Markets Big Reversal… And A Potential Small Cap Comeback 4/4/24

0:01Live from the Nasdaq MarketSite in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. A late-day market sell-off. Major indices all taking a sharp leg lower late in the session as tensions between Israel and Iran ramp up. The headlines have sent stocks tumbling and what they mean for your money. Plus, Meta managing to hold on to gains after touching a new record high earlier in the session. Shares of the social media giant has added more than$430 billion in market cap just this year. Can the momentum continue? We'll debate that. And later, the next big thing for GLP-1 drugs.

0:32New studies seeing hopeful signs for treating Parkinson's disease, what it could signal for the space and the stocks poised for gains. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinemann, Dan Nathan and Guy Adami. We start off with that late day sell-off that took markets sharply lower. The Dow ending the day down 530 points, posting its biggest one-day loss since March of last year. It had been up nearly 300 points at its highs. The NASDAQ and S &P 500 also dropping more than a percent. It got ugly just after 2 p.m. Minneapolis Fed President Neil Kashkari warning that if inflation continues to move sideways, it, quote, makes me wonder if we should cut rates at all this year.

1:13Adding to the concerns, rising tensions between Israel and Iran, which sent oil prices to their highest level since October. So could these two risks in tandem put a cap on market optimism, which has been fueling us higher this year? Well, 15 and a half hours, 830 tomorrow morning, the entire thing could change on a jobs number. So with that said, yeah, I believe so. And I think this today was sort of a continuation of March 8th. In fact, what are you talking about? The market didn't know the market didn't do anything on that Friday, March 8th. But the interday moves we saw in some of these names, specifically NVIDIA, to me, was really important.

1:48And quite frankly, NVIDIA has never recaptured the highs from that day. And a 250 million, excuse me, 250 billion dollar market cap swing that day alone in one stock, to me, sort of set things in motion. The VIX has been hanging around. Last couple of days, you've seen a move in the VIX. Obviously, today it moved significantly higher, but that's been telling you a story. And again, when you see a move of this magnitude intraday in the S &P, you have to take notice without question because you don't see it all that often. Yeah, but fascinating. Yields didn't move today. And that was the thing earlier in the week when we got stocks selling off a little bit.

2:20It was because that move in the 10-year yield kind of shot up. There was like two consecutive days of 10 basis points, which doesn't sound like a lot, but it's a lot in the 10-year yield that was trading at 415 or something like that. So I think all of us earlier in the week would have said, listen, if we have this continued move up to maybe four and a half or something like that, and that's kind of Guy's point. If we have a hot March jobs data tomorrow, we probably do have yields going up and then you probably have a continuation of the sell off in stocks. But, Mel, I can't believe what you just said.

2:48We have not had a down one point two or whatever percent day in over a year in the S &P 500. And remember, we had 11 percent peak to trough sell off from late July to late October. And that didn't incorporate more than a one and a half percent move. So we have been operating in a very low vol environment in the equity market. And at some point, there's going to be some a little bit of pain that needs to be felt, no matter how bullish you are about stocks near term. Totally agree with Dan, actually, on that. Actually, yeah. Congratulations. Should we take a pause? We got that going for us just one time.

3:20You know, I enjoyed this. A nice cooling off, a little bit of a correction. I think that's often good. I think what happened in Bonzo later today was the flight to quality somewhat. And so that's a bit noisy. But I think I guess what's the frothiest place out there is NVIDIA, I guess. So it makes sense to me that that would sell off. But even so, this isn't a – it hasn't been trounced completely. So I think if we do get in that really difficult environment, there's more to go in NVIDIA to the downside. Yeah, that idea that the big tech is is your place to be when times are tough. I don't know.

3:55Today we saw the Philly Semiconductor Index down three percent. We saw communication services down, information technology down. Those are the sectors that let us lower here. So it didn't come through here, at least today, especially when you have not just Kashkari sort of underscoring those concerns that maybe we won't get three. Maybe we'll get zero. And then you overlay with that the geopolitical tensions. Which, by the way, is a CIA warning that Iran could attack Israel in the next 48 hours. Well, yeah, and the geopolitics are really tough to handicap. But we talk about that on this desk, which is the dynamic here, that I think if we could just keep it contained, I think we could maybe start to make heads and tails out of at least trying to handicap certain events.

4:34But I think this was six Fed officials that followed after Powell yesterday who put the wheels in motion. I mean, he called out his crew and said, I need to reinforce a message. And I think the Fed recognizes. Let's not forget that the Fed targets financial conditions when they want them on the upside. They want to goose the wealth effect. They do it. They've done it before. And the flip side of that is the stock market's been out of control. So I thought the most interesting comments of the six that spoke today was probably, you know, Austin Goolsbee, who who tends to be, you know, pretty dovish.

5:06And yet got in there and said, you know, things look not too bad. I think, you know, these two inflation prints from January and February, not that big a deal. But if these housing numbers don't improve, we're never going to get to 2 percent. When I you know, you heard Meister, Meister, excuse me, who ultimately came in there and typically has been one to be more dovish, said I could wait a couple of months. That really means probably she could wait longer. And then, of course, Kashkari, who used to be the biggest dove out there now is the big hawk out there. So it's it's fascinating that the Fed and the conversation that not just us, a lot of people in the market have been having for a month is that maybe zero cuts.

5:41I think it's interesting yields can go lower before they could possibly even go higher. And at a day like today, the market thinks a couple steps ahead and says, look, if they're not going to do anything, we get it. We've got problems with inflation, but we will have problems with growth. Yeah, the market might take some solace in the fact that Kashkari, who couldn't have been more wrong a couple of years ago. So maybe he's equally wrong now. But we haven't. Well, I shouldn't say we haven't been a fan. I've been on record with all that said. Defense stocks, big day today. And look at the move in crude oil on top of the move that we've been seeing.

6:10So that's making the Fed's job more difficult. Throw on top of that the recent move in copper, some of the soft commodities that we've talked about. And then you have an understanding as to why it's very difficult to lower rates in this environment. And yields, to Karen's point, I think the reason why they did go down today was this perceived or the perception of a flight to quality. The bar is very high in terms of March. The inflation data for the month of March coming in better than January and February in that it should be lower. And now I don't know if we're going to see that, considering we had this sort of swing that there's no reason for it to come down at this point.

6:43Yeah, think about the last few years, though, some of the inputs or some of the causes of higher inflationary sort of things. Right. It has been geopolitical. Right. So we go back to early 2022. We go to some of the stuff that's going on in the Red Sea. So if there is some sort of situation and again, you know, it feels like we had not been talking about this irony and threat. You know what I mean? Especially as the war in Gaza kept on going and going. that sort of thing. I mean, anything that happens in reaction to that, save from the horrible human effects of that, is going to be inflationary for the globe.

7:10You know what I mean? Whether it's energy, whether it's food, whether it's, you know, that sort of thing. So to me, like that is that when we talked about this a little bit last night, it was like usually in these periods, right, when we come from these kind of rate hiking to pausing, and then when they start to cut, we go back, you know, to 2000, 2001, you go back to seven, eight, you go back to 2020. These are things that we could not have foreseen. And we know that there's plenty of geopolitical hotspots out there, but this would be a very different situation because in those prior three times, we were not dealing with inflationary pressures to the upside.

7:39If anything, they were to the downside. And that's what's different this time. Right. And then, of course, under all of this is if we do get embroiled somehow in some sort of conflict, is that even more reason for the Fed not to cut? Because you want to save some dry powder for a time when the economy might actually need it. I don't know. It's a very complicated sort of mosaic. Right. It is. I mean, well, particularly what Dan's saying is true. If we get mired in that and that causes additional inflation, then yes, why cut? And just to remind folks, and this isn't my political view, this isn't anything, but the fact is that the U.S.

8:13is taking a hotter line stance with Israel, that throws into question a lot of political kind of givens in the world and historically. And I think that's part of the volatility around this. So I look at also some of the relationships. Guy started to talk about the things that did well and things that didn't do well. As an energy investor, I don't love this kind of price action. OK, an energy actually XLE, which was cruising going into the morning, didn't really respond too well to this kind of news. So I don't think we love price spikes in the energy space. I think what we've liked are really the dynamics around some of the fundamentals in the sector.

8:44I do look at the broader market dynamics here and say, look, today was an interesting day. And we talk about the geopolitics. I think this was all about the Fed. and was today the day, because we've said this for a while. You think this move today was about the Fed? I think it was all about the Fed. I mean, we've had people coming out, Bostick yesterday, Gorman, I mean, a number, a number. Same zero or less than zero. Saying no cuts or one cut. But we had six Fed officials today who basically reiterated what Powell said yesterday. That's what I thought was more dovish. Well, look, what I'm going to tell you is I think we've questioned why equities haven't responded to the dynamic that actually there might not be rate cuts this year when, in fact, they priced in six or three or whatever.

9:22And at some point, equity markets have to respond. I think, I mean, I'm not making light of the geopolitics. I already brought it up. But I do think this was a broken record by the Fed today. But part of the conversation that we've had here is the answer to the question of what would the markets do if we said tomorrow that there would be no cuts? And we all said, not all, but many people said that the markets would do fine because that means that growth is actually intact. That story remains intact. So what is different today? If it's the Fed today, what is the difference between today and before?

9:53Because the Fed's data dependent, but they're not data dependent. They're kind of saying, we're going to wait either way. We're scared to death about, you said this yesterday, we can't cut too soon. I do agree with what Guy said, too. You're making a great point to remind us that we said a zero-cut environment means that the economy is better. But a zero-cut environment also means that the Fed is boxed into a corner, and we actually could have slower growth and stagflation. And that's what the market did today. Look what bond yields did and look what equities did. And that's stagflation. Yeah, I mean, historically, the cuts are because something's breaking, right?

10:24And the bulls will say they can cut this time because nothing's breaking. Things are moving along really nicely. And they can start to, I don't want to say normalize rates because I don't think lowering rates is anything near normal. But they can do that because there's nothing to stop them, right? The economy's doing well. Unemployment's under control, all those things. That's the best case scenario. But I don't think, see, that's the thing. I don't think that's what's going to happen. And if they lower rates, it's because something is breaking along the way. And you're starting to see, I don't know, signs of that today.

10:52And real quick in terms of energy, Tim makes a great point. If we have an XLE chart or an Exxon Mobil or Conoco, I mean, both these names, Exxon and Conoco, are right up against prior all-time highs. The laggard has been Chevron, which made its all-time high right around the time, if you recall, I think it was November of 22, when it announced a$75 billion stock buyback. That marked the top. But these stocks are right there. I think they're going to go through, but I can understand why you might want to take money off the table. All right, let's get more on the move. And oil prices, WTI trading above 86 bucks a barrel, Brent climbing above 90, both at their highest since October.

11:25For more on this, let's get to CNBC's Pippa Stevens. Pippa. I'm Vazra, Melissa. Brent settling above 90 for the first time since October as fears of a wider conflict in the Middle East spooks the oil market after Iran vowed retaliation following a missile strike on its consulate in Damascus. When asked earlier today if the CIA warned Israel about an Iranian plan to attack within 48 hours, National Security Council spokesperson John Kirby said, quote, they did talk about a very public and very viable real threat by Iran to Israel's security. BOK Financial's Dennis Kistler said the retaliatory actions will most likely involve the oil complex in some manner, whether it strikes against more Red Sea shipping lanes or directly on the Strait of Hormuz, which is adding fears that it will disrupt transportation of crude oil and oil products.

12:17Melissa? Any guesses at this point, Pip, on what the impact to Brent would be? I think at this point we have to see if any infrastructure is actually hit and the nature of any retaliatory actions. I think after Russia first invaded Ukraine, there was a lot of fear in the market that all of a sudden supplies would be disrupted, which is why we saw prices get above 130. That did not end up happening. So I think this time around there is more hesitation to jump fully in. But clearly the market right now is saying maybe this is a little bit more of an issue for oil than previously thought. All right.

12:50Pippa, thanks. Pippa Stevens, we were just talking about the spike in oil. We're better off just having a high level of oil and not a spike. And that's the points Tim making. I mean, I still think it's going to be I think it's going to wind up bullish for the energy complex and XLE. But I understand. And quickly, defense stocks, I mean, throw up a Lockheed Martin, for example. Good day today on the back of what's been a good couple of weeks. So I think defense stocks have been trying to tell you something along the way as well. So you're saying if tomorrow wake up and nothing's really happened, do you think then oil will retrace entirely?

13:19Or do you think there's going to be some level of elevated oil? I think oil wants to go to these levels. It's been on that trajectory for a while. It got sort of fast-tracked today. But I think whether it happened today or a week from now, two weeks from now, I think that's where we're going. Tim's point about, you know, this is not the environment where you want necessarily. But I understand that. But this rabbit's been out of the hat for a while. It's more that if you're investing in energy equities, you don't really like a spike in oil because it's never given the benefit of the doubt. And so energy equities, I think, have been moving higher on a combination of steady oil prices, you know, whatever you believe OPEC can and cannot do in terms of controlling supply.

13:57You believe that these companies are in a pretty good spot and that actually the biggest integrated oil companies for the last three years have been paying down debt and putting themselves in a very defensive position in terms of their dividends. All right. Meantime, Meta eking out a gain in spite of today's sell off. The stock hitting a record$530 during the session after catching three fresh analyst upgrades. Mizuho named me in a top pick for April while both RBC and Jeffries hiked their price targets. Jeffries saying it expects Meta to capture 50 percent of incremental ad dollars in 2024. That's well above the 33 percent it got in 2023.

14:29So very bullish here. We saw that it was up as much as, I think, four plus percent during the session, Karen. Yeah, I mean, I like that. That was that sort of the headline number of the piece. But also what it says is that that it so earnings will go up, of course, but then it has a 23 multiple, which is really not a very, you know, expensive multiple for a company like this. So that that was the base case, that 585 target. And in fact, they had a seven hundred and fifteen dollar bull case, the upside case, and I think three seventy five on the downside. But there's a lot to like there. And that didn't even include the cash.

15:04Yeah. You know, it's interesting. And this stock capped up 20 % after it reported its Q4 results and gave this guidance. And so here we are. We're trading at all-time highs. And again, I think the valuation story, I think what they've done, rationalizing costs, how they're using generative AI, all this stuff. It's all there. And it's cheap. I get it. I get it. I get it. But I just think it becomes incrementally that much harder to kind of surprise the way they did to the upside from an all-time high, near an all-time high last quarter. And the other side of this is like, you know, Alphabet's kind of stuck in the mud.

15:31You know, Alphabet hasn't had that moment. They've had two consecutive disappointing quarters, two disappointing guides, a couple disappointing launches of their generative AI or whatever. And so as high as the expectations are getting for Meta, they're getting very low for Alphabet. And that could set up really interesting as we get through, let's say, a couple rocky weeks of volatility possibly and get into earnings. Because to me, these could set up as decent pairs trades in the near term. Right. When you talk about Alphabet, it's because they're trying to sell basically an AI product. And Meta is just trying to benefit its business with AI.

16:02And that was which is working, which is working, right, which is working in terms of selling ads for reels. It's working for a lot of different things in Vantage Plus. And so that's that sort of thesis. So it's interesting to think about AI as a product. And some companies are benefiting from that. And then this is just the application of AI to one's business, which is probably what we're going to see a lot more for a lot of the other companies outside the mag. So, you know, Karen talks about this a lot when stocks should or shouldn't be at certain levels. So if you would take away that obviously huge drawdown in Facebook, most of it because of their own mistakes and just looked at this stock, you'd be like, it makes perfect sense that it's here.

16:37But we're looking at it through the context of this ridiculous run that it's had from the low. So it looks like parabolic move. But with that said, 21 times next year's numbers ish. Right. You're probably talking about, I don't know, 15 percent EPS growth, 12 percent revenue growth or so. And as Karen said, that's without the cash. So there's nothing not to like here other than the fact it's had this tremendous move higher. Yeah, it's interesting that we can say at 21, 22 times it's not expensive. It's not. But that didn't matter when it was 14 times. So, you know, it really just tells you that I think they're in the sweet spot in terms of where, first of all, this was a company that everybody knew about what the DAUs, the MAUs, whatever you're tracking, that this base of customers is so powerful.

17:19It's a cash flow machine. If they could ever decide just to be a company that wanted to generate free cash flow. Well, they said we're going to go out there and do it. And then they also had core businesses they were working on that really are benefiting from AI. I'll say this about Google. I mean, I look at that chart. There's nothing about that chart that bothers me at all. I still think Google is one of these names. I mean, it's been easy to malign them and it's understandable. But again, as they begin talking about pricing or not pricing, what AI could mean for their core business, I think they're catalysts there.

17:47Do you think that it's not good, that Meta is not going to do much better from here because of the run that it's had? No, I think you make a really good point. The way that they built this llama, this model, it's open source. There's going to be a lot of applications that are built in and around that, but that's something that is in the making here. What they're doing right now for their own ad product is the thing that I think has been realized. It's been realized in that guidance. So I don't really have a strong sense. I just think it's interesting that there was a few analysts out today, and they were talking the same way they were about Meta, and they were all kind of downbeat a little bit on Alphabet.

18:19And the one thing I'll just say is if Google were to do this deal that was rumored a couple weeks ago, something with Apple, you know what I mean? This could be a really interesting time at a really interesting valuation, at a really interesting sentiment level for this stock right here. So that's the way I'm thinking about it. I think Meta, if you're there, fantastic. If you're not in Alphabet, there might be an opportunity. But even if it gaps down on its third consecutive miss in Guide Down, it's probably not a bad do at that point also. Right. Coming up, the battle's been won, but now what?

18:49Disney CEO Bob Iger weighing in after coming out on top in the Nelson Peltz proxy battle. And now he's setting his sights on the media giant's next big hurdle. More on that next. And some stock moves catching our traders' eyes, a potential tech deal, a casino call, and a food processor plunging. We've got it all when Fast Money returns. This is Fast Money with Melissa Lee right here on CNBC.

19:21Welcome back to Fast Money. Disney CEO Bob Iger speaking exclusively to our David Faber after he won the months-long proxy battle with activist investor Nelson Peltz of Tryon Partners. He discussed what the company's priorities are now. Now what we have to do is turn it not just into a profitable business, into a growth business. A business that has margins that this company and our shareholders would really be proud of. Double-digit margins then, right? Eventually, yes, double-digit margins, of course. The way to do that is actually very, very clear to us. It's very, very clear that we need more engagement in terms of consumers spending time on the platform.

20:00But despite his loss yesterday, Peltz said he is not backing away from advocating for change at the media and entertainment giant. I hope Bob can keep his promises. I hope they can do all the things they assured us they were going to do. And we'll only watch and wait. If they do it, they won't hear from me again. If they don't, Jim, you may be seeing me on your show next year doing this same thing again. So can Disney succeed in its execution plans? I mean, he at least right now hopes so. He's got a three and a half billion dollar stake at last filing. Well, yes. And he's going to continue both because this is what he does for a living.

20:47He's got a lot on the line on this one. But any expectation that you're going to have a different outcome today, I think, was was was off base. I think this isn't a real surprise. It's also interesting to hear Bob Iger say, you know, now we have to do as if, you know, suddenly now that this is out of the way, you know, suddenly everything becomes a lot clearer. I think he said some of these messages, these messages have been said for months now in terms of costs and profitability dynamics. And I think that last quarter of earnings has as much to do about where the stock is than this proxy fight.

21:22Yeah, I think it was a great interview. I mean, David really pushed him hard and a lot of different things. One that I thought was interesting, it's not so newsy, but the idea that they hope to be number two in streaming. He didn't really say it like that, but that was sort of the way David framed it. And it's over. Right. Netflix has won. So they're hoping to be number two. You wouldn't think Bob Iger would say, if we're going to turn this around, we're going to make it be number two. Well, they're already, they're already. But don't they have a lot of other levers when you think about Netflix is trying to get into live, right?

21:50And they might be bidding for sports. And if you think about the thing that they're trying to fix and they're trying to monetize is that ESPN in a way. So to me, I think that like, it's kind of easy to just say, okay, we're number two. But at the end of the day, if he's successful in transforming this business and getting to some of those things, they're going to probably do something a little bit better, and they're going to be in a better spot than Netflix to kind of do something horizontally, in my opinion, on the streaming front. But again, and I'll just say this about the stock, you know, after that quarter that Tim just mentioned, the stock gap from 100 to 110, consolidated a little bit, this proxy fight started, it went to above 120 or so.