether it's most correlated with the equity market, it has animal spirits. It's a great chart. It has broken out. I think one is right to hedge here or trim. But it is not gold. Yeah, I just say it is an outlier right here. If it's that correlated to the S &P and the NASDAQ, they've kind of stalled out here. And we're seeing a whole host of other groups that are kind of catching a bid right now. But to me, it's got the market cap, that and Ether, of Amazon. You know what I mean? So, again, I think we're spending a lot of time on Bitcoin.

18:20I don't think a lot of different people own it. There's a lot of whales that own half of it or so. So, to me, I just think it's a very narrow trade. Don't just say whale. Say the name. His name is Brian Kelly. He's not a whale. He's a baller. He's a Bitcoin baller. Damn straight. He wrote the book on it. President-elect Donald Trump continuing to shape his administration. Megan Casella is in D.C. with the very latest appointments. Megan. Melissa, that's right. Big developments this afternoon on the cabinet front for the next Trump administration, starting with Florida Congressman Matt Gaetz tapped in the last couple hours to be attorney general.

18:53Now, this would install a Trump loyalist atop the Justice Department, but it's also a pick that has really raised eyebrows across Washington this afternoon, given that Gaetz himself spent years under federal criminal investigation for alleged sex trafficking. The Justice Department just last year informed Gaetz they would not be filing charges in that case, but he does remain under investigation for it by the House Ethics Committee and was subpoenaed for that in September. On the business front, though, Gates is very much an economic populist, especially when it comes to antitrust. He's been supportive of Lena Kahn's work at the FTC, including the ban on non-competes.

19:28He's also talked about standing up for the working class and not standing up for big business. Now, Gates' pick means that three of the so-called big four slots have been filled now, with Marco Rubio tapped for secretary of state and combat veteran and Fox News host Pete Hegseth picked for defense secretary. Now, Melissa, all three of those will require Senate confirmation, but it does leave the Treasury slot as the last of the four biggest positions left to be filled. So much more to come on this, but a lot to dig into so far on this cabinet front as the president elect prepares to move to Washington early next year.

20:01Melissa. Megan, thank you. Megan Casella. Coming up, we're watching Cisco in the after our session shares on the move after its latest results in numbers from the quarter next. And a few fast movers catching our attention today, including a fresh record high for Bitcoin. Our traders are handling all the moves when Fast Money returns back in two. Welcome back to Fast Money. We've got an earnings alert on Cisco, the legacy tech company beating on the top and bottom lines. The conference call kicked off at 4.30 Eastern time. Kate Rooney's got the very, oh, you know, Kate Rooney has the latest, but we can't connect with her.

20:33So we'll talk about it ourselves. But, you know, we say legacy tech, But all the enthusiasm is surrounding AI and its play there. Which is not getting in. You know, it's interesting. Dan and I had a conversation earlier today. And I thought there was a really good chance Cisco would come out, say something that was good enough to get it to trade back to levels we saw, you know, a year, a year and a half or so ago. That's clearly not happening now. But, again, it's not all that exciting. I mean, people say, look at the multiple. Yeah, it's cheap. But, you know, you have single-digit earnings growth, single-digit EPS growth.

21:01It's not that compelling other than the fact that, you know, this is a stock that just says anything incrementally good, and it should be higher than it is now. Kay Rose back. So let's go to her for the latest. Kay. Hey, Mel. Yeah, so you set it up well, Guy. Expectations were pretty high heading into this. But revenue and profit at Cisco did fall. It's been spending big on AI, but it did beat expectations, at least for the quarter. The networking equipment company raised its revenue forecast. streets, taking that as a sign of demand for some of those AI products. Product orders in fiscal Q1 up 20 % from a year ago, and then excluding the acquisition of Splunk orders were up about 9%.

21:39CEO Chuck Robbins on the call now saying that the Splunk integration is, quote, progressing in line with our expectations on the top line. And then if you look at ARR, he says it's actually ahead of expectations in terms of profitability. At this point, gross margins topping 65%. The company was hit by a$665 million restructuring charge. Back in August, Cisco did say it was cutting 7 % of staff and now needs to pay severance, among other charges. Stock has been flat. It's been bouncing around a little bit after earnings, but it's up 17 % year-to-date. Catch this interview, though. CEO Chuck Robbins coming up in the next hour on Mad Money with Jim Cramer.

22:15Guys, back over to you. All right, Kate, thank you. Kate Rooney. What does the chart look like to you? Well, just in terms of the history of this, of course, we know it was the most valuable company in the world. And ironically, think about it. At its peak in 2000, it was trading around$82, earned 50 cents a share. Now it's trading at$59, earns$3 a share. It's the irony of when there's a great growth projection ahead, you put a dream multiple on it. The worst thing you can do is actually start to put up numbers that are more normalized because then the multiple collapses. And biotech is the greatest example.