Markets Reject 5% Yields, Helping Big Tech Rally 10/23/23

0:01Live from the Nasdaq market side in the heart of New York City's Times Square. This is Fast money. Here's what's on tap tonight. Falling at 5 percent. The 10-year yield topping 5 percent early this morning, but then dropping, doing about face. A nearly 20 basis point intraday move. Will this week's earnings break the bond markets of ice grip on the stock market? We'll debate that. Plus, targeting Foxconn, Chinese authorities are investigating the Apple iPhone maker over taxes and land use. Is this Beijing flexing its muscle against Taiwan and the United States? We'll get the latest. And later, the chart master will be along to break down his list of stocks that are stuck in a bear trap.

0:38He'll tell us how investors can break free from these unbearable names. Oh, man. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Guy Dami, Julie Beal and Mike Coe. We start off with markets rejecting a 5 percent 10-year yield in a big way. The benchmark treasury hitting 5.02 percent early this morning, a new 16-plus-year high, but then falling 17 basis points from those levels. It was the third straight day the 10-year hit and closed below that key psychological level. The catalyst, potentially two tweets from Bill Ackman, revealing he has covered his bond short, saying there's too much risk to remain short bonds at current rates.

1:15One sector of the market in particular seemed to like the yield move, and that would be mega-cap tech. Look at the gains and names like Meta, Amazon, Microsoft, and Alphabet, all of which report earnings this week. So can the momentum keep going or should you be worried about what the results will do to the stocks? It was a really interesting, I think, move in the bond market today. 100 percent. When you see a 16 point 16 basis point move over the course of a few minutes, that's a staggering move. So let's dissect it for a second. And listen, I'm not pretending to know what was Bill Ackman said.

1:45Great trade, number one. I mean, he totally nailed it. But number two, I think he looks over the landscape and says, all right, a couple of things are happening. The economy seems to be slowing and the potential for geopolitical risk is escalating with each passing day. Both of those, in my opinion, would make yields go lower. So he says, you know what, the risk reward probably doesn't make sense here. I'm going to take off the trade. Good for him. I don't think, though, he top ticked this one. I still think rates are going to move higher on the supply side of things. It might take a couple of weeks now, given what's transpiring, maybe some of the unwind.

2:17But I still think yields are headed higher. I understand why he's doing it. I don't necessarily, though, think he's going to mark the top in yields. So in other words, you go higher after the issuance is digested. I believe so. What do you think? Well, the things that have caused yields to move higher have hardly really changed. So I agree with the guy. Bill Ackman has been very outspoken at different points. And I just think you got to a place, and we're going to have Jim Biakko on in a moment to really give some insights as a guy that was calling for this move. I think this pause makes a ton of sense.

2:45I think the fact of the matter is we also have equity markets this week that possibly, if you believe that some of these big names could disappoint a bit, we're going to get into that too, that would actually probably be bond-friendly because these have been the telltales on the broader economy. What should worry you, and one of the bigger reasons why I think yields have been going higher, is that the 10-year JGB closed at a cycle high here. We're near 89 bps on the JGB weekend. Press was that they are actually going to give up that 1 % barrier. I think that the distortion in the Japanese bond market has a lot to do with keeping yields down globally.

3:16And I think that's something that you really have to worry about. In fact, that is the biggest risk on the upside to U.S. Treasuries outside of some kind of extraordinary issuance dynamic we don't hear about. Because what Bill Ackman's talking about are risks that typically are safe haven drivers for U.S. Treasuries. So when we look at the equity markets and we look at what they did last week, doesn't surprise me that we got a little bit of a kickback today. Again, we saw the triple Qs. I think the charts on a lot of those mega cap tech stocks look decent. And as much as it's been easy to say, hey, they're holding the linchpin.

3:47The fact of the matter is, I think what we're going to hear this week is that those numbers are going to be right down the fairway for the most part. There are risks. But I do think that that's part of how you're playing this. You're not getting short these names. You're probably figuring out where you want to be long them and short other parts of the market. Yeah, Mike, how are you feeling about mega cap tech? If you think that yields are at least in the short term at a high or at a peak of some sort, then is that sort of an all clear for at least this trade to continue for a little bit longer?

4:14I don't know. The options market isn't really signaling an all clear just on the rate side first. Let's just talk about that a little bit. I mean, for those who are following along at home and want to take a look at how long bonds behave, treasuries, that is, you can just look to an ETF like TLT. That thing is trading with a significantly higher options premium than SPY is. So right now, as far as the options market is concerned, treasuries are far riskier and more volatile than stocks are. And that's an environment where stocks haven't been particularly calm either. So that's one thing I would quickly point out.

4:45One of the things I also thought that was interesting, tail end of last week, you know, that's when we started to see a beaten up sector all of a sudden roll over again. And that was financials from mid-Tuesday through the end of the week. And we did see some areas of strength in sort of the higher beta, higher growth areas, which suggests to me that investors are more interested in idiosyncratic growth than they are in sort of making a broader macro bet. So I think that what we're seeing in the bond market actually should be cause for some concern looking ahead. Julie? Yeah, I agree. Absolutely.

5:16I think that it's becoming more and more of a stock picker's market where before, you know, we just had dumped so much money on the economy that everything was working pretty well because our consumer is so healthy. And now we're really separating the men from the boys or whatever else we want to use. And I think that that's really starting to play out. And you're seeing with earnings, you're seeing that in general, although expectations on sell side estimates are pretty low, I think on buy side, people have been pretty disappointed with ho-hum results. In order for your stock to go up, you need to not just report a good quarter.

5:48You need to clearly show strong guidance. And not a lot of companies feel really confident to do that. And what's happening in the bond markets is not giving them any kind of comfort whatsoever. Just the volatility is really enough to keep people on the sidelines holding their breath. So we thought it'd be an interesting question to ask you guys, the traders, which stocks, which mega cap tech stocks you are most concerned about going into earnings, especially since we have a huge slate this week. Interestingly, Guy and Mike agreed on one name, and that would be the mega cap tech stock that has gained the most in the past three months, the past quarter.

6:20That would be meta. Why? Not an indictment on Facebook by all. I mean, valuation at this level is trading at a market multiple, probably 18 times next year's numbers. And you have revenue and EPS growth to back that up. It probably should be a higher multiple. I'm worried because if you think about who their advertisers are, small, medium sized businesses, We're starting to see the Russell roll over, the micro caps roll over as well. Those represent, obviously, a lot of these small and medium-sized businesses. If there's a lag or a delay or a push forward in terms of their advertising dollars, Facebook will be the first one to feel it.

6:53So if you start to get some, I don't know, rhetoric or some talk around that slowdown, that could augur potentially poorly for the broader market, which is why I'm looking at Facebook. Not, again, in terms of where the stock is going, but in terms of the tell for the broader economy. Mike, why'd you pick Meta? I picked it, actually. Part of that, I think, is some of the same reasons that Guy was just talking about. There's another one, too, of course, which is what is management going to do? You know, people often talk about some of these companies as having levers that they can pull to turn on or off profitability, to turn on or off free cash flow.

7:26This is a company that demonstrated they have those levers and they have used them. That's positive in one sense, which demonstrates that they can generate huge free cash flow. It's a negative when they elect to start pursuing things like the metaverse and throwing buckets of money at it. And suddenly you start seeing free cash flow drop to near zero as it did at the tail end of last year. And that's really what caused this wound. So if we start to see management start talking once again about investing in some of their visionary projects, that I think is a potential risk. But the company is very cheap if they don't do that.

7:57And even with some of the pressures that Guy was just talking about, they might actually get some flow from X, for example, which has obviously changed their algorithms. And I think some of the content creators might start moving to some meta platform instead. In terms of turning on and off the spigot, that sounds like Amazon, which Julie is worried about. I mean, interestingly, Amazon has exposed its consumer facing on the retail side, but then it's also enterprise spending facing on the AWS side of things. Yeah, and I think part of it, too, is for them, it's a little bit, they don't have quite as many variable costs as something like a meta.

8:28And so I worry more about the level of kind of CapEx investment, hard dollars flowing out of that business in order to be as competitive as they can be in AI, I think there's a little bit of a thinner margin for them, no pun intended, on being able to weather any kind of storm in enterprise spending or the consumer. So I'm a little bit, I think, generally speaking, big cap tech, I think, has earned its premium multiples, broadly speaking, right, because you're exposed to secular growth trends. These have excellent balance sheets. They are in businesses where it really pays to be big. But this is the one that I think is the most exposed to the consumer.

9:03And for that reason, I'm a little bit more concerned. With all due respect, I think you guys are in D2 right now. I think D1 is Microsoft and Apple. That's right. That's a college. Division one, division two. It's a college. He's basically calling us the JV and he's the boss. Well, I'm not calling you the JV per se, but those companies, it's Microsoft. It's the second most important company in the world. It's the company that to me is in touch with the enterprise. They were the one that really almost even started the AI frenzy on some level with ChatGBT. They're the one that I think is the most resilient business model.

9:34And they're one of the charts that, along with Apple, at the end of October and the beginning of October, really started to scare everybody and say, is the market falling out of bed? Their chart has done better than Apple's. I think the biggest issue with Microsoft is not that their earnings numbers are going to be difficult. I think Azure has been guided to mid-20s growth. I think that's probably what they're going to give you. It's that the street wants to be at 35 times on this. And that's, you know, relative to history, that's expensive. So it's the second most important company in the world.

10:00It's the second biggest company, certainly in terms of market cap. That's D1, folks. That's the one to be worried about. And that's the one that I think has the most on the line. All right. For more on rates and the markets, let's bring in market forecaster Jim Bianco, Bianco Research. Jim, great to have you with us. He warned, by the way, on Fast Money earlier this month that bond yields could race through 5 % in the next couple of weeks. Now believes they can go even higher despite today's reversal. How high are we talking about, Jim? Well, if the yield curve is going to unadvert, and that seems to be what it's doing, and that means that the highest point in the yield curve will eventually become long-term interest rates, which is normal.

10:37Well, the highest point in the yield curve right now is six-month bills at 5.5%. So if we're going to completely unadvert the yield curve, and I think we're destined to do that or somewhere along those lines, then it's got to go to at least 5.5 % because the Fed has said that they're higher for longer. So I don't think that this move is quite over with just yet. I know everybody keeps asking me when the move is going to be over with. But I think that the problem that everybody faces is they forgot that 2009 to 2020 was the QE period. That was abnormal. They look at zero rates. They say, my God, we've come up 500 basis points.

11:16That's a lot. That's going to hurt things. No, the first several hundred of that was just getting back to some level of neutral. The last little bit of it has been restrictive. I don't think it's been restrictive enough to really hurt the economy. That's why later this week we're going to probably report a 4 % GDP after we had some pretty good numbers in jobs and with unemployment claims going under 200 ,000. So we're not really punishing the economy. And that's why I think these markets have room for rates to continue to move higher. And laying out the case to 5.5%, Jim, you didn't mention Treasury issuance.

11:51You didn't mention the Bank of Japan. And I'm wondering how those two factors factor into 5.5%. Well, they don't help the situation that, you know, Treasury issuance is going to be more of a shift from short term to long term. So it's not that we're going to be issuing more than what we've expected. It's that we've issued a lot of Treasury bills after the debt ceiling was lifted. That was four or five months ago. Now they're maturing and the Treasury wants to kind of issue more three year, five year, 10 year notes. And so that's going to help put upward pressure on long rates. The Bank of Japan.

12:24Remember now, Japanese are the largest foreign holder of Treasury securities in the world, not China. So if they are going to loosen up and let their rates go up, Japanese investors are going to say, you know what? Our own JGBs, their Japanese government bonds, look more attractive. of those sell treasuries, they'll move back to Japan. And then we're going to see a dampening of demand from one of the largest buyers of treasuries in the world. Hey, Jim, Tim, I agree with that. But great call a couple of weeks ago on our show is probably three weeks ago. You said they're going higher. They've gone higher.

12:56You also have pointed out that you think it's not just Japanese institutional buyers or even the Bank of Japan. It's that a lot of investors were on board with this recession argument and that a lot of people have actually capitulated. That's the term I think I've heard you use. Talk to me about that. Where do you think positioning is now? Because it seems to me like everybody thinks yields are going higher, even though it's a conversation you were having a few weeks ago and certainly a couple of months ago. This isn't where people were. They weren't talking about 4 percent GDP. How much of this in the institutional and in the retail world is something that you think actually might be why we could get more of a pause right now?

13:31Well, yeah, I think that, you know, the problem with positioning is there's thin twit talk and there's what people say and everybody says it's going to go higher. Then if you look at where the way that people are positioned, I like to joke that there's they're up at night staring at the ceiling going, my God, there's going to be a big bond rally without me. And that's why you see this relentless flow in the TLT. And that's why you see this relentless amount of call buying in TLT. In the last month, there's been a million and a half calls purchased in TLT and something like 400 ,000 puts. That's why you continue to see surveys like the Bank of America Global Fund Manager Survey having the highest amount of people in the 20-year history saying the next 100 basis point move is going to be lower.

14:12So that's why I say there's got to be some kind of capitulation. Everybody is waiting, begging. They're trying to position for this big decline in interest rates. And it doesn't happen. And they keep getting punished while they're waiting for it. And we all know the way markets work is when it happens is when no one's positioned for it. And so I still think that there's got to be some more capitulation in this bond market, which is why I don't think this move is over. Now, maybe for the next couple of weeks, we churn sideways around 5 percent. But ultimately, I still think we're going to go higher and see a capitulation.

14:46Jim, always good to see you. Thank you. Thank you. Bianco, Bianco Research. Five and a half percent by Jan 1. How does that factor into seasonality, Guy? Or dare we call it, you know, in terms of the Santa Claus rally? I'm ready for Halloween at least to get into. No, that was one of the great episodes of all time. When I turned you and just said, boo, we should find that in the archive. Well, I'm not I don't adhere to seasonality necessarily, but I'll play your reindeer game and say if we see five and a half percent over the next few weeks, the equity market will not like that. And we will be where we close 43 and change 4 ,300.

15:26We will be testing 4 ,000 under those set of circumstances that Jim just talked about. For the record, I was going to just ask you, where do stocks go with yields at 5.5 %? I'm in your head. But I wanted to do San Jose. Of course you did. All right, let's get to NVIDIA. Meantime, reportedly planning to team up with ARM to make chips or PCs. The news taking a bite out of Intel and AMD shares. Christina Parsinellis has got the details here on set. Christina. Well, Reuters reporting that both NVIDIA and AMD are looking to build these central processing units for personal computers by 2025. This is a space normally dominated by Intel.

15:59NVIDIA, though, on the other hand, dominates the GPU space. You know, those graphics chips that we keep talking about needed for AI models. So CPU chips for NVIDIA would be a new avenue. Those chips would also use ARM architecture, which is why ARM's stock jumped on the news. And I know a lot of people get confused with all these names. Think of ARM like a coding language in which companies like NVIDIA, Electronics Arts, Apple used to design their own chips. That ARM language is so good, it helped Apple make custom chips for its Mac computers. So that means ARM specializes in the blueprint for these PC chips.

16:32But the problem is, so does Intel with its x86 architecture. So think of it like two languages, ARM versus x86. And that's why Intel posted its worst day in a month. AMD also plans to create a CPU chip for PCs using ARM architecture, and yet the stock fell. So why is that? Well, AMD already makes PC chips using Intel's language. And so there are fears that this new chip could cannibalize the old AMD PC chip. Qualcomm, another company that wasn't mentioned in this report, but they've been saying for quite some time that they, too, plan to build a PC chip. And we should get more details tomorrow at their annual summit, just around 3 p.m.

17:08when he makes the keynote. All of these new PC chips, though, mean eroding market share for Intel, and that's why you're seeing the negative reaction. NVIDIA, AMD declined to comment, though. Where does Microsoft fit in? Oh, yeah, the chips, a good point, too, that these particular chips that NVIDIA would be working on would work with the Microsoft infrastructure as well, sir. Yeah, so we'll get some more details tomorrow because there's going to be an event that Microsoft is holding tomorrow to reveal some more of the details here. What do you think of this? It's very interesting. Very interesting.

17:34KP breaking it down. All right, so go back to August. NVIDIA traded down to 409, huge bounce. Go back to September, traded down to 409, huge bounce. What was the low today? 409. Thank you, Tim, for playing. I appreciate you playing. It's a shame O's was here. No, O's is not here. But 409 again, and we bounced. So you have something to trade against in the form of that level. Big volume day. And let me be clear. I'm not bullish in NVIDIA, but the stock declared itself to have support. That's how you trade this name. Can Intel get through this, Mike Coe? Intel's got some problems. It seemed like they were working their way out of it.

18:10They sort of went to sort of more business-focused management rather than product-focused management. didn't have the engineering team in the C-suite, and that obviously proved to be a problem. You know, one of the things I look to is, you know, if you go and you take a look at a new machine, once upon a time, they put a little sticker on them. You may remember, and everybody advertised about having Intel inside. Now, the big thing that everybody cares about, as you were previously talking about, are the GPUs. So, when you buy a new laptop, and it's got a powerful NVIDIA processor, and it's going to say something like GTX Force or something like that on it, But, I mean, if they start moving into Intel's territory, I just find it very difficult to believe they're going to be able to fight their way out of that one easily.

18:50It's interesting to hear Microsoft get in the fray, too, and pretty much say, hey, guys, you know, you better have the chips ready to power new AI Windows. And they have the ability to push this around. The only thing that's more extraordinary about NVIDIA's 380 percent move or 180 percent move this year is, I think, how it's held in. I mean, that 17 percent pullback off of that kind of a move and the fact that semis threw a lot of difficult questions about the economy, valuations and whatnot. I think those charts are still holding up. I don't I don't love all the good news we priced in there.

19:20I'm not telling you it's going up forever. I'm telling you, based upon what the market has done so far, you have to give that pullback and that bounce off of 409. It's funny you say that formula 409. I mean, KP, you use formula 409. I'm a big fan. I don't think it exists anymore. Yeah. Come on, Tim. Yeah, I mean, I think Windex just cleaned their clock. No, no, it did not. It just did, actually. We'll find out in the break. Christina, thank you. Always nice to see you. Christina Parsineff was coming out more M &A action in the oil space. Chevron inking a huge deal to buy Hess for more than$50 billion.

19:51More on what this buyout could mean for the sector. That is next. Plus, crypto cruising higher. Bitcoin topping$31 ,000. And some names in the space are jumping on this move. How options traders are playing that action straight ahead. Don't go anywhere. Fast Money is back into.

20:13This extends our visible growth profile into the 2030s. We've got leading shareholder distributions. Our dividend growth has been 6 % per year over the last five years, double that of our nearest peer. We announced the intent to raise our dividend at 8 % in the first quarter of next year, increase our share buyback to$20 billion a year. we're returning cash to shareholders and still see relatively low multiples compared to the rest of the market. So we think there's a lot of upside. That was Chevron CEO Michael Wirth on CNBC earlier today talking about what the Hess deal will bring to shareholders.

20:46The stock dropping nearly 4%. While Hess was down over 1 % on the news, the announcement of the oil mega merger follows Exxon's bid for Pioneer Natural earlier this month. Mike, what do you make of this deal? Yeah, I mean, this is pretty interesting. Obviously, they're making a play for one of the industry leaders. And, you know, the entire space, he was indicating that, you know, they feel like they're cheap to the market. They're very cheap to the market. And, you know, what's kind of interesting to me is that if you take a look at the big integrated players, Exxon was always the one that traded at a premium to the rest of the group, usually a turn or two over Chevron and Conoco.

21:18They're all basically sort of equally valued right now. That's looking at the U.S. integrated name specifically at about 11 times earnings. And if you take a look at their valuations relative to their proven, you know, both developed and undeveloped reserves, These companies seem like they're a reasonably priced to me here. Although I will say that some of the offshore integrated oil companies are even cheaper. You know, we don't happen to own any of the U.S. ones. We do own BP, though, and that one's trading about seven times. Michael Wirth also said something else that was interesting. He said that there are too many CEOs per billion barrels of oil equivalents out there.