Markets Hit New Highs as Earnings Season Kicks Off, and Tesla Robotaxi Reveal Fails to Impress 10/11/24

0:02Live from the NASDAQ market site in the heart of New York City's Times Square. where this is fast money. Here's what's on tap. Riding the rally, the Dow and S &P closing the week at record highs, semis and financials leading the charge. Will the heart of earnings season keep this bull market roaring? We'll debate. Plus, financial hurricane, the cleanup and the rebuild from Milton and Helene ongoing. We look at the potential long-term impact from these monster storms. And later, inside Tesla's robo-route, hitting new heights on the high seas. And can Netflix keep streaming higher and higher? I'm Contessa Brewer, in for Melissa Lee, coming to you live from Studio B at the NASDAQ.

0:42On the desk tonight, we have Tim Seymour, Dan Nathan, Steve Grasso, and former Bridgewater chief strategist Rebecca Patterson. And it's great to have you all here, and let's get started with breaking news on Boeing. Shares down after the company pre-announced a third-quarter loss of nearly$10 a share and said it would cut 10 % of its workforce. Phil LeBeau has those details. Phil? Hey, Contessa, we had this news about a half hour ago. Not a huge surprise that Kelly Ortberg, the new CEO of Boeing, hasn't been in the job that long, has made some tough decisions in terms of not only where the company is right now, but where it is going.

1:18So let's run through all of the announcement in terms of the pre-announcement for Q3, a loss of$9.97 on a gap basis. We don't have a comparable estimate there, but I should tell you that going into today, The core earnings loss estimate was$1.60. So that's about six times worse than what the street was expecting. Boeing's revenue for the third quarter, shy of expectations, coming in at$17.8 billion. That's what they're expecting. The street was expecting$18.5 billion in terms of Q3 revenue. Operating cash flow, negative$1.3 billion. And then there are the announcements in terms of cuts that Boeing is putting in place in order to bring its balance sheet under control as quickly as possible.

2:03Starting first off, 10 % of the workforce. From the most senior executives all the way down worldwide, those are going to be jobs eliminated, about 17 ,000 in all. The 777X, which is the next commercial airplane that is going to enter into service, its entry into service is delayed from 2025 back to 2026, and the company will be ending production of its 767 freighter when its current backlog of about 29 planes. When that expires in 2027, they will no longer be building the 767 freighter. In a message that Kelly Ortberg sent out while doing the pre-announcement, he said we need to be clear-eyed about the work we face and realistic about the time it will take to achieve key milestones on the path to recovery.

2:48We also need to focus our resources on performing and innovating in the areas that are core to who we are, rather than spreading ourselves across too many efforts that can often result in underperformance and underinvestment. As you take a look at shares of Boeing over the last three months, keep in mind that one of the other parts of this announcement is a$5 billion total of$5 billion in charges, $3 billion coming from the Defense Division, the Space and Defense Division, where they've had just a series of issues there, and$2 billion from the commercial airplane business. But again, the big story here, the 10 % cut in jobs as they pre-announce a loss of almost$10 a share in the third quarter.

3:32Candessa? Hey, Phil, it's Tim. How much of this feels also, we know the issues with the balance sheet. We know there's probably a$14 billion free cash flow reversal from where the people or the street was at the start of the year. How much do you think this is management really getting out there to send the ready agencies a message? We want to hold on to this credit. We do not want to go to junk. There's obviously the talk of the equity raise that could be anywhere from$7.5 to$15 billion. And again, to address those near-term maturities, it really sounds like holding the line on making sure we hold this credit level.

4:05Absolutely. I think that's a big part of it, Tim. I think they know that it is critical that they are not moved down to junk rating, because if they are if their credit is junk, obviously it's going to cost a lot more in terms of the debt that they have on the books, which I think is about fifty three billion dollars. But they have got to in any way possible hang on to a non junk status credit rating, because if they slip into that, as you know, there's a whole host of issues there. I think it's more interesting when you look at what Kelly Orberg had to say in terms of we need to address being spread a little bit too thin.

4:41There has been whispers out on the street. I'm sure you guys have heard them more than a few people saying, given the issues with the space division, do they need to seriously cut back that division, if not eliminated? I've always said to people when this comes up, I can't see Boeing eliminating its work in space. There's a limited number of contractors. NASA wants to have Boeing there. But they do have to do a better job, a way better job than what they're doing. And on the defense side of the business, they have got to get a handle on the charges with these fixed price contracts. Because time and again, every quarter, it seems like a regular thing that I'm saying, another charge on the tanker program, another charge on the tanker program.

5:24They have got to figure that out. Hey, Phil, when you look at it, though, you cover this story like nobody else. Do you think a 10 percent workforce reduction is going to solve the problem at Boeing? Or do you think getting a handle on manufacturing is going to solve the problem? More getting a handle on manufacturing. That's that's front and center. You've got to do that. And Kelly Ortberg knows that they are nothing without getting a handle on manufacturing, which is why I know it's his top priority. Figure out how to do it and do it right. And then you can move from there. Now, cutting 10 percent of the jobs, that's part of obviously helping the balance sheet as well as helping with potentially making sure they hang on to the investment grade credit rating.

6:10All of that goes into what he's doing. But front and center, I know Kelly Ortberg. I know that his number one job right now is figure out how to do it and do it right when we're building aircraft. So shares down 1.6 percent right now. Dan. Yeah, I say this all the time. There's like thousands of other stocks in the market and for the last three four or five years This is none that I see no reason to to invest in and you know When you think about 40 % of their sales come from the US government You have to start asking yourself at what point is the US government gonna own this company? You know, I mean for all intents and purposes if they can't figure out some of this manufacturing stuff the space stuff seems like an absolute disaster Yeah, the government needs a second source to get folks to and from the space station But you can't do it the way they've just done it over the last few months or so So at the end of the day, I mean, you can keep replacing the CEOs if they don't have a change in the way they operate, you know, the quality assurance and all that stuff.

7:04I mean, again and again, I just don't know what to do. It seems uninvestable to me. Well, it's incredibly complicated because it's not just about, you know, getting past FAA and some of the dynamics that are on. They're capped at 38 planes right now, but they're overhauling their manufacturing, as we've just discussed. And Phil emphasized the complexity there. They're buying a major manufacturing supplier. They're obviously limited in terms of what they can do. And their defense business, which has been at least historically very supportive and helped diversify some of the, you know, the revenue base here.

7:33That's not going well. So I like I get someone that's owned this stock probably from two and a quarter down for the most part. You know, I'm not happy with what's going on. And I'm sure for our viewers that don't own the story, probably get pretty tired of hearing about it. I think that's kind of even what I hear about Dan. It's like, all right, do we keep talking about Boeing? The reality is it's extremely important because of where they sit in this country and how strategic they are. And the fact of the matter is there have been so many problems. It feels a little bit like a GE story from five years ago.

8:02When you finally change the CEOs, you look under the hood, you realize what's been going on, not just for a couple months, but really for multiple years. And the quality control, because they outsource so much of this to so many other people, to be a cash flow machine obviously means maybe it really shouldn't have been the cash flow machine it was. Having said that, if they hold this credit rating, I want to own the stock. And even if they issue$15 billion in equity, I think at some point the stock rises. All right, Phil LeBeau, thank you for the fine reporting there. Appreciate that. Meanwhile, the S &P rising more than 0.5 % today to close above the 5 ,800 mark for the first time ever.

8:33The Dow also with a record close, while the NASDAQ got within 2 % of its all-time high, ending the day at the best level we've seen since mid-July. That strength really came off the back of a strong start to the earnings season. Wells Fargo and J.P. Morgan led banks higher after their results. Goldman Sachs, Morgan Stanley, which reports next week trading at their own records. As we move deeper into earnings, are we going to see results that help sustain this rally? Dan, what do you think? Yeah, I mean, at the end of the day, the banks usually set the sort of, you know, mood for earnings season.

9:05And, you know, these banks, the money centers in particular, were kind of stuck in the mud. They were going sideways as we saw this rotation out of mega cap tech over the last month, month and a half or so. And so to see this group kind of play some very quick catch up, you know, this is a week or two after we saw the first rate cut in a very long time, one that was greater than expected. You know, I think people like Tim, probably Rebecca, are not too surprised by this price action. But I look at what's going on and, you know, the mega caps are still kind of stuck in the mud. And to see a stock like JP Morgan move 5 percent in a single day, that's a powerful move.

9:36It's telling you something about the broader market. Just to piggyback on that, I agree. I think the banks tell us something about the macro environment. And when you had executives from both J.P. Morgan and Wells talking about soft landing, no landing, Goldilocks, I mean, it was really constructive rhetoric. There was no managing expectations here. This was a happy story almost across the board. And there was another data point that I think got kind of lost in the sauce today. University of Michigan came out, consumer sentiment, weaker than expected on the top line. But if you actually read the report, there's a lot of good stuff in there.

10:06And the data point that jumped out at me, consumers' concerns about borrowing costs, interest rate costs for durable goods is now the lowest. The concern is the lowest in two years. So consumers are getting excited about rates coming down a little bit. If they start buying durable goods, that's another leg for this soft landing. So the banks are setting the tone. But I think we have to keep an eye on both the earnings, the earnings guidance, and the hard and soft data out there to get that fuller picture. But to me, this was good news. The only problem, of course, is the 10-year going up. you know, 30 basis points just in the last two weeks, basically.

10:39And that's going to slow down falling mortgage rates in the housing market. Steve? Yeah. And the interest rate market, that has to be the tailwind for banks to keep performing. And when you look at rates come in, people are going to take out more loans. But what was interesting is JP Morgan's ROE, three to four times every other bank. It's what are they doing that's so much better than any of these other banks. And I think it gets lost in the shuffle. My colleague Leslie Picker pointed out today that the non-interest income was a bright spot in these reports, that while NII gets most of the attention, there are other ways that they make money.

11:19Right. Tim? Well, no doubt about it. And in fact, we even heard them talk about some of the services businesses that are actually growing. We also heard just, I think this is part of the market sentiment that you're talking about, Rebecca, and Dan's talking about, is when you hear the CFO of J.P. Morgan basically say the U.S. consumer is fine and in strong footing, and you start to get all that follow through. They're not seeing an erosion in credit. They are seeing actually a place where there is some pent up demand. In fact, what they talked about was also interesting as on the M &A side. And it's what we talk about all the time.

11:45If there wasn't the regulatory overhang that really, look, Washington has made it so tough to get any deals done. And the banks are saying it. They're almost calling them out. So I get the sense that the broader business is excellent. I also heard from a couple of these banks, especially Wells Fargo, that they actually think that they're getting to a net interest income trough over the next couple of months. And if the market hears that, they're willing to look past that and rally the banks that, again, I think have been slowly. And you had SVB in May of 23, but banks have been slowly re-rating for three years.

12:16I mean, we're talking about banks that were unloved, couldn't be owned, couldn't pay divs, had total shackles on their capital ability to give it back or to buy back. And that's changing. I don't want to interrupt you. I'm asking you a question. But do you think it's a lid on the banks when they were we have the small regional banks get into trouble? J.P. Morgan reaped the benefit of most of that trouble. So do you think that in the mind of the investor, banks have a lid? Where do banks go? What multiple you will need to pay for the banks at a certain point? JP Morgan, JP Morgan obviously trades expensive to its group.

12:50And if I look at money centers, I think Wells Fargo is fascinating because Wells Fargo has had a lot of their caps lifted off them in the last couple of days. They were the one that really rallied the most, I think, on some relief. But I think Citibank and Bank of America, Bank of America, which nobody wanted to own, has probably outperformed all of those money center banks over the last three weeks other than Wells Fargo. So it's interesting. I'm really curious for the regional banks coming up shortly after. You know, with the Fed starting to cut rates, they're going to be more sensitive to that.

13:15They'll benefit from that. if the consumer is holding in, by and large, we know the lower end consumer is in a tougher spot. But if overall the data we're getting is that the consumer is OK, is that going to be the catch up trade? I've been skeptical about it year to date. And I'm just wondering, do we have enough data points on this soft landing that it's time for that thing to move sustainably? Yeah. And like you just said, I mean, there seems to be two economies here in the U.S. And so on the lower end, I mean, one of the things JP Morgan did say is that they're preparing for higher loan losses in the credit card division.

13:45You know, you think about that consumer confidence number this morning and you say to yourself, OK, well, if bank deposits are kind of drawing down a little bit, they also spoke to that. I mean, there's stuff to keep an eye on, I guess I'd say. Last night we were talking a little bit about away from the money center banks. We were talking about Goldman and Morgan. And if you're talking about sort of M &A, you're talking about an IPO window that's going to open up after two really horrible years. You know, Morgan Stanley just broke out of a four year base that it's been in. Now, that's been a volatile base over the last four years.

14:12Goldman Sachs at an all time high also breaking out. So for me, I'm really interested to hear what they have to say. Those businesses obviously look very different than the large money centers. They're both, I think, report Wednesday and Thursday next week. All right. We'll leave it there. But you can see that those stocks really reacting so strongly, as you pointed out, Steve. You know, we don't see that percentage move for J.P. Goldman. Very well. J.P. Goldman. New banks. Yeah, they just merged. They just merged. It's not J.T. Marlin. So great. Let's move on, shall we? Yeah. Coming up, a potentially make or break moment for China as a new stimulus measure is expected this weekend, although it was expected this week and you saw how stocks reacted when it didn't happen.

14:50Will this be enough to kick the world's second largest economy back into gear? Plus, the insurance impact of two major storms, they've ravaged Florida and the Carolinas. Why is it getting harder and harder for these areas to rebound? out.

15:07You're watching Fast Money here on CNBC. We'll be right back.

15:23Welcome back to Fast Money. The Hang Seng giving back recent gains late this weekend, losing almost 7 percent since Monday. That's as China's finance ministers expected to hold a news conference Saturday with investors hoping he's going to announce hundreds of billions of new stimulus. Tim, is that going to be enough to spark a rally again and get it reignited? I think if the markets are convinced that the Chinese policymakers are committed to this, they've got a lot of room to go. I mean, I've always felt that China has enough money to pay over whatever problems they have. It doesn't solve issues they have on demographics, doesn't have a major credit bubble that we know could be a cancer on their economy for decades.

16:01And, And, you know, there's the Japan comparison. But I think the market and I think investors and I think it's easy to be kind of smart and say, hey, China, we've seen this before. It's never going to happen. I think there's too much pessimism around this. And I don't need to see the kind of extraordinary bazooka that they threatened a week and two weeks ago. So as someone that has been long on both sides of this trade, I think this is a great time to be owning China, but a great time to be owning EM more broadly. And I would look at, you know, fourth quarter GDP for EM, including China, after these measures goes from two and a half to now almost four percent in the fourth quarter from that in the second and third quarters.

16:36I think you've got a commodity story that's also emboldened by what China has said. I think you've got generally a weaker dollar, but you've got some comfort around the U.S. economy and a benign Fed. That's all very good for investing in that part of the world and broader around emerging markets. So back to tomorrow, I think people are expecting disappointment. And I think that's the way the market is traded. I was selling baba calls last week. In fact, I was actually buying some of them back. I will probably buy them back before that announcement because I think it will be something that actually could catch people off sides.

17:05I think they're committed and I think they have to be. So I'll jump on that. So I think there's two things I'm watching for tomorrow. One is, does President Xi Jinping backtrack on his ideology that he's not going to bail out the consumer? The service sector is more than half of China's GDP. So you need consumer spending and they're not spending. The only thing they're spending on is gold because they're terrified. So if he backtracks and says, I'm going to make this$2 trillion renminbi bazooka focused on consumers, I would be buying right next to you because I think that's what it's going to take to make this more sustainable.

17:39But if he keeps investing in the supply side and infrastructure and roads to nowhere, then it's deflationary, and I don't think it's going to change consumer sentiment. And so I think maybe you get China buying stocks, and that might give you 10 percent in a trade, but it's not an investment. So that's like the nuance in my thinking around your view. I also would take, I'm going to fight you on the dollar. So the dollar weakened Q3, but Q4, it's picking up again. I mean, dollar yen is back to almost 150. And I think part of that is people changing their expectations around the Fed a little bit.

18:12But part of it is U.S. exceptionalism. You know, the U.S. is still beating everyone else and people want to put their money here. And so the capital coming in is lifting the dollar. Hard to argue that. And you do need a weak dollar for EM, I think. Steve. Yeah, I think Tim probably has the right approach here. If you have to pick your stock that you want to trade as a mirror to China. So Alibaba went from 85 to 118, back down to 105. I think China is going to keep coming out. I don't know if it's a bazooka. I don't know if it's a water pistol. But they're going to keep coming out with stimulus for the next couple of months.

18:45I would just trade Bob. If tomorrow is a disappointment, the next one is October. So it's just going to be the next one, the next one, the next one. It's hard to get short in front of that. You get rolled over. Yeah, so at the highs last week when people were pretty geeked up about this trade, the Shanghai was trading at an eight-year high, if you think about that, the Shanghai comp. And then, obviously, the Hang Seng in Hong Kong was also at like a three, three-and-a-half-year high. Look at the FXI. I think that that's the ETF that covers the large cap, primarily ADRs here. You know, if your point is they're coming after the consumer, they're looking to help the consumer, that's what you want to own.

19:16I mean, it's BABA, it's Meadowan, it's JADU. So if, if, you know, and so to me, I don't think you buy into this. It feels like a little bit of a bubble. And I think a lot of folks are just kind of placing their, you know, I guess you're just waiting for the Chinese government, which is obviously they're the ones who brought this whole thing down to some degree if you go back three years ago. So to me, it doesn't seem like a great trade right here chasing it. Well, just off the plane from Las Vegas. And again, you know, the MGM CEO told me it just is irrelevant to their bottom line because they are so slimly penetrated into the overall Chinese population.

19:52They've got the same gamblers coming back over and over again that whether they do or whether they don't for the stocks that I cover. But how about those that are really exposed to Macau and exposed to Asia? That's what they're saying. That's what they're saying. LBS. Those people are coming. It's about visitation. And what they're seeing is a decline in VIP spend and a boost in premium mass and mass. And plus, Singapore, which is by far, in a way, the most popular destination in the world for gambling in terms of the money that it brings in. Marina Bay Sands, the most lucrative casino in the world.

20:25And it's on fire. So the very richest are still gambling and Macau is still recovering. They had a great golden week of 20 percent over even 2019. That's the first time we've seen numbers that beat pre-pandemic numbers. So, you know, it's a it's a big move. But that's what I know. I know a lot about casinos. We have a lot more fast to come. Here's what's coming up next. Two major storms battering the south in the last few weeks. And as recovery efforts ramp up, so do the costs inside an insurance industry stretched to the limit. and the macro implications that are getting too big to ignore. Plus, why markets are not so impressed by Tesla's robo-taxi reveal and the stocks that could be the real winners in the automatic driving race.

21:11The debate. Next, you're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.

21:26Welcome back to Fast Money. Insurance stocks have been on a tear this year. Names like Allstate, Progressive, and Hartford, all higher today, adding to record runs in 2024. Rising rates have been boosting insurers' bottom lines. But now you've got damage, of course, from Hurricane Selina, Milton, and that could put a dent in their profitability outlooks. Rebecca, give me a sense of how you're thinking about insurance and hurricanes and how it affects the broader economy. I mean, I'm looking more at the macro than specific stocks. But what's been I grew up in Florida. I grew up with hurricanes.

21:59I follow them. My family still lives there. And what I've seen and what I've been reading about is that the number of big, expensive storms keeps growing. So in the 1980s, we had like three point three above a billion dollars extreme weather events a year on average. Now it's 22 a year on average. If we look at the cost, it's gone up from about$20 billion a year to about$150. So when you think about insurance, you have storms creating that much damage. The insurance is going to have to figure that out. But it also feeds through the consumer, right? We're seeing all the damage here. And the lower-end consumer has a harder time picking up the pieces and rebuilding.