Market Uncertainties Clearing Up?... And The Longevity Of China’s Rally 10/18/24

0:02Live from the Nasdaq market side in the heart of New York City's Times Square. This is Fast Better than expected data out of Beijing sending shares overseas soaring. Can this rebound last or is this just a flash in the pan? Plus, streaming higher, Netflix follows through on an across-the-border earnings beat. The CBS shake-up shares sinking as the pharmacy giant names a new CEO. And a McRally for McDonald's. Oh, boy. What is driving the fast food giant to record highs? Could it be the McRib coming back? No. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Bono and Eisen, Steve Grasso, and Julie Beal.

0:49We start off with some signs that the big uncertainties looming over the market have seemed to clear. Oil prices dropping below 70 bucks a barrel of supply risks around the world. Mid-East conflicts start to ease. Positive economic data in the U.S. boosting sentiment as well. Retail sales coming in better than expected for September. Weekly jobless claims down. Even questions over the presidential election seem to be answered, at least for now, with prediction markets pricing in a victory for Donald Trump in November. Does all this mean all systems go for the markets? The Dow and the S &P both setting record closes again today.

1:23The Nasdaq less than a percent from its all-time high. Major indices all up six weeks in a row. Their longest winning streaks of the year. Are we setting up for a seasonal surge into year end? Tim, what do you say? Well, we're not setting up for one. We've had one. I realize we have an incredibly bullish period during markets, and I think you're going to get it. That was a beautiful picture, by the way, they showed. It was like the heavens opening up. And it does feel like it's almost that. And elections, war in the Middle East, China, Cold War. I mean, there are things out there. From a markets perspective, though, we've got leadership from Apple again.

2:00My goodness, possibly, but banks for sure. Other parts, the breadth of the economy, the small caps, a dollar that's under control, but has shown some strength. You mentioned jobless claims. Who cares? Kind of noisy week over week. But for the most part, jobless claims do not corroborate a labor market that's falling apart. Meanwhile, we've already been told we've got a Fed that's supporting the labor market. So I think markets are going higher. It's just fascinating that there are certain things out there like gold, which continues to set new highs, and gold, which is, you know, usually outperforms during periods of volatility.

2:32Gold has outperformed the S &P over the last three months by 6 percent during a period that has been largely an incredible bull market. So, again, we're probably almost 14.5 % off of that August 5th low. So markets are flying. And right now, I think the macro doesn't matter. You bullish, Monowen? I am. And I remember about a year ago, you asked me, are you buying into this? I said, begrudgingly, yes. I'm kind of forced to buy. I think this is just a situation where you have to kind of ride the trend. And despite what the underlying fears are, which were, for most of us, I think economic fears, I think, you know, the GDP data and some of the other echo data has come out and kind of allayed those concerns around that.

3:11You have a Fed cunning into what is perceived to be economic strength. And for me, the real thing was the consumer complex, which seems to be stronger, depending on where you're looking, but whether it be Amex, you know, there's slight misses there. But the story that you're getting is that the consumer retail sales are continuing to surge. And I think that going into Q4 does bode well. I do think this will likely be a shorter term type of rally. I think we are getting a bit extended in terms of multiples and things of that nature. And my concern is when you do have tail risks that are being priced out, I believe that's when you should be the most concerned about those tail risks rearing their head.

3:46It means that, you know, the losses attached to those events actually happening tend to be outsized at that. So that would be the one overhang that I would say still persists. So you had a couple of things. So I think the Fed is the most important, that the Fed has started cutting. I think oil, U.S. are net exporters of oil. So that's good. And the demand side out of Europe, China, not that great. So I think that's been keeping a lid on oil. Geopolitical, no effect on oil. What was the next one? Gold? Or did you mention that? Well, we said geopolitical. The election, it looks like a Donald Trump win.

4:20So the election pulled forward. So I agree with Tim. I think you had a rally that was pulled forward. So markets on average are up 10 % a year historically. So I always err on being bullish, but I think we're extended here. I think we need to pull back. I think all of these things we've said are already factored into the market. I don't know if there's a tremendous, a lot of positive news coming. So I think you've got to take some profits before year end. You know what they always talk about in October surprise? Maybe the October surprise is we've got to sell off within the markets. And I know, you know, think about it.

4:56We have mortgage rate. Mortgage applications have been diving. Auto loans are at delinquency highs for the last 14 years. That doesn't say that doesn't bode well for the consumer. So we look at Ally. Eighty percent of their revenues are dependent on auto loans. So there's a lot of things to be worried about going forward. Right. There certainly are, Julie. I mean, you can say, though, that we've known about this sort of bifurcation within the consumer group for a long time. The lower end consumers are having trouble and those are the ones showing delinquencies. We get the banks reporting. We sort of got a pretty good view of the consumer.

5:32And they may have reserved for more losses, but it wasn't out of hand and the banks were able to move higher off of the results. So where do you stand here right now, Julie? Well, I think I kind of agree with everyone on the panel. Well, there are positive macro forces that I see. The thing that has given me the most kind of boost and confidence is just seeing that the savings rate was revised upwards and is closer, at least, towards trend. We had really been, it looked like saving down everything. And that just means there's no financial cushion. And if anything happens, everyone's in trouble.

6:05And looking at that and seeing that be more normalized is great. And I think it's an indication of just how fully employed this economy is. But I'm with Steve a little bit. The thing is, is that that always makes me nervous is just how consensus it is right now for everything to be rosy and perfect. It always makes me nervous when we all agree. That's usually a pretty solid indication that things are going the other direction. So that's the thing that I'm a little bit concerned about. Well, that's fair, especially when the wall of worry going into September was the thing that took the markets higher.

6:36Everybody thought this was going to be the worst seasonal. And October, by the way, on the calendar isn't isn't all clear. So I get that. I just find it fascinating that, in fact, we've gone from this place where we're coming into September. Did the Fed really surprise us? I don't think so. I mean, I wasn't saying 50. I was saying 25. But I think we've debated that enough. I don't know that we got that much out of the Fed. I think we've gotten better macroeconomic data, and I think we've had companies deliver better numbers. So what is different than where we were coming into September? I think, obviously, higher prices make people more bullish.

7:09I do think that the banks are very important here because I think the banks are part of the economy and betting along with that, investing along with that has been something that's been very difficult to do because of concerns around credit spreads, but more notably commercial real estate, what the banks were running into from a regulatory perspective. But obviously what the lower rate environment did to SVB and other players there. So I like the fact that banks have gone higher. I think banks are going even higher. And I think that's going to drive the market here. The other thing is, I mean, obviously next week is the start of the thick of earnings season.

7:39And so do we like the market setup seems to be terrible going into a big a few weeks of earnings in terms of being at record highs entering. Well, I think the bar has been lowered considerably for estimates on earnings. They were I think the previous quarter were somewhere around 10 percent. Now they're probably half of that. You should feel good about the markets. I think they could step over. I think they could step over that bar. But I think people you've if you look at the multiple on the market, everyone's worried about that 22 times. But those are really the top end of the market. The rest of the market is not trading at 22 times.

8:10It's trading below it. So those things make me feel confident that you could step over. But as we've always said, two-thirds of all stocks trade with the overall market. I think it's time to pull. Look at how much is front-loaded with NVIDIA. Look at how much is front-loaded with Taiwan 7. But are we entering a seasonally strong, Mr. Seasonality? It's seasonally strong for the market and election year cycle. Seasonality Grosso. I like that. Well, think about it, though. Well, how much of this, you know, Tim opened up the show with saying maybe it's been pulled forward. So we do have a couple of months left before we have three weeks left before the election.

8:46Right. And then you have that election cycle where it's kind of a nowhere's no man's land. So we'll see. But I think that we've pulled forward a lot of this stuff. I do think there is some pull forward. But for every NVIDIA and Netflix, you also have a small cap name. You know, Russell 2000, that's had outperformance. You've had cyclicality within the semis. So you've seen this shift around of leadership. You've seen outperformance in terms of multiple expansion in the consumer staple. So I do think that we're a little bit wider in terms of where we're seeing leadership from. And that does give me a bit more calm in terms of heading into earnings season and that we're expecting that economic robustness, rather than a mag seven or eight or whatever term we want to use today, leading us higher and leading to the overall market multiple being expanded.

9:38I think there's plenty of debate around Apple, but I'm of the view that Apple's this is part of the reason we can go higher. I mean, we're talking about eight percent of the S &P that hasn't done anything. And I know it's had a move from 195, but it was a three year move to get there. And we put in a base. I think the analyst community is somewhat mixed here, even though there have been those that have stepped forward to say Apple goes higher. So I look at the strength in Apple. I look at the strength in some of the across the MAGA 7, for sure. I think there's a case where you can make an argument.

10:06They report weaker CapEx, especially around AI. These stocks are going to rally. So I know it's hard to get excited when we've had one of the greatest two year runs in S &P history. I think it's almost 60 percent off that October low of 22. But I think we have a dynamic where the Fed is out of the way. We have interest rates that are now fine. Steve, what he mentioned about oil is very important. I mean, and I think this is Rich Ross, our friend from Evercore, who said something like, you've got$70 oil with$100 headlines. I read that in his report. That makes a lot of sense to me. People are overly bearish on oil prices.

10:40They might be a tailwind for the consumer. And Apple, I know you want to go, but Apple is up 22 % year to date. NVIDIA is up 178 % year to date. I've been a bull on Apple. Well, I think there's going to be, we talked about a significant cycle, maybe not a super cycle. And these phones are pricey now, but everyone is doing interest-free for 24 months. So the phone is actually cheaper two years from now with inflation. It is people buy the payment. People don't buy that big phone. Fifty-five percent of people take the payments in Apple. Our next guest says that the market is now in a forced rotation that could lead to a year-end rally.

11:13For more on what has changed, let's bring in FedWatch Advisors Ben Emmons. Ben, great to see you. So this forced rotation into what you say. Yeah, it's happening between MAC7 and small caps finally, Mel. I think that this, as everyone's talked about on the dashboard of reasons why we're suddenly having an environment of, let's say, total certainty, which is interesting. We always talk about uncertainty and tail risk and what could go wrong and volatility spikes, but it seems to be taken off the table. And when certainty, so it allows this market to rotate. I was looking today at that graph between max seven and small caps really start to narrow towards each other in terms of returns.

11:52So, you know, max seven coming down in return and small caps going up. But I also know that there's another thing going on. And that's this red sweep idea that seems to be taking hold of the markets, meaning people are trading sort of the idea that, OK, I don't know who will be the president, but it probably will be a Congress as Republican. That's going to be market friendly, if anything, right? lower corporate tax rates and these stairs that we'll see what happens with that. So we have the market seems to be trading that red sweep and enforcing these rotations that graph shows. So it's an interesting dynamic.

12:22I think this sets us up for that year in Raleigh. What is in this red sweep? Is this a Strategas red sweep basket? And I think that there's some steel names in it, things that could benefit from a tariff scenario. But when do you sell this basket once the news happens? Yeah, I think that is the question, because, you know, again, to the credit of Stratigas. They put that together, different names in there, maybe somewhat selection bias. But it's the idea that these companies can withstand tariffs and also benefit from some other policies from Trump against lower corporate tax rates. And we all have to wait for the election ultimately as the outcome.

12:58But I think it's really about what will the Congress really be made up of. If that expectation is right, that basket actually could continue to rally because it will, like in 2017, will price in this policy of what Trump is going to put it into the economy. If you listen to Howard Lutnick, political maybe, but the ideas of trying to rebalance the economy more inward investment, that basket will then really outperform. I don't think you want to sell it here. You want to kind of ride it into the next year. Does it make you nervous, to the point of some of the traders here on the desk, does it make you nervous, though, that people are coming around to this idea that these tail risks are being priced out of the market at this point, and that people are willing to say, you know what, those concerns are no longer concerns, and that is becoming consensus.

13:46Yeah, and that's the complacency that we always have to keep in mind. I mean, I think what happened yesterday in the Middle East was significant, in terms of how Israel takes control of the war in Gaza and has not attacked the energy facilities in Iran yet, but that tail risk remains there because it's a fluid situation. Even though the oil market took it as the tail risk is off the table, there's not going to be a supply disruption. It doesn't say that that could happen. So we do have to be mindful of complacency. We also think about the way the VIX has behaved, for example. We had the big spike already in August with this carry trade.

14:20We were supposed to have a spike in October where the VIX futures were priced this weekend has rolled off. So we're a bit of a low complacency environment as we enter that against this macro backdrop as well, describing good economy accelerating with potentially this red sweep unfolding, having an important impact on the economy. So be mindful of the tail risk. I don't think they're gone. So how do you reconcile gold's move with all that is positive in the markets and low volatility? That's an amazing one, actually, because on the one hand, you think that this is really the uncertainty play. I mean, gold appreciates on uncertainty and appreciates maybe on inflation.

14:57but it's really about, I think, people looking for the alternative asset. And I think gold has been really well strongly correlated with the S &P over the last year. And we talked about it in a previous show. It seems to be really lockstep. Then it's about, I think, an alternative to other commodities, say oil and iron ore, which has been affected by weak China demand that China's been buying gold. And lastly, there is volatility in bonds. So gold seems to be also maybe somewhat of a hedge against bond volatility. That could appear as data comes out strongly than expected. So I think those are maybe the reasons why this gold price is up.

15:30And yet it supports the market, interestingly, you know, with this view of no uncertainty having a higher gold price. Ben, great to see you. Have a great weekend. Ben Emmons, Fed Hodge. What do you make of the move in gold, Tim, and the miners? Well, I love it, first of all. I'm very long gold. I'm long miners. And I think it's going to continue. Having said that, gold is also telling you that the Fed is trapped. The Fed is stuck. The Fed, you know, the things that Ben just talked about and some of the things we've referenced and maybe with the red sweep and an economy that's better, a consumer that's I mean, lower oil price.

16:02I mean, this is all inflationary. And the fact that the Fed is when they didn't go 25, they went 50. They can't reverse field. So gold is telling you the Fed has to do nothing at best and at worst might actually start to cut even more than they should. So gold loves that central bank buying. There are technical factors here. But that that was my point earlier. It is perverse that in a bullish run, gold has outperformed the S &P. Gold has become and it goes to these periods where it becomes kind of a fad investment. We've talked about the Costco bars flying off the shelves. And, you know, I might have to head to Costco this week.

16:38Are you a member? I am. I tell you what. I mean, it's not my favorite of these kinds of places. But I say that reluctantly. I usually I usually get distracted in there, end up with stuff I didn't go in there for. Oh, yeah. It's like people. Meanwhile, Netflix rallying on shares of the streaming service setting a new all time high today after joining support last week last night. It was a stock's best day in a year. Netflix is now up one hundred and twenty percent in that time. Julie Beal trades at a premium to the S &P 500, but maybe it deserves it. Maybe this report shows that it does deserve it.

17:13Yeah, I think it actually does deserve it. I think it has really separated itself from its streaming peers. And I think what it's doing a great job is setting investor expectations to be really reasonable. They're moderating expectations for what the ad growth business is going to do in terms of revenue. And I think actually the more meaningful element of the ad tier is that I think it's going to reduce churn. And that's actually much more meaningful to the near-term bottom line than I think even all of the ad spend. But the thing is, is they've just demonstrated a model that allows them to really give content across the world.

17:47They're able to leverage the size and the scale of their platform. I mean, they're able to create these franchise shows like Love is Blind in Sweden and Brazil, which is crazy to me because everyone there is good looking anyway. So it's a little bit of a strange concept, right? It doesn't really matter what they look like. They're all going to be hot. But anyway, I just think that they have a real lead ahead and they're moving from strength to strength. By the way, Julie's reporting from Brazil. She's actually doing this straight from Brazil. You never know. If you look at Netflix, though, we just showed that chart up.

18:21The revenue growth as a percentage has been rolling over. Sub growth as a percentage has been rolling over. They do have the ad tier. Their ad tier is only in 12 out of all of their markets. So they do have that further tailwind. But I'm looking for pullback in Netflix, too, even though they are the winner by a long shot, is Netflix and there's everyone else way off on the wayside. Yeah. You know, that ad tier makes up about 50 percent of new subscriber ads, which I think is material. So I do understand that the absolute number is relatively low, but it speaks to the actual tailwind of growth potential that's there.

18:58And then you you you look down in terms of like the ad and you let's let's compare this to a PG, which I know is a completely different sector, but raising prices on the existing consumer. I think Netflix has now set itself in a situation where they don't have to have that same type of price sensitivity while they'll be able to charge advertisers. And that, to me, flows down to net and gross margin. So for someone who's missed it, I'm with you. They do have a history of the stock being very volatile, having these sell-offs. I think you start to trade it more like Apple, like more like a mature business where you look for these air pockets to get in.

19:31But I've missed it. I'll be the first one to say it. But I do think this thing probably has a little bit of decreased volatility as it's shown an ability to have bottom line impacted materially. Pretty bullish on Netflix. Don't own it, though. And I guess back to whether it's expensive or not. I see the street saying CAGR of 20 to 25 percent from 24 to 27 on EPS with essentially with a PE based upon 26 earnings somewhere around 26 times. You can do that peg ratio. So price to earnings growth. I mean, if this thing's trading at a one times peg, it's crazy cheap. I mean, given what they're doing, I don't that that's probably all perfect scenario.

20:11But I don't own Netflix. I'd like to buy it lower and don't love that price action today if I wanted to buy it. Coming up, a C-suite shakeup at CBS, leaving the health care stock under the weather. Can this embattled name turn things around as activist pressure mounts? Plus, payment paying American Express, leading the group lower today. The trends in this round of earnings that has investors wary right after this. This is Fast Money with Melissa Lee right here on CNBC.

20:47Welcome back to Fast Money. Shares of Cigna and Humana on the move after hours reports. The two rival insurance companies are resuming merger talks after discussions ended last year. The discussions are said to be in its early stages. Meantime, a buzzkill here on CBS. Shares slipping today on news that the company is replacing CEO Karen Lynch with longtime executive David Joyner. The company also updating its Q3 guidance, lowering its EPS range, including a$1.1 billion charge for premium deficiency reserves. Shareholder Glenview Capital has been pushing for significant reorganization at CBS. Shares are down nearly 25 percent this year.

21:23The Q3 update was just a disaster. It pulled its full year guidance. From 170, 168, something down to one buck. And again, if you've been following the story of CVS, you've been following the story of Walgreens Boots, which may only be Walgreens at some point because the whole point about spinning off. So this is a story where the balance sheets here are not great. The debt profile, not great. Hard to believe that either of these entities could be in a situation where you're worrying about the B word. But I do think you have a case here where you're starting to look at core part of the business model and wonder what's going to take them out of this.

21:59I think it's not cheap. There's nothing about what's been reported here that says it's going to be a turnaround. They brought in, you know, essentially a long time. Exactly. There's no change here that says this is going to be a radical shakeup. It has not been a terrible week for Walgreens Boots. In fact, if you look at the week to date, it's after they announced they're up almost 15 percent week to date. I mean, Glenn, you are supposedly saying that, you know, maybe it should be spinning off parts of the business or selling off parts of business. Take a look at the parts of the business, though.

22:27It's not like any part of the business is really strong. You've got retail pharmacy. You've got the PBM business, which is suffering. And then you also have the insurance side of the business, which, like a lot of the others, Medicare and Medicaid issues. We've heard this time and time again from UNH, from Elevance, Julie Beal. What is the hope for this stock? Is there value here, you think? I don't know. It's kind of like a haunted house of horrors, right? Everywhere you turn, it's worse and worse and worse. I think the biggest thing that really drove the stock was this idea that we're going to swap for an insider.

23:00And the hope was that we were going to break apart this business and be able to extract some value that way. and seeing, just reading the tone of the press release, it's really clear that they're not. They're going to stay. They're actually more dug in on this strategy of being all things to all people. And I think they end up just being nothing to no one. I think the medical loss ratio is what really counts. They actually have the worst one in the whole group. They missed by 500 basis points. That's all. It's big. And you want that to be the lowest it can be. But, you know, So the Affordable Health Care Act wants you to be between 80 % and 85.