Market’s Big Post-Jobs Rally, and the Latest Industry Disrupted By Amazon 6/2/23

0:01Right now and fast, a Friday frenzy. Thanks to Goldilocks shops reporting a debt deal signed, sealed and delivered. Stocks closing out the week in a downright getting mood. We'll go inside this rally and ask how long can this move higher last? Plus, hanging up on telecom stocks, a report that Amazon could be jumping into the wireless phone business, scaring the you-know-what out of all the carriers. Could this be yet another business Amazon completely disrupts? We'll debate that. And later, our chart of the week. That's week with an A, a dollar and a nightmare. The stock that cratered this week and the fears it is stirring about the consumer.

0:34I'm Melissa Lee. This is Fast Money. We're live at the NASDAQ MarketSite. On the desk tonight, Bono and Iston, Steve Grasso, Guy Donovan. and Julie Beal. We start off with a jobs-led rally on Wall Street. The Dow jumping more than 2 percent, its best day since January. The S &P posting its highest close since August. The Nasdaq, its best level in over a year. The tech-heavy index now up for six straight weeks. That's its longest winning streak since early 2020. And take a look at some of the leaders today. Cyclicals like energy, materials, and industrials, along with small caps outperforming the broader market.

1:06Meantime, recent standouts like tech and communication services were lagging both up less than a percent. So what does this diversion say about today's market rally? Are we in for mean reversion, Grasso? Yeah, I think you could see a little bit of that. That always happens with the marketplace. I think the steel angle of this is you have, as you stated, you have the debt deal that's done. You have the Fed who's close to being done. And then you have China stimulus. All of that is a recipe to watch these stock sectors sort of take the lead right now. But I think you need that reversion back off of the hoopla from the tech names.

1:40Yeah, I think it's a mix of better economic data than expected and under allocation in the areas that have outperformed today. We've talked ad nauseum essentially how tech has really led this move higher. There's been no shortage of coverage in terms of how we've been underinvested in terms of exposure to equities and particularly exposure to cyclicals throughout this cycle. I think today was just kind of a culmination of all of that coming together. You had that jobs report that essentially on when I first thought I was like, oh, my goodness, let's look out for today. And then when you kind of parse the data, the wage inflation pressures that we really thought were going to be eroding factors and really cause the Fed to continue to be more aggressive seem to abate.

2:17So I think, like you said, a Goldilocks situation that coupled with the fact that we've been probably underinvested in these areas led to the squeeze higher we saw today. Yeah. Julie Beal, I was thinking of you as I saw mid caps and small caps outperformed today. Do you think this lasts? I think it's the same concept of mean reversion that we've been seeing where they have just been absolutely annihilated the last the last year or so. So I think you would expect if cyclicals are coming back in favor, people are going to be feeling more favorably towards small and mid caps. But I still think you need to be very, very choosy.

2:50These businesses are often have more leverage. They often are more cyclically sensitive. And, you know, the consumer is in great shape, as we'll talk about later with Dollar General. Yeah. Guy, I mean, do you think that this baby AI bubble that we've witnessed, I don't know if you call it baby because it's pretty darn big, and it led to a record flow inflows, record amount of inflows in the latest week into the tech sector, according to Bank of America. Is that done? I mean, have we seen the peak of that? Listen, I would hope it's done cool off for a while. I think it gives people time to sort of ascertain what's going on and maybe make more reasonable decisions.

3:25But, you know, Goldilocks is one of those things, you know, it makes me sort of wince. And I'm sure you can see it out of the corner of your eye, me making that face. But there's really nothing Goldilocks out there other than the broader market continues to go up every day. Unemployment starting to tick up. I mean, maybe that is a good thing. But just the way the Fed thought they could control inflation, which they couldn't, they somehow think they'll be able to control the unemployment rate going higher, which they won't be able to. And, you know, under the surface, there are a lot of things to be concerned about.

3:52We can talk about the health of the consumer. I'll tell you, we're going to look at a WHK chart later. One of those retailers is telling a much different story. So I get it. The market's going higher. I understand why people are euphoric. It just gets more expensive every day. There's nothing going on to suggest that it's anything but multiple expansion and a chase. It is sort of head scratching. I mean, you hear about all of these headwinds to the consumer. You've got SNAP benefits ending the end of the child tax credit. You have the student loan moratorium ending, which will lead to an average of$393 per month per borrower, according to J.P.

4:26Morgan. That seems like a lot of money per month to be now shelling out for student loans as opposed to travel or a sweater or wouldn't you name it, Grasso? Yeah, sort of back to reality, right? So these are all things that we all had to pay for once upon a time. And I think it gets back to what Guy touched on with the unemployment number. As long as you have a job, as long as you have some income coming in, then you're going to spend money. The problem is, to Guy's point, when the music stops. Do we think the music is going to stop? It doesn't appear that the music is going to stop. You figure there's a disconnect between that unemployment rate and the real big macro numbers and how many people are gig workers versus full-time workers.

5:12So I think there's a lot of noise in this. And people, yes, euphoric. That's the main word I would go with. And I think that when you really look at what they're spending money on, you can't get on a flight. You can't get into a hotel. We're going into peak travel season. We're going into peak vacation season. People are still out there spending money. And when it comes down like a hammer, if it ever does, I don't know. It just seems that people still, we're talking about historic low unemployment, even if it ticks up a percentage point, we're at historic low levels. It's been the most hated rally, and that means it'll still continue.

5:52Right, and you can make every single argument, and every argument, to use a guy word, could be a cogent argument as to why the market should not be valued where it is valued right now, which is, what, 18 times forward or something like that. But you have a market here that is moving on momentum. And so, Bonoan, trying to fight this has been a losing battle, painful battle for many out there. When do you decide, you know what, I'm just going to go with this momentum? You have to trade the market that you have. You have to. I mean, I've experienced some pain. I'm not going to back away from my thesis on the market.

6:22I think this is kind of crazy. Steve, you mentioned the spending. I'll kind of paint the picture a slightly different way. So, yes, maybe the consumer is still compelled to spend. But we're already talking about credit pullbacks within the commercial space. I'll tell you what banks don't want. They don't want their loan portfolio being more skewed to consumer debt than they want it to be skewed to commercial debt. They don't want those ratios getting out of line. Those are the type of cracks that I look at, which makes me say, I mean, to Guy's point, It's nothing but multiple expansion. Yes, it's also why we all sit here and say you have to be invested to a certain extent.

6:54It's about whether you're going to hedge. I think at this point, though, given where the VIX is, where option prices are, and given the momentum to the upside that we've had, I think it makes a lot of sense to go on ahead and put on protection here. And if you want to continue to ride your longs, you can. I wouldn't do nothing, and I certainly wouldn't be piling more money into the market. But I would be doing it in a way that, fine, you want the upside participation, maybe do it through calls. or if you want the cash outlay through cash equities, you can still put on some protection pretty cheaply.

7:21And if you get the upside, you're only spending a fraction of that on protection anyways. This sounds like Guy's favorite show, Options Action, which starts in about 23 minutes. No, it just started. But Bono makes a good point. I mean, the VIX at, what, 14 and change is just unbelievable here. Guy. Was that me, Mel? I'm sorry. I apologize. No, it is. Only because we were discussing this on our phone call earlier today, the VIX being at 14. And I apologize. And I'll say this. You know, I think we'll probably do something on this over the next couple of weeks. But these zero to expiry options or whatever they're calling them, I think that's been a big part that I really haven't figured out yet.

7:59But a lot more people are talking about the rise in them and the amount of volume that's traded there is sort of tamping down the volatility index. And that's one of those things. And, you know, I'll never use this term, but people start talking about the VIX being somewhat of a coiled spring. So I don't think you're getting paid enough at these levels to sell upside calls. But you're certainly looking at volatility where if you want to buy put protection, it probably does make sense to Bono's point. Zero day options for the S &P 500, by the way, more than 40 percent of the total options volume for the S &P.

8:30So this is not an insignificant force in the market, certainly at this point. Let's move on here. Steel producers helping the material sector shine brightly today with new core steel dynamics. U.S. Steel, all posting gains of more than 5.5%. But how much more shine is there in the metal rally? Let's ask the chart master, Carter Braxton Wirth. Carter, what are you seeing? Right. So I think the strength, importantly, is not necessarily sort of idiosyncratic to steel and iron ore and other related stocks. It was everything. As you mentioned, Caterpillar, 3M, beaten down, left behind equities that caught a bid.

9:03But specifically as it rates to steel. Before we get to the charts, we know that if you look at sort of an all-data global iron and steel index, it peaked in the first half of 2008 when the Shanghai Composite peaked. It's very much related to China. But let's drill down a bit. The first chart we have is the New York Stock Exchange steel index. And what you have here is something that, of course, sells off 20 percent. And you can see that they're from its February high, whereas the market now is back to its February high. This has room to run. And so we're just moving above that downtrend line.

9:37Longer term, you'll see that the New York Stock Exchange Steel Index did, as did the Shanghai Composite and global iron ore and steel indices, peaks in 08. The question is, is this formation good enough to play for further bounce? I would say yes. Let's look at Nucor, the really the biggest. Ironically, there were great steel companies in this country like U.S. Steel and Inland Steel and Bethlehem Steel, but this is now the biggest. And what you see, of course, going back to 1980 is a very orderly chart. It doesn't have the cyclicality that one might expect. In fact, and final chart, look at a comparative chart of Nucor versus the S &P.

10:15It has tripled the performance of the S &P since 1980, whereas something like a U.S. steel is unchanged. Indeed, Nucor's performance matches that of Coke. So you got to pick the right one, of course. I think Nucor, for instance, is worth playing for a bit more of a bounce. Do other material stocks, Carter, look as good to your eye as Nucor? Well, again, it's not that they're good because they're not great patterns. It's that they just popped after being so bad that maybe they're good for a little bit further pop. A little bit further. All right, Carter, thank you. We'll see you in a few minutes for options action.

10:52Guy, how much further do you go with Nucor, for instance? Is it further or farther, Mel? I know you're a stickler for that stuff. It's not distance, Guy. You know this. Don't test me. I know. I'm messing around. I look at Alcoa, actually, if you want risk-reward. It traded down to the September lows of last year, like 31 and changed 32. We bounced pretty significantly today. So in terms of risk-reward in the same arena, I would be more suited to go to double-A here, Melms. Yeah, I like how Carter phrased that. Essentially, they've been so bad that maybe their mean reversion means that there's a little bit more of a palp.

11:25I'm a little concerned, though. I'm looking at these charts, and they go back to 1980, and the trend is intact there. But Nucor specifically looks extremely stretched in the short term. So I'll defer to Carter, but I think that one might be one where I'd be looking to take profits if I was in it. Part of the bounce today, Julie, is this report that China may be considering more stimulus, particularly focused on the property sector. And I'm wondering if that's the case of China's part of this little pep in these stocks. What's what's the better way to go, in your view, material stock or China stocks?

11:57I probably would rather go, honestly, neither for me. But I, you know, but I but I agree. I think that is giving a nice little boost to the markets at this point. You know, if you're playing in Chinese stocks, you're also probably being getting some nice exposure to what's happening in AI. But, you know, it's very hard to feel very confident about the regulatory regime in those stocks. And so for me, it's neither. Yeah. And unfortunately, what the viewer that is angry about the fact that it's only been tech stocks that have been running, if you were to ask a person, would you rather, they'd probably rather Chinese tech stocks on the bounce versus playing the material names.

12:38because any bounce in the material names doesn't seem substantive. It doesn't seem worthy of sustaining. But also the bounce in the Chinese tech stocks hasn't held either. So you're sort of picking your poison, as Guy loves that term, and we have to make up a game on that, pick your poison. I think that it comes full circle with where we started the show. you're probably going to get pushed back into large cap U.S. tech stocks after the reversion happens again. So we'll be talking about this next week. But people, once again, the market, this is the most hated rally ever. But the American-based tech names, large cap names, is probably where you're going to continue to have to hold your nose and buy them.

13:27I'm going to go back to the original question so I can say, Guy, which poison do you pick? Material stocks or China stocks. I know you love it because it's the game that you made up, but it's decent. So I'm going to answer the question first, and then I'm going to give you something to sort of chew on as we go to break. I think Chinese stocks can bounce here. Alibaba traded down to 77.5, 78. That was sort of a match low. Bounced pretty significantly. So I would play Alibaba before some of these resource names here. And I'll say this. How long have you been on air now, Melms-ish? Forever. 50 years.

14:02Well, 16 and a half years. Fast Money First here on this Friday, June 2nd. We did a Would You Rather for the audience. That's tremendous work, 386. Outstanding. All right, coming up. One discount retailer clocking in its second worst week ever. But is the stock at a discount now? We'll debate that. But first, bad reception. Shares of the cell phone carriers tumbling today. How even speculation of an Amazon entry into the space are hurting the stocks. We've got answers when Fast Money returns.

14:37Welcome back to Fast Money. Shares of the big three carriers tumbling today after a report. Amazon is in talks to offer free mobile service to prime customers. The biggest loser, T-Mobile, falling almost 6%. Amazon denying such a project is in the works. The company's spokesperson issuing the statement, we are always exploring adding even more benefits for prime members, but don't have plans to add wireless at this time. So what did you make of this, Julie? I mean, any price war in this area is bad for everybody. Yeah, I mean, all of these carriers have spent such a fortune trying to build out their capabilities, and they need to show some kind of return on investment.

15:14And so the last thing they want is more competition in this space. And look, Amazon has trained its shareholders to be very, very extremely exceptionally patient when it comes to profitability. And they have no problem taking down profitability if it enables them to sell more prime membership. I mean, that's really the thing that drives this stock. So I see this as being, you know, it makes sense for them. This is a very natural reach. And, you know, it is very threatening to those carriers. Yeah. Guy? Where there's smoke, there's fire. You know, your margins are our opportunity. That's sort of the Amazon creed.

15:47But look at AT &T. This is at a within, you know, 30 cents of a 30-year low in AT &T, which is really tragic if you think about what the market's done over those 30 years. So in my opinion, in terms of Verizon and AT &T, there's been no compelling reason. People will say the dividend, well, that's come and gone 100 times over over the last couple of years. I mean, this is just one more, I think, in terms of the stocks, at least, death now for those names. T-Mobile, by the way, came out with a statement during the day today, essentially saying that they are not in discussions with Amazon about such a plan.

16:21So it did manage to pair its losses. It had been down by as much as 8 % at one point this morning until that statement came out, but still finished the day lower by five. But T-Mobile has outperformed on a relative basis the rest of the group. Obviously, this would be a win for Amazon. Amazon denies this. all the rest of the telecoms deny it. These are the days where I miss having my friend John Ledger around. Could you imagine if he would have monopolized the airspace on all of this? Yeah. So I think ultimately we see what would happen to a lot of these telecom names if Amazon did enter into it.

16:54So if they're not, and I get Guy's point where there's smoke, there's fire, but if they're not, you have a buying opportunity in a couple of these names. I'm sure we would have gotten his unvarnished opinion and a slow cooker recipe to boot. Bonoan. Or maybe there's just smoke where there's smoke. I mean, perhaps there's fire, but I'm not sure. I'm unwilling to kind of like jump into this with both feet. I will say, going back to the Q1 numbers from T, we talked about the free cash flow shortfall. We talked about how they wanted to win where they have fiber and how they really haven't built out their fixed wireless infrastructure.

17:24So, like, the challenges of that company, I believe, are very well documented. I mean, the stock probably is priced where it should be. To your point, T-Mobile has been the outperformer, which is probably why they suffered. But that dish move really jumped out to me. This is essentially a company that's going through an existential crisis, moving from a dish company to trying to be a wireless carrier. It's hard for me to justify a 20 percent move on the upside on the back of this smoke rumor. All right. Coming up, it is Friday. So, you know, we've got a chart of the week for you. And unfortunately, this one wasn't rallying along with the rest of the market.

17:56So what is it? Stick around to find out. And ahead on Options Action, Lululemon stretching higher today. Well, Mike Ko, namaste. In this name, we've got his trade ahead on OA. You're watching Fast Money live from the Nasdaq market side in Times Square. Back right after this.

18:23We've got some news here on changes to the S &P 500. Palo Alto Networks is going to replace a DISH network. So Palo Alto going in, DISH coming out. The shares are on the move in the after hours. Palo Alto's up 4 percent. Dishes down just about 4 percent on this. Let's move on here. Up today, but a very weak week per Dollar General. The stock's dropping nearly 20 percent in the last four days. Most of the move coming yesterday when the discount retailer missed Wall Street earnings estimates slashes full year outlook. It was DG's second worst week on record. Guy, I thought this was supposed to perform in bad times when the consumer, particularly low end, lower income, is under pressure.

19:04And I'm sure that's what they thought as well. It's clearly what I've thought for a long time. And this stock, I think, in October was making all time highs. Lots changed since then. And look at their inventory build, 21 percent off about 8 percent sales growth. And listen to their commentary. This was sort of what I was alluding to earlier in the show. I mean, they made some pretty disastrous comments about the consumer going forward and what they thought the outlook was. I mean, you can't just sort of listen. A.I. is not going to solve all the world's woes. And when you listen to Dollar Gen and they have their finger on the pulse, I think, firmly in terms of what's going on.

19:36Overlay that with Walmart, Target recently. I don't think it paints a particularly rosy picture. There is a trade down going on in the consumer who shops at Dollar General. The problem is that the trade down is going to a food bank. That's what they said about what was going on in the quarter, Julie. I mean, that's very troubling. It is, broadly speaking, but I also think we've got some real execution issues here. You know, they've made a decision with their inventory to be more evergreen and to focus on the consumables. And the fact that the consumables were so weak really indicates that they're not executing well.

20:08We know from other retailers, from Walmart, Target, that, you know, the consumables and staples are doing just fine. So to me, this points to actually something that's more self-inflicted harm than being specific to broadly speaking. But for sure, we all know that the low income consumer is pinched right now. Yeah. And, you know, that's interesting because they do have consumables. And that has been the key to success for a Walmart versus a Target, for instance, Bono. And in fact, Bill Simon this morning in Squawk in the Street, the former Walmart U.S. chief, said that's that's the recipe for success.

20:39If you're a retailer in this environment, you have that mix where you're selling food. Yeah, so I can understand why they went that route. One name that we've kind of forgotten about is Foot Locker, and we saw some of the same issues. Similar type of consumer. We saw a lot of inventory loss or shrink, if you will. And then you saw a challenged consumer. So I think this is a bigger issue. All right. It is time now for the final trade on this Friday show. Let's go around the horn. Bye, Dami. Got to give a shout-out to Max Myers, the executive producer of Brian Sullivan's show. birthday tomorrow.

21:14You know what? Alibaba melts. Happy birthday, Max and former EP of this fine program. Julie Beal. I like the contact lens manufacturer Cooper. They are making great strides with their MySight MyopioN Management. Bono and Eisen. Listen, pretty crazy move, but I would not be chasing the dish move. Steve Grossman. Max, happy 65th birthday. Enjoy your weekend. Happy 65th birthday, Max. Delta. final trade. That does it for us here on Fast Money tonight. Do not go anywhere. Options action is up next.

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