Markets Look Towards June Trading… And Oil’s Worst Month Of The Year 5/31/24

0:02Live from the Mazdaq market site in Times Square, this is Fast Money. Here's what's on tap tonight. Tech timeout from NVIDIA to Alphabet to Dell. The bulls have been riding high for much of the year. But some errors come out of that balloon despite today's close. Is that a blip or the start of something bigger? Casual comeback. Shares of the gap at record highs on this earnings beat. We're going to break down some retail and where these stocks go from here. Later on, details on Icon's big bet on Caesars. Why financial advisors are not jumping on Bitcoin ETFs. And our traders reveal their charts of the month.

0:34I'm Carl Kitania in from Melissa Lee live in Studio B. On the desk today is Tim Seymour, Karen Feinerman, and Steve Grasso. Happy Friday, guys. Thanks for having me. Thank you. Thank you. Thank you for being here, Carl. Nice to be here. Let's begin with this market surge in today's final hour. The Dow monster game, nearly 600 points. Best day of the year. S &P finishes green. NASDAQ rebounds from down about 1.5 % to almost dunch. But that software trade is a trouble spot this week. The iShares expanded tech software ETF down almost six over five sessions. Mag7 down one. Nvidia closes out the week in the red, down about 1 % today.

1:08One of the biggest disappointments this week is Dell, down almost 18 on earnings. But with fairly tame PCE today, should investors feel bullish going into June and buy any tech weakness? Karen, what did you make of this macro print today? Yeah. Well, could I just go to Dell for a second? All right. So Dell, which is a big position for me, and so that sort of, you know, stands out as the most painful. I think part of it was the run up just on the heels of NVIDIA. It went straight up. I don't know how many points, 30 maybe. And this sort of return to Earth combination of expectations being super high and some margin pressure that they talked about.

1:47One of the things that I found interesting was that the margins for the smaller cloud service providers are better. But I think the mix, they're getting bigger orders from, you know, and having less margin there. So I think the story's intact. What's the right? Because I think the growth is still there. But what's the right multiple for this? It's a hardware company ish, mostly. Right. So apparently yesterday's multiple was not the right multiple. But I but I'm not sure. You know, I haven't done anything. I sold a little bit of calls against it. Not nearly enough at all to hedge, you know, a big loss today.

2:24I'm sticking with it. Yeah, I'm still trying to get my arms around this idea, Tim, of being margin rate dilutive, margin dollar accretive. Is that material to understand? Yes, I think it is. How do you explain that to viewers? Okay, I think it is that, okay, I'm sorry. Go. So if they sell to a, you know, a Google, right? A Google say, look, we're going to buy however many hundreds of thousands of chips. This is the price we're going to pay. And they work it out. They get to a price like that. If they can sell as many to 50 customers, the margin on each of those is higher. And so the dollars are higher.

2:59But you're saying that's not good enough. I just think it was a topic on the call. And it obviously was among the chatter today on the price action. Well, does the street care about, OK, if you get higher gross margin dollars at a lower rate because Meta and Google buy tons of them, is that not as good? Right. Well, to tie it into earnings season, I mean, this was an earnings season about better gross margins. I mean, it was really. And if you think about this week and then over to the software earnings that, Carl, you mentioned in the open, you know, CRM's numbers were fine. It was really the guide and the discussion of the marginal dollar in terms of enterprise going more towards AI and maybe even going towards the hardware side of AI.

3:37But certainly the spend around what's going on in chip land. And so, you know, that gets back to then the markets closed today. So, right, end of the month, interesting month. It was an up month, but there was some volatility in here for sure. And was the close really the trend going into next week or the weakness we really had for the three days before? Because if you weren't watching the markets today, folks, the last hour and a half of trading was extraordinary by any measure of any day, any time. And yet it's kind of a sleepy summer weekend, right? So, I mean, we finished flat on the NASDAQ.

4:05At one point, we were down almost 2 % intraday. If you were looking at the NASDAQ itself relative to its recent all-time highs just three days ago, It was down almost 4 % from that point, the move that we've seen across the M7. And I think that's really the debate into next week because it was nice to see a PCE that was softer. There's some consumption data in there that was also softer, though. Be careful what you wish for. We have payrolls next week. And I think there's certainly a lot to chew on for bulls and bears. So I think it's like a choose-your-own-adventure thing. But when you look at the market going into the end of the day, that's mostly institutions that are buying.

4:39You see it when you're on the floor in the morning. Most professional traders, most institutions stay away from the first 15 minutes of the trading day. They let the retail community sort of price and parse that out. They usually get involved after that first 15 minutes, and then they hold off during midday. So they're over-the-day orders. Then at around 3 o 'clock or 2.30, they get back involved, beat the close orders, because they're mostly marked towards the close. And that trend has been accelerating over time. And it accelerates over time to a more tight and condensed time period, depending on how much you have to buy or how much you have to sell.

5:15Obviously, today, we know which way that the institutions were relying on. If you look back at software, I equate this to pre-pandemic, where you had to pull forward with hardware. Now you have a pull forward with AI, where people want to invest in AI versus the other software games or other software, which was their core. So as Tim said, CRM lost a lot of their sales because people were investing on the AI side of it. Some of these companies, they're pulling forward the AI, but only if you're going to make their company more efficient with your AI offering. Does that make sense? So if you're not moving the needle for AI, if you're not considered the sweet spot for AI, you're losing it to the vast amount of companies that are considering it.

6:02That's why we have those handful of names that have really performed. Is it as simple as making the difference between a submodel and a consumption model in software? Yeah. Is that where we are? Yeah. Go ahead, Karen. Well, you're saying subscription model? I'm not sure. I think the valuation on these names was super high to begin with. So, I mean, Microsoft, I think, is number one in the IGV and Adobe and Intuit. And CRM was way up there. Obviously, they're down a lot this week. I think that some of that also, I feel like, is it was too high going in and this as well, that the spend is going elsewhere.

6:44That was a little bit of Dell also. The enterprise spend is going elsewhere. I think it's the spend. And, you know, we talk about this a lot because we're trying to figure out, you know, in the new realm of AI and this pie that is either revenue or profitability, whatever you want to say. You know, I get where it's a bigger pie for NVIDIA. I get where it's a bigger pie for anyone that's directly involved. But when we start to talk about the hyperscales, we talked about, yeah, can Microsoft charge more for software? Sure. But ultimately, then as it gets into the software and the size of their addressable market, again, you look at what Adobe, Palo Alto, two of the best performing software companies arguably in the world for the last five years.

7:20Those are charts you wanted to own. Adobe's making new lows every day, at least on a one-year basis. And typically what we've seen is up until this last round, and it's actually with the second quarter in a row of numbers out of big software companies where they're not following through that lead. Semiconductors have been making all-time highs. Software is often followed with multiples that followed. And we haven't seen that now for some time. And it gets back to I think at some point we have priced a lot. And software on some level is the place where really rubber hits the road in reality I think has been settling in.

7:51There was this really interesting note out of Hartnett at B of A today that there have been so many pain trades in the 2020s. His argument now is that it will be value outperforming growth. And his theory was that a tame PCE today would not support tech. Obviously, that didn't happen. But I wonder if you think it's still possible. Well, let's Karen can speak to this because she's the value girl. But how long have we been waiting for value? Yeah, I've been waiting for Godot. Exactly. Exactly. So the way I see it is that you could get brief spots where value, and it depends on what you call value, right?

8:23Cheap could be cheap for a reason. But I think you need a lower rate environment to have value outperform. I think people are always willing to pay up for growth because you grow into your valuation. So when you talk about the Magnificent Seven or those stocks, and I know we're extending that to software, they're trading at 30 times. And we've talked about this. The other 493 are trading at 18 times. Bifurcated market. So where do you go from there? You extend it out to software, where software is trading at 40, 50, 70 times, depending on what metric you look at. I don't think that's sustainable, and that's what we're seeing.

9:00This was also a week in which I think semis supplanted software as the biggest S &P weight. Is that still the safest place to play tech? Yeah, look, I think so. I'm not sure you're running into semis right now, but I think in terms of total of where semis are the new commodities. There's no question about it. If you look at the size of the economy that they're attached to. But it doesn't mean you have to jump in overnight. And while after that NVIDIA print, it felt like that was the relief to buy. Once again, that doesn't mean you necessarily had to chase that price action. And I think I think we're seeing a little bit of a pullback.

9:34I agree with a move into value. And I think this is Hartnett, who I love his work and have for a long time. Now, it's seen as positive for the market, right? It's seen as broadening is really more about diversification. And look, banks have outperformed almost everybody since last October. And they fall under value territory, even though, you know, you can make an argument that higher rates haven't been great for everybody. And one last button up on this. We also see a Fed blackout. Yeah, that's right. So there's not a lot of conversation that's going to be taking place in the next couple. Yeah, not a lot of earnings or Fed speak next week.

10:05Let's talk more about today's final hour surge and where the markets go in June. Joining us here on the desk, CNBC contributor Peter Bookvar, of course, with the Bleakley Financial Group. It's great to see you, Pete. Welcome back. Thanks. What did you make it to the close today? You think that was a material move? Month-end noise, I would say. I think we tested the 50-day around. So I don't really look too much into it to think that there's some reason for it. I think we're trading in this range. And I think what the Fed will do, what the unemployment number next Friday will do, because I actually think that the unemployment rate becomes as important as the inflation data in terms of moving the needle on what the Fed may do.

10:43Because if you see a footprint in the unemployment rate next Friday, then the Fed's going to all of a sudden think that maybe July could be a possibility because I don't think if it's July, they're waiting until December. Even participation rate stuff, though? I mean, because the unemployment headline rate is something that not only has a lot of politics attached to it, it really has participation in the labor force attached to it. So aren't they looking through that? Well, that's why a 3.9 percent unemployment rate where we are now is the highest in two and a half years, but historically very low.

11:15But it's the trajectory that they're focused on, because that's what tips you into a recession is the trajectory of a move in the unemployment rate. So today we had real consumption down a tenth in services, down four tenths in goods. We had a Chicago PMI number that was 35. Do you think we're rewriting the story here about growth? I've never seen a more mixed and uneven economy than I've seen right now. For every good story, I can tell you a bad one. And all you have to do is just look at all the earnings conference calls from yesterday, which I do. And there's an extraordinary amount of bifurcation.

11:51To me, from what I read, what I see, all the stats I look at, this feels like a 1.5 % type economy, not a 3. And I think the first quarter GDP number, which we saw, is more reality than the two and a half to three that some of the estimates still remain at for Q2. And a lot of those got rewritten today, right? Atlanta came down. And in response to that retail sales number, that personal spending number and the trade number yesterday. So, Peter, when you look at the ECB and the BOE and when you look at the BOC, they're all ready to start cutting. I think we live in a world economy versus the U.S.

12:31economy. How long will the Fed wait if the rest of the world is cutting for them to start? The Fed wants to join the party. They're feeling that peer pressure. But if you look at Jay Powell and you put your feet into his shoes, he does not want to see inflation ramp up again. He sees commodity prices. He sees shipping costs that are now inflecting higher again. He doesn't want to be in a position where he tweaks with rates, he messes around, and then all of a sudden, back half of the year, inflation goes up again. However, if that unemployment rate is 4 % or more, the pressure is going to get really intense for him to cut.

13:08So let's say that's the case. You see a four-handle. That's kind of a new territory we haven't been in in a while. So let's say he does cut 25, let's say. Does that really make a difference? It's noise. We're not going back to zero. It's total noise. It's going to have no impact on the economy. You know, on the term restrictive, which everyone now has their own interpretation, it's restricted for those that have debt coming due. But a 25 basis point rate cut is not going to do anything. And in fact, if they cut the short end by 25 basis points and the market thinks that the Fed's backing off from their inflation fight, I think the 10-year yield goes up.

13:44And what real estate person does that help? Well, let me ask you a little bit about bonds this week then, because it was also a fascinating week between very weak Treasury auctions, a dynamic that, you know, nobody cares about any of our politics here. So there's been a lot of political stuff over the last 24 hours. But but I would make an argument that no matter what administration we have in the fall, it's deficit negative. And the market's telling us something in terms of long term rates came in a little bit. But that trend, by the way, this year, just this year's trend, let alone the one from July of 2000, is higher on the long end.

14:14So I'm just curious your thoughts there. Higher for longer is not just a cliche. It's real. And at least the back end of the curve, that four and a half percent level. Yeah, there's a major imbalance. I mean, those auctions, as you mentioned, were poor, not mediocre. They were poor, outright poor. And the only thing that saved them was the back end data that reduced GDP estimates. But that's going to be a struggle in the next couple of years. I mean, a debt to GDP, I'm sorry, a budget deficit as a percent to GDP at 6 percent with a 3.9 percent unemployment rate is trouble, especially if the unemployment rate starts to tick higher and tax receipts start to falter.

14:51Then you're going to go towards higher single digits to 10 percent. Peter, good to see you. Thanks. Have a good weekend. You too. Peter Bookfar. Let's trade that. What do you think? What's the trade around this? Well, I think the cooling of the economy, the, you know, call it the less pressure on the Fed in terms of inflation, I think is going to help industrials, is going to continue to help banks. I think banks on valuation, you can make an argument, still look kind of interesting. I still also think the interest rate sensitives that are the things that also had some secular trends. I still love utilities here.

15:21I look forward to Paul Sankey later on the show. Stay tuned because I think energy is fascinating to forget global politics there. What we're seeing is you can tell when the oil majors are all buying each other up. There's 150 billion in M &A. So we'll talk about that. But I still like energy. I like utilities. I like health care. And I like banks. We're going to talk some oil and OPEC in a little bit. We are. And, you know, I always think you do the opposite of whatever OPEC does because they're always skittish and they're always trying to. The Saudis are always trying to keep oil around$80 a barrel.

15:51That's their sweet spot. But but but for me, I think that whenever they start to cut or hold cuts, they're getting desperate. And that means to me that oil, in my experience, oil is going lower. But what Peter said, if you have debt coming due, think about the commercial real estate market. If we don't start seeing some break in high rates, all these shows are going to start pivoting to what collapse are we seeing in the commercial real estate market? Because those re-ups are big in the next couple of months last year. 30 percent of outstanding debt in the next couple. Still to come, gap gapping higher.

16:27The retailers soaring on the back of these strong earnings. Is this just a gap thing or a sign of serendipity for the sector? We'll break it down in a moment. Plus, Caesars hit the jackpot today thanks to some glowing comments from legendary investor Carl Icahn. You'll hear what he said that sparked the big move after this. you're watching fast money here on cnbc we'll be right back

16:57welcome back to fast money we're topping the tape on gap the stock hit a fresh 52-week high after issuing some strong guidance and a big earnings beat nearly 30 percent spike today just the latest in a slew of retail names jumping higher this month companies like vf corp alta Abercrombie, even Foot Locker, all posting major gains of late. Karen, what do you make of these moves? And are there any commonalities between the Deckers and the GAPs and the ANFs? Yeah, it's return of the 90s, by the way. Yeah, I mean, GAP, there was a ton to like here on just about every single metric. I mean, just the margin, gross margin was great.

17:33The SG &A was very good, the operating margin. But the thing that actually was most amazing to me was how strong the guidance was. And I always think, why do you need to give guidance for any company? And yet they felt so comfortable giving very, very strong guidance. So we've got to think this quarter is going very well and that they feel confident enough to give that. So the stock obviously was up a lot. But I don't know if it's more expensive today than it was yesterday without these numbers. I'm not sure. Outstanding job. Yeah, I mean, I always think your inventory always wins. They made a case to hire someone from the outside, revamped the digital website, revamped the inventory, and actually sold down 15 % of the inventory.

18:20So it got rid of a bunch of stuff. And it's just starting to gain traction. I think it was the fall where they started to really pivot. And now it's really starting rubber hit the road type thing. But Urban Outfitters had an 8 % growth in revenue year over year. So you're starting to see some of the retailers that are capable of doing it. Tim was joking around saying return of the 80s. But there's a lot of these retailers that are revamping themselves, becoming cool again. And it's all about trends, whether their jeans are in or out, whether baggies in or out, high hip, low hip. Go ahead, Tim.

18:55I know Tim's got a dozen comments on that. I have them all, and I'm going to go rollerblading in Central Park after this. I think what was back to the gap, first of all, impressive that all four brands are kicking it. And so it was a margin expansion story. The question is really, is it more expensive or will the street reward a higher multiple? And I think that's part of it. But it is fascinating. If you listen to Abercrombie, they did talk about inventory. They did talk about coming into the year clean. They did talk about the ability to kind of build off of that, how it's a less promotional environment.

19:25That totally contrasts with what we heard from Target. And remember when Target, you know, the day we thought actually when they announced that they were cutting some prices, and they were going to be playing offense on defense, that it was actually a sign of strength and they were going to have good numbers. Their numbers were awful. They basically said that actually they're fighting trends in terms of having to be overly promotional. I think that is the trend. Delve it back to what we talked about last block. I think discretionary, wherever that marginal dollar goes, it falls under a lot of pressure in the second half.

19:52And I would be reluctant to change these moves. I keep thinking, Karen, where we keep hearing about discounting, right? American warned this week. We've seen prices cut at Walmart and Target and Amazon, some cruise lines. Do we have to start worrying about a promotional back to school? I think the retailers were so badly burned by the promotion cycle that happened post pandemic. Remember where they had so much inventory and had a double order because they couldn't get here. And then they're left with what we had Bill Simon on when Walmart had that inventory that he called apocalyptic. Like think up 34 percent.

20:28So I think they're so burned from that that they would rather miss out on sales than be in a position where inventory is too high and they've got to go through the promotional cycle again. One retailer that I really am curious about is Lulu, who has been so good for so long, it seems to have lost their mojo. And is it that it's just too expensive? Competition. Or is it competition? Both. I mean, Aloe, that's an interesting one to me. Nike also, similar story. Right. Great for so long. Big China names. That's that's true. Nike, I think more China than Lulu. Right. Less Lulu. But I'm very curious to say I think they're Wednesday.

21:09Well, we've had this Lulu conversation on this desk. And as someone that's been short at times, Lulu over the last couple of years and probably covered it at the wrong time, by the way. And I've announced that. But, you know, I think they while the competitive landscape is as fierce as it is and there's very little moat around their business. they're also at peak margin. So their margins aren't getting better, they're getting worse. So that multiple, which is 24 times now, might even get a lot cheaper. And I don't think you need to run in and buy it. Having said that, it's still Lulu, and until proven otherwise, I still think it's a first-class brand and something that at some point it gets cheap enough where you say, I didn't think I could buy it here.

21:44Yeah, losing a key executive to Vans today as well. There's a lot more fast to come. Here's what's coming up next. Caesars hits the jackpot. The casino stock cashing in after Carl Icahn showed his cards. Will today's big gains spread across the gaming space? We'll debate next. Plus, crude crumble. We'll drill down on crude oil's worst month of the year and how next week's OPEC meeting could impact the energy trade. You're watching Fast Money, live from the NASDAQ market side in Times Square. We're back right after this.

22:19Welcome back to Fast Money. Caesars surging nearly 12 percent, leading the casino rally today after Icahn made some glowing comments about the company. Our Contessa Brewer is here with details. Hey, Contessa. Hey there, Carl. He bought stock in Caesars, but when I called Carl Icahn, he told me he doesn't really like to talk about his positions. But we know Icahn thinks highly of Caesars CEO Tom Riege. After all, essentially, he put that guy in the job. And Tom Riege told me today he agrees with Carl Icahn that Caesars shares are undervalued. Caesars shares are off about 25 % year to date in spite of what we saw last year, quarter after quarter of brag-worthy results.

22:58And even last quarter where Caesars missed expectations, it was bad luck, not bad management. And in fact, everybody in Las Vegas got hit with bad luck. Caesars is likely going to see another boost. The Strip is just off its best April ever against some tough comps. It's going into the summer with tight room inventory across the destination because the Mirage, now owned by Hard Rock and Tropicana, are shutting down operations. Caesars got CapEx dollars coming back into the coffers because big renovations are ending. And we know that there has been some intimation on the earnings calls that RIG might put those dollars to work in buybacks potentially.