Markets Picking AI over the Fed?... Plus A Semi Slide For Intel 4/26/24

0:03Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast doing wrong and is there any reason to be bullish and later Goldman glistens and the stock marks another big week chowing down on Chipotle as the restaurant chain climbs further into record territory and we're weighing the options on Eli Lilly ahead of the pharma giant's next earnings report I'm Melissa Lee coming to you live from Studio B at the Nasdaq on the desk tonight Tim Seymour Karen Feynman Steve Grasso and Julie Beal we start off with the two little letters that might mean more for the market than anything the Fed does.

0:57AI. The S &P closing out Friday with solid gains climbing back toward the 5 ,100 mark, posting its best week since last November. The Nasdaq doing even better, up over 4 % since Monday, and the Dow ending a second straight week in the green. Those gains come even as a slew of economic data should have spooked investors. GDP growing less than expected in the first quarter, and the Fed's favorite inflation gauge staying stubbornly sticky. Commodity prices also on the rise with crude, Brent and copper all higher ahead of next week's Fed meeting. But all that could not put a damper on the artificial intelligence parade.

1:31Alphabet surging to a record high after showing progress in its AI ambitions. Microsoft also climbing as AI boosted its cloud sales. And Nvidia, the poster child of the business, jumping more than 6 % today as it appears to be the beneficiary of all this AI spend. The Sox 15 percent gain this week was the best since last May. So does this action prove that AI matters more to the market than maybe the Fed? Tim, what do you say? Temporarily, Mel. I mean, it's a fascinating question, and at times it does. And there's no question on a week. You can also look week over week. Part of that NVIDIA performance is that semis closed on the lows last week, and it looked like they were really about to break lower.

2:10They had underperformed. So but it's no question that when you hear Google's investment in AI and which translated into obviously a big upswing for the company in terms of the performance, but also the numbers underlying were fantastic. And they talked about AI enhanced search results and increasing engagement. And they had to 400 basis points of margin improvement. Their margin was some of the best. So there's there's reasons why those Google numbers were so good. And I don't think they were all A.I., but they went out of their way to talk about the massive investment in A.I. And so so sure, you know, philosophically and secularly, when we think about that first big NVIDIA print, the question that the analyst community had, especially within tech, was, is this the beginning of a massive CapEx boom that's going to be ushered in by A.I.?

2:58Well, so far, so good. No question about it. I guess I just think that the Fed is still the most important variable for markets. And I think it was a week. We can dice and slice. Jim Bianco is about to be on. We'll talk about some of those dynamics. But I think the data this week was better. I think GDP was actually better. PCE today was very benign. And I think the Fed reigned supreme. Yeah. Karen, what do you think? I don't know. I guess I disagree a little bit. Nice. OK. Yeah, no, no. So I think that, you know, for this slim number of stocks that are very much in this very AI-centric, it definitely does matter.

3:35And it doesn't matter. None of the other things matter. They are in great shape financially. They don't have debt issues. They don't worry what interest rate costs are. That doesn't matter to their business at all. So they're sort of somewhat isolated from the Fed situation. For the rest of the market, I think the Fed is still very much in play. And that's important. And certainly if we look at like, you know, the IWM, it's had a tough time. And so I do think it does matter for the rest. But these these suck all the oxygen out of the room. Right. They're the biggest high flyer. They're the biggest companies.

4:07These are huge numbers. I mean, it started with those meta numbers just on the A.I. spend that were really, you know, kind of mind boggling. And then you saw, of course, yesterday with Microsoft and with Google that I don't know what inning we're in, but I do still feel like there's a lot of runway left to go in this A.I. story. It's interesting to me. I don't know. We were talking a little bit in the green room about Microsoft versus Nvidia now. And, you know, they trade at the same multiple now. And that makes me think I should probably have more of a Microsoft bet and less of an Nvidia bet.

4:44Because at 35 times earnings with Microsoft earnings that are going to be potentially more recurring, it seems certainly the copilot model is that. We know that we have a Windows upgrade at some point later this year. I don't know exactly when that's going to be. That would be a catalyst as well. That to me seems potentially it is expensive, though. You know, just as a value person, 35 times expensive. But 35 times with that kind of revenue and a potential catalyst there is, I don't know, feels a little bit more secure to me than 35 times what are giant lumpy numbers. Right. Also, huge margin, but seems, I don't know, less certain to me.

5:25Well, if for some reason there's double ordering, there's inventory bills in terms of these chips, if some players decide not to spend as much for macro reasons than NVIDIA, then their sort of business might be a little bit lumpier than Microsoft, which will be a little bit more stable. So maybe that is what you're paying for. That's an interesting self would you rather. I want to hear stage points, but I want to get into that. I'm ready to push back on Karen. Did you see how happy she was with the would you rather? I mean, I haven't seen you glow like this in years. Because it's an excellent would you rather.

5:54Of course. And I don't mind that Karen brought it up. Of course. And I will pose the question to you. The ladies are allowed different, I think, rules than the men. Of course. It's been obvious. So I think Karen actually agrees with Tim more than I thought you were going to agree with him when you first said that you disagree. So I think that's probably what Tim was saying. The market is just these handful of stocks. These are the names that matter. So the Fed is not raising, though. That's where it would become different. If the Fed actually was going to, if now all of a sudden it's in the calculus, the Fed's going to raise one more time, I think that would be the most important thing that would happen.

6:32So I do believe it's— Would these stocks go down? Yes. These stocks would go down. But when you talk about GDP and worry about growth or slowing growth, there was no slowing growth in the names that Karen just talked about, that Tim just talked about. There's no ability to have that for you to say, let's overlay that slowing growth. What does it mean for Microsoft? Well, it means that Microsoft is still growing. It's still AI. So you're right. That's the most important thing in the room right now. When you drill down, if the Fed decides that now when we hear from Jay Powell and now it's looking like, hey, we're not only not going to cut, but we're still thinking about raising.

7:11That's a different dynamic that I don't think the market has digested just yet. And obviously, the more AI spend, the better it is for NVIDIA. So I still think I'd rather be buying NVIDIA than Microsoft. Did you hear that? Yeah. To Karen's, would you wrap? Can I just add one little thing? Monday, we will get some important news, right? We're going to see the quarterly refunding, right? And that, I think, has the potential to... If rates spike further, right, then that could really roil the market. Yes. Yeah. But this whole notion, Julie Beal, that, you know, things can keep chugging along just because we have this sort of, you know, the handful of stocks leading the entire markets higher for whatever.

7:51I mean, you may think that's horrible. You may think that's a fine thing. But for what it is right now, if AI spend is going to be lifted in calendar year 2024, which is what these giants have said, and there's some expectation that it can still have the momentum going to calendar year 2025, which is Bank of America's base case scenario at this point, then maybe things can keep chugging along if there is this spend of billions of dollars in this amongst these handful of stocks. Yeah, but I don't think anyone is really cheering the idea that the market being extremely narrow is a positive thing for the long term outlook, right?

8:25If you think about it, what's more important than the rates is the Fed ability to create a soft landing. Think of it as the Fed needs to deliver the soft landing baby. And AI right now, it's an epidural, right? It's just nice. It's helpful, like really helpful. But the Fed still has to do the hard work of giving us this soft landing baby. And that actually is much more complex because it requires so many more components of the economy, right? So I think that's the real challenge is, is how good is the rest of the economy? And right now, earnings have been pretty mixed, right? And guidance has been pretty tentative outside of AI.

9:03So I think for the long-term health and viability of this market, you need to see a broadening, and you won't really get that just on the back of AI. I mean, soft landing baby, as cute as that baby may be, I don't know if the baby's coming. I don't know, Tim, you sound like you might actually think that baby is going to be delivered by that magical stork known as Jerome Powell. But I don't know, given the data that we saw this week. I've learned many times in my marriage from my wife is that I have no right to even opine on the birthing process, okay? And when you get into epidurals and things that I will never experience, I'm probably going to stay away from that, even though it's a very interesting metaphor.

9:40I do think that the Fed, their ability to ease this economy down the road of where they have to have had to significantly change monetary policy in a very short amount of time is extraordinary. And we all recognize we still haven't fed. Again, I would reiterate, I thought this week in terms of the economy, if you look at the consumption spend and that GDP number, it was actually in line with the last two quarters. It was very strong. If you look at real rates, and I think this is something we're probably going to talk about with Jim Bianco, so I'll leave it, but I think the bottom line here is that the economy is part of the story.

10:15The economy is in very good shape. The consumer has a job. So it makes it, you know, it's it's certainly very important for the mega cap tech companies. And back to Karen's Would You Rather. It's interesting because as you started to say that and we actually flash those forward P.E. numbers, Microsoft at a 38 times forward versus NVIDIA is 35 forward. And those numbers move around a little bit. We know that. But ultimately, when you consider the growth that NVIDIA has, but more importantly, the inherent margin in their business, it's so much more attractive to me. I would think at this point, because Microsoft is just out of their own success, this multiple has really moved higher.

10:49Wouldn't NVIDIA be so much more interesting? I realize they're not going to grow at this rate, but right now that is so much more growth for the money and a margin. But I think the market prefers a steadier stream, even if it's less money over time, it will get a higher valuation than a lumpier stream, that even that lumpier stream is more money. I think the market likes that sort of, not certainty, but I think the market values that higher. That's fair, but ultimately aren't semiconductors. Look at streaming versus hardware. Apple in itself is that same sort of analogy, right? Except for the fact that chips ultimately, they should be easing into a business where they're not going to be the only game in town.

11:30It is going to smooth out. Growth is going to slow. It's going to be smoother. It's going to be more cyclical. It's going to be more predictable. But it's going to be at a higher rate and a higher margin and therefore deserving of a higher multiple. But, you know, we can debate this one for a long time. So you're saying that you would rather NVIDIA. I would much rather NVIDIA. You own NVIDIA now. I own NVIDIA. I don't own enough of it. I really thought I was going to be able to buy it cheaper. And I still think this is, again, back to the Fed and the markets. I think, you know, Microsoft didn't close on the highs.

11:57I mean, a lot of stuff gave back a little bit of a ground. Those were great headlines. Let's see where we get next week. We've got a Fed meeting. We've got a payroll number on Friday. You've got a lot of dynamics for the macro that I think could change just how good everybody feels today. Where were we last Friday? You see a pullback in the markets and you see a pullback in NVIDIA, but you see rates go higher. You still buy NVIDIA? Yes, I think ultimately and there is a bid below NVIDIA less than there is a bid. It's got more of a bid to it on a dip than the market does right here. Yeah, I think the market is going to pull back.

12:29And I think I'm staying with I think we're going to test that 200 day, which is 4690 in the S &P. Very rarely do you tap the 50 and then not go through the 100, through the down to the 200 to test the 200. I feel as if I've been positive on the market. I feel as if even the bulls would like a status check on the market, because I'm not saying that this is going to be a long term test. I think we're going to test it and rebound. But I'd like to see us test it. It was a little bit surprising we finished so strong on the week going into another week where there are so many potential tape bombs, Julie.

13:04Plenty of reasons to de-risk going into the weekend. Yeah, I think going in front of us, there's definitely a lot of data that could point in the wrong direction. And so I'm surprised, but I think there is a lot of conviction around certain names. Some earnings have been really, really positive. And I think that that's given people more conviction that the underlying economy is looking good. but I still see that there are real pockets of weakness throughout, right? If you look at consumption spending, where we are in terms of services spending is in line. Where we are in terms of good spending is still ahead of where we historically have been.

13:38And so if there's a pullback on that, we're going to feel it in the economy pretty meaningfully. Meantime, the Japanese yen hitting a new 34-year low against the dollar after the Bank of Japan kept rates steady. The country's central bank signaling it attempts to keep policy easy. Let's bring in market forecaster Jim Bianco. He runs Bianco Research. Do you think that there's intervention on the horizon? I mean, I feel like I ask this every week. But do you think that the BOJ will do something about this and that we could see some sort of, you know, snap rally? I don't think they will. I mean, they obviously can.

14:13And I think that the reason that they won't intervene and why they've allowed it to go to a 34-year extreme is they know it doesn't work. and they've tried it in the past, and now it's been 20 years since they've tried it, but every time they've tried to intervene, it works for about a day and a half, and then they stop intervening, and then the market goes right back to where it is. And besides, if you're going to intervene and try and force a market to the size of the yen dollar exchange rate to a level, it's not going to work, it shouldn't work. You need to change your policies, you need to change your economics if you want to stop this decline in the yen.

14:48So the$4.5 trillion carry trade, estimate roundabouts in stocks and bonds, that's safe in your view? Yeah, I think it is if that is still the extent of the trade. I think the trade is probably a lot less than it was, say, three or four years ago, especially pre-COVID, because before this period, there was a lot of yen strength, and then that should have probably shook a lot of those people out. But if you're in that trade now, the weekend is going to definitely make it work for you. And there's no reason to be fearful of it. Hey, Jim, it's Tim. But so let's take the next step outside of the buying power for the Japanese consumer abroad, et cetera, et cetera, and balance of payments and dynamics for Japan that are pretty significant on a global stage.

15:34What does this mean structurally back to the Treasury market in your view? Keep in mind that the Japanese are the largest buyers of Treasury securities in the world, not the Chinese, the Japanese are. And if their currency is continuing to weaken like it has been, you always want to be invested in the stronger currency. So that would, on balance, be pushing money towards the US dollar and, of course, then into US treasuries. And even though that's happening, yields are continuing to go up. So it really tells you about the underlying weakness that we've seen in the bond market. You've got the largest foreign buyer in the world with an excuse to be buying it.

16:16And yet we're still seeing bonds sell off and we're still seeing yields go higher. Jim, I want to pivot you to next week in terms of QRA on Monday and then also the Fed meeting next. How do you see this all playing out in terms of the positioning for QRA and then also for the Fed meeting? Yeah, there's a lot of news next week. We're packing a month's worth of news into next week. Monday is the quarterly refunding announcement. We all remember November. It produced, you know, when the Treasury came out and said, we're going to buy less notes and bonds and more bills. And it sparked a huge rally in bonds.

16:48They've played that card. I don't know if they can play that card again, because now at least everybody's looking for that. And it's going to be really hard to really surprise everybody. Remember, they still have to fund the deficit. So they just can't come out and say, we're not going to sell as many bonds as everybody thought. So I don't think the QRA might be a volatility event, but I don't think it'd be a trend changer event. Wednesday's the Fed meeting. There should be no, they're not going to do anything. The announcement of the Fed, what the Fed does is going to be a non-event. It's going to be about the press conference and whether or not Powell says anything at the press conference about being more hawkish.

17:21And then don't forget Friday is payrolls. And payrolls for$250 ,000 is what the guess is, down from$300 ,000. Keep in mind, the last couple of months, payrolls have been beating again. And if we get another beat, it just stokes the idea of a strong economy and stickier inflation. All right, Jim, great to speak with you. Thank you. Thank you. Jim Bianco, Bianco Research. We've heard some language from Fed speakers in the past week or so that a Fed hike is not the base case scenario, but that is something the Fed is ready to do should the data warrant it. If Chairman Powell says something to that effect, how do you think stocks would react?

18:00Well, I think stocks would react poorly. I'm not sure he needs to do that no matter what he's seeing, because as Jim pointed out, we kind of have a sense, and we even got this in the PCE, the Fed knew what this data was going to look like. They're probably going to adjust their statement on the economy from solid to, you know, something less than solid. Yeah. Is that an official statement? It could be. I think we're at a place here where the Fed is certainly, though, telegraphed to the market that we could possibly not have any cuts this year. If they change to rate hike, it's a very different story.

18:37I thought there was actually a little cover for the Fed today, right? So you had two things. You had GDP, a little cover there, I think. And then you had a slightly hotter, just slightly, which is a little cover for them to do nothing. I don't think it's enough for them to hike. That, I think, is not necessary. They're probably going to cut QT in half, right? So that's the, in effect, that is still easing, right? So if you're cutting QT in half, that is dovish by its nature. So maybe we'll get some answers to that because I'm a firm believer in they have to adjust QT before they do anything. But is that priced in?

19:14Do you think QT is? Yeah, I think to a certain extent. But when you say that you've already pushed off all cuts, people don't realize that that's equivalent. When it was full steam, it was equivalent to tightening by a quarter point, 25 basis points. So by cutting it in half, then you're down to an eighth. So now if you're looking at that, that is easing. And that's the first step before they actually cut. Coming up, a burrito blowout. Oh, boy. You're probably trading at record highs after earnings earlier in the week. We'll dig into what the big move higher means for the fast food trade. But first, Tesla shares hitting the brakes.

19:46as a recent recall sparks concerns from regulators what they are watching and what it could mean for the EV giant right after this. This is Fast Money with Melissa Lee right here on CNBC.

20:06Welcome back to Fast Money. Tesla shares taking a leg lower late today after the National Highway Traffic Safety Administration found a critical safety gap in its autopilot system. Phil O 'Beau joins us now to break down the details. Now, this concerns a recall, right, of vehicles already with the autopilot update. Right. Two million vehicles had been recalled by Tesla in December. And while the term recall is used, it was an over the air software update meant to address what NHTSA considered to be inadequacies in terms of how autopilot works when it comes to interacting with the driver, alerting the driver about potentially dangerous situations.

20:44situations. They did the recall in December. The complaints haven't stopped. In fact, there's still been a flurry of complaints, and that has prompted NHTSA to now say, OK, you know what? We've closed down our investigation that was looking into autopilot that led to the recall in December. Now we're opening up a new one, looking at whether or not the recall that was put in place did the job. If it didn't do the job, what needs to be changed in order to better alert drivers about autopilot when it's not functioning or to make sure that autopilot is functioning the way that Tesla has told regulators it will function.

21:21And one important note here, Melissa, autopilot is separate from FSD, full self-driving. That is a subscription service you pay for. Think of autopilot almost as an advanced cruise control system, if you will, that you see on a number of different vehicles, not just Tesla's, but all brands. And so that is the thing that to focus on here. We're not talking about full self-driving technology. How should we think about the cost to Tesla? Because that's usually how you think about the impact on a stock or a company. You think about the cost of the recall if you're bringing the physical car and obviously the costs are completely different over the air.

21:59It would seem like it would cost very little. So is there really, do you think, very little impact on Tesla? In terms of cost, I'm not sure it's going to have a huge impact, not a material one where you sit there and say, oh, my goodness, look at the impact of this over-the-air software update that's being done here. Where there is a cost, Melissa, and it's hard to quantify at this point, is the fact that you not only have this investigation by NHTSA, but you've got other entities, government agencies that are looking into autopilot the way it is marketed, the way that it is presented to drivers.

22:32And ultimately, the question becomes whether or not autopilot, which, you know, there There are many people who believe that autopilot is a real asset to Tesla, separate from everything going on with full self-driving. There are a number of people saying it's a real asset. But is it also now potentially going to come back and bite the company, you know, to a certain extent if there has to be a larger fix to these problems? Right. Phil, thank you. Phil LeBeau. You bet. It's a big week for Tesla in general. Yeah, it feels like there's a tremendous amount of headwind. It feels as if they're in the same sort of spot where Apple was with China and then with our government picking on Apple, too.

23:14It seems like there was a whirlwind of just negativity about Tesla. Then you had Ron Barron on our network saying that the stock is bottom. So you brought up an important point. This doesn't really cost them to do an over-the-air the way a traditional recall would be. I think if they just have to harness that$28 ,000 vehicle and not just talk about robo-taxi, talk about real margins, talk about really having the bandwidth to produce those cars, the analysts are only looking at it as robo-taxi, full self-drive. There's other parts to the story. Yeah, I mean, the low-cost vehicle, Julie, is really what analysts are geeked up about.

23:51I mean, that's what lifted the stock off of earnings, right? It's not this talk about robo-taxi, which costs I don't know what will bring in I don't know what. And nobody can quantify that, including Tesla at this point. But a low-cost vehicle gets you into certain markets where it's not operating right now. Yeah, absolutely. I think, you know, having seen BYD overtake them in terms of market share is a pretty meaningful moment for them, right, where BYD has been able to construct a low-priced car. The big challenge, I think, with Tesla, it's not even what's happening in their production. It's just their valuation, right?