Meta’s Mega Earnings Report Fuels Big Cap Run, and Who Should Replace Tesla in the Mag-7? 2/2/24

0:01Live from the Nasdaq market site right in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Meta Melt-Up. Shares surging after earnings. That stock clocking in its third best day of all time. And it wasn't the only mega cap moving higher. So with the biggest tech names at or near their all-time records, can you still make money buying them? Plus, an energized trade, Exxon and Chevron bucking the impact of lower oil prices and posting earnings beats. Will these stocks lead a rebound in the beaten down energy sector? And later on, big tech results may be in the rearview mirror.

0:38But next week, there are a ton of big names reporting. You got Cat, Lilly, Disney, Uber and more. We'll pull the traders for their ones on the radar screen. I'm Dominic Chu in for Melissa Lee tonight. Coming to you live from Studio B at the NASDAQ. And on the desk tonight, we have Tim Seymour, Karen Bynerman, Bono and Eisen and Steve Grasso in the comfort of his home. And we start with a news alert. Fed Governor Michelle Bowman just making some headlines at the top of this hour. Steve Leisman joins us with what she's saying. Steve. Dom, thanks very much. Fed Governor Michelle Bowman, she's one of the more hawkish members of the committee, making comments at this hour, saying it will eventually become appropriate to gradually lower the Fed funds rate if inflation continues to decline.

1:24She says, however, they're not yet at the point to cut rates. She sees inflation declining. She's encouraged by the recent decline in inflation, but declining with the policy rate held at the current level. Upside inflation risks remain. She mentions geopolitical situation, the easing of financial conditions, and continued labor market tightening. Indeed, she's talking about the December jobs report, said it shows a very strong pace of job gains. And the recent report, she says, and the recent reports, both months, suggest progress has stalled on restoring balance to the jobs market. She's concerned that labor market tightness could lead to persistently higher core service inflation.

2:03She'll remain cautious, she says, in considering future changes to policy and reducing the rate too soon, she says, could require future increases. As she has said in the past, she remains willing to raise the funds rate. We'll talk more, I guess, Dom, later about the Fed and this jobs market. But for now, back to you. All right. Thanks a lot, Steve Leesman, for those Michelle Bowman headlines. We're going to get right back to you in just a few minutes on today's big jobs number as well. But let's turn now to the week that might have been proven that big tech is still in its leadership position and that leadership is here to stay.

2:35Investors fear of a tech reckoning wiped out by an absolutely massive move in the shares of Meta. Those shares today jumping more than 20 percent for a mega cap technology stock after posting a huge profit beat, giving better than expected guidance and announcing its first ever dividend. That's not closing at a course record high. Today's surge adding 206 billion dollars in market cap. Now, just to put that in perspective, that's more than a Cisco systems in just one day of trading. CEO Mark Zuckerberg made 28 billion dollars by himself on the move. the mega caps rally today just heightens its outperformance so far this year.

3:14The market cap weighted S &P is up more than 4 % in 2024, and it's still young. The equal weighted index is basically flat. There was a lot of fear that big tech's run had come too far too fast. But did this week's results prove the gains were actually justified? And this is where we start, Karen. You're in meta. It's actually a fairly decent position for you. So what are you doing now? Yes. I mean, it was delightful on the one hand, but then it's sort of, oh, shoot, now what do I do? Right. It's bigger. So just as a portfolio management issue, you've got to decide how big do I want any position to be?

3:50I didn't do anything today, but I will be selling upside calls. And Bonwin and I were talking about this in the green room, something probably at least one quarter out, maybe two and probably like in the 550 range. We'll see how pumped they are. But I've got to take some money off the table. It's different than selling stock. If the stock were to go down from here, you sold calls. That's nice. You make a little money. You lose money when you're long the stock. But I don't want to be out. I do think this was an extraordinary quarter. And one could argue it might be better today than it was yesterday.

4:24I don't know about that. But I do have to just pair the exposure somewhat. Tim, I think it's interesting. It's not uber bearish. Just bearish a little. Well, I think it's a dynamic that, back to Karen's point about Facebook being worth more today than yesterday, look at least what the street did in terms of their upgrades. They didn't just say price is higher, so I'm going to put up my target, although that does happen. Like Mark Mahaney at Evercore, a ton of respect for what Mahaney has been doing. And he's basically upgrading the multiple on the stock. And it's based upon a CAGR now that we have some vision on in the company, especially also in a world where they have free cash flow.

4:58And this was also not just the year of efficiency, but it was the quarter of free cash flow. And so if you're talking about a CAGR of 23 times, which Mark Mahaney is, then suddenly you've got a company that you could probably put at a 24 or 25 multiple. That changes everything because, again, we were at an 18 multiple six months ago. We were at a 14 multiple a year ago. And it really depends on what you want to pay. What we've seen and back to the point about the equal weighted versus the market weighted, small caps have underperformed the S &P, the weighted market weighted, by almost 5 percent.

5:31Small caps were down today. I mean, it tells you what's going on with this market. The crowding out, I think there's a lot of FOMO to miss out on this MAG-7. I think, again, a lot of that money that's in money market funds is money that says, oh, man. And I thought at least this year it was going to trade down. I'd have a chance to buy this stuff. I think we're going to see even more melt up. OK, Bono. Yeah, so Tim talked about the difference between the MAG-7 and the rest of the market. And I want to take it a step further. I want to make sure that I don't conflate meta with even the rest of the MAG-7 or what may no longer be in the MAG-7.

6:03This is squarely a meta story. And in terms of multiples and ability to kind of chase this thing, listen, adding all of that market cap and that move in one day, given the size of the company, would give one pause. You don't expect this to continue unabated to the upside without there being at least some type of profit taking, even if there's no adverse, bearish type of sentiment within the stock. And then the second thing is, to Tim's point earlier about free cash flow, I think anytime a company comes out and issues a dividend, particularly one in the upper echelons of the growth sector, it says two things.

6:35One, we're in a strong cash position, a strong capital position, and we're happy to return value to shareholders. And two, perhaps we find that this is a better way for us to return capital than any other investment strategy that one may have. So I think this is a complete 180 from the days when Meta seemed to be spending money frivolously without capital discipline. And so, I mean, there's really not much to knock on the quarter and underscores the importance of these companies within the S &P. Grasso, it's for the record 36 times forward earnings. What do you think? Yeah, so if you look at it, so you talked about the Timmy talked about the year of efficiency.

7:16the issue is they cut costs by 8%. Their operating income is up over 150%. And to pick right up that, so that's all good stuff, to pick up right where bottom and left off. It's great when they're cutting costs. The market doesn't like when they start to spend an atrocious amount of money on the metaverse. If they continue to cut costs and run efficient, it's great. If you look at the technicals on the stock, everyone covered a lot of the fundamentals. Technicals on the stock a year ago, it had a golden cross, which means the 50-day moving up through the 200-day, and the stock has not looked back.

7:51Do you expect it to pull back a little bit? Of course, these flagpole-type days are usually sold. To Karen's point where she started, if you're a fund manager, you have to trim. It depends on how much you want to trim, but I would expect some trimming in the next couple of days. But when you have revenue growth that is top line revenue growth, best in two years, there's not a lot to complain about at this print. Karen, a last thought from you because you have such that large position. Right. I'm sorry. I know. I know. I know. I know the feeling of what, yes. This stock got hammered because they said they were spending too much money and billions and billions a quarter.

8:36So apparently now it's all going to work out for the better. Apparently. I mean, just the strength of this, Steve talked about it, you know, that acceleration of growth is really quite tremendous. I think it's in the mid-20s, not a higher multiple. So that is not crazy. And I think also it came from a place between it and Alphabet. They were the cheapest of the Mag 7 or whatever there are left now by far. So this is some catch-up, plus some FOMO, plus maybe the dividend thing, which I know you think it's important. Well, Karen and I debated for the folks at home. Karen and I debated today on our midday call.

9:13I agree with you. I said of the how much was met up today. Oh, how much was it? There's FOMO in there. But I think, you know, of the 21 % move today, I was arguing that half of that was related to if they had not announced a div and the kind of buyback, but the div specifically, that I think we would have done half of today. And Karen really pushed back hard. Is that because, though, is that because just by pay? Now, first of all, the dividend, the implied dividend yield on this is nothing. Nothing, exactly. It's absolutely nothing. But for markets a lot. And it's not just that, though. That means this opens up the market for certain fund managers who have mandates where they can only have investments in certain dividend paying stocks, even if it's just a penny a share.

9:54Right, Bonoan? This is an accessibility thing for more money to come into Meta. Exactly. We talk about target adjustable market all the time. typically within another framework, but essentially what you're saying, the possible investor base has been expanded. That coupled with the FOMO, if you will, coupled with the fact that you actually aren't necessarily seeing this same strength in other markets, even within the technology complex, all kind of serve as tailwinds for these shares. It made me sad about Google, underperforming. That's a big position as well. Really, in light, I thought the cloud was good, but then when I saw this today, that made their earnings even more disappointing.

10:32Cloud was good. They just stole the show. They just stole the show. But the story, you know, like when Apple really stood out there and said, we have a lot of flexibility with our balance sheet to do different things. And even during a period where they haven't been growing earnings, they've been a go-to in terms of their ability to buy back shares, also to bring up EPS. I think with Facebook, when you go back to the days of the metaverse and when it was going bad and going sour, all people wanted to do was hear them get in off of that metaverse ledge and get back to their core business, which is a cash machine.

11:01I mean, the gross margin on their core business is through the roof. So all we've been saying is get back to a place where we can actually look at a company and maybe, first of all, plenty of innovation, and that's a lot of what's going on here. But even if we had their core business before AI, people thought that this was the story. I want the free cash flow, and I'll be comfortable enough with that. And that's what they delivered. And now they're giving you both, both sides of the aisle. Steve, I'm going to give the last word to you here. Yeah, so I just want to jump in and defend Alphabet. Not that it needs any defending on this desk because everyone really loves it.

11:33If you look at search, Alphabet, it's at 92 % market share. That's unbelievable with the competitive market that you have now. The second most visited site is YouTube. And if you look at where they are in cloud, they're third behind AWS and Azure, Microsoft. This is going to be a great year in the market. I'll button it up right here. Technicals on Alphabet, market gave you a present here. Stopped almost to the penny on its 50-day. I'm looking for more strength going forward, Alphabet. All right, so let's turn now to the economy. Because it added more jobs than expected in January, by a lot. Nonfarm payroll is growing by 353 ,000 jobs.

12:15That was almost double consensus estimates. Let's get back to CNBC's senior economics reporter, Steve Leisman, for more on that big job story. and then we'll talk about why it didn't tank the tech market. Yeah, Dom, I think the story was both the strength of the number, which I would sort of attenuate a little bit because the seasonal adjustment factors may have played a role in it, making it hotter than it otherwise would appear. But it was still pretty strong. And really what I was looking at was those revisions, Dom, which showed, you know, 126 ,000 plus for the prior revisions upward for the prior two months.

12:52And so you have two months in a row of plus three. And then you got to worry about what Bowman's talking about. Do do Fed officials start to think that the progress towards the loosening of the job market has stalled here? And certainly what's happening when you look at there are those nonfarm payrolls number and the hourly wage numbers, which I don't really like those numbers so much from the government. I tend to follow the ADP wage numbers. They have been on the way down at five point two percent higher, but on the way down on a year over year basis. But if you look at the probabilities, March has kind of been dialed out.

13:25And some questions now about maybe is May the right month here. The Fed, I think, Dom, is going to take a couple months to make up its mind. And Powell, I think, is looking right from Wednesday saying, you know what, we should relax here. And let's look at some more data. Hey, Steve, I know you want to jump in here. Yeah, I'm sorry. So, Steve, I've been talking about this for a while. Can the Fed do still have quantitative tightening while they are cutting or is our signal going to be when they stop QT? Because it seems like there's a push pull. And I know you could handle two things at once. So the second thing is with a political year, an election year cycle, don't they want to stay as politically agnostic as possible and try to front load those cuts, even though March is thrown off a cliff?

14:17maybe there's an opening for March just to smooth out that chart. Yeah, I don't think March would be a reason to do that. I think they can still achieve the same effect of staying clear of the election by going in May, maybe going in June as well. You know, Goldman has those four successive cuts built in now starting in May. I've been, as you know, Steve, in the every other camp when it comes to rate cuts. I think that Powell wants to go kind of cautiously here. So he might want to cut, take a break, cut. He may also want to do it beginning in June, which would have the benefit of going on those meetings when they have the summary of economic projections or their forecast.

15:00So that's one thing. And yes, they can and will, I believe, be cutting rates while they're still reducing the balance sheet. Those rate cuts are expected to happen sometime in the spring, early summer. But the quantitative tightening is not supposed to end or at least not forecast right now in the surveys that we do, Steve, to end until sometime in the fall. Hey, Steve, it's Karen. Thanks for being on. I heard you this morning and I wasn't sure I got it quite right, to be honest. It was sort of on a little bit in the background, but sort of perked out when I saw you there. Did you say that you think Chair Powell knew these numbers or did not know these numbers when he really took March off the table?

15:37I'm glad you asked that question. I was sort of joking around. I said maybe Powell knew something, you know, knew something about what was going to happen. And really what I was saying was that he made the right call by being cautious on Wednesday. I don't think he knew something. There's some possibility that they get one piece of the jobs report for another report they have to put together. But overall, the Fed, as I understand it, does not get those numbers, certainly not by Wednesday. They're distributed on Thursday night to a few people inside the White House and maybe at the Fed, but not by Wednesday.

16:11All right. Steve Leisman with the report there on the state of the jobs. Thank you very much, Steve. Have a nice weekend. Tim, let's send it over to you. What are your thoughts here? Well, I think just all this underscores these job numbers where financial conditions are, which are extremely loose, the stock market that's running crazy, yields that have come down a lot. It just tells you where how turbocharged we were coming out of covid and all the accommodation. and frankly why the Fed and all of us have never seen this before. The Fed is Phillips curve persuaded. So in other words, or obsessed, which is the relationship between the job market and inflation.

16:43I think they are so focused on this. And that's what we heard Powell say the other day. I think these numbers push the Fed significantly back. And granted, we have a couple more payroll numbers before we really get to the time we thought that they were going to hike. And one more thing I'd say that's kind of an economic kind of dynamic, which is a cut isn't necessarily easing. So in other words, if financial conditions are becoming more restrictive and they're not cutting enough to get below that and real rates are continuing to go higher, then they're actually in a restrictive mode right now.

17:12And that's what some people think is going on. That's another topic for another day. Bono, what do you think? I mean, I think all of this just makes the Fed's job that much faster. And I'm going to dare step out on a limb and say, listen, if we continue to see these numbers, whether it's productivity, wage growth, payroll numbers, I think all of these things might get us to a point where we start asking the question, is the Fed actually going to pivot from cutting within this calendar year? If you look at what the probabilities were on the March cut coming into the year, it was a given. And now we're saying that it's even unlikely that it's going to happen.

17:45One in five. Yeah. One in five chance that it happens. I mean, what are the chances that we actually have a strong enough economy and a strong enough labor market where cuts are actually taken off or at least pushed back to the last quarter of the year? What are the implications of the market if that happens? All right, guys, coming up on the show, we're catching up on today's high energy earnings. We got Chevron and ExxonMobil posting results before the opening bell today. What's next for the sector coming up after this? Plus, Apple's first new product in nine years is now on sale. So can VR make a dent in the AI trade?

18:19We'll get more details on all the acronyms after this. you're watching fast money here on cnbc we'll be right back

18:34welcome back to fast money a big day for earnings in energy exxon mobil beating profit estimates even as revenues fell short of expectations ceo darren woods saying energy prices and margins started to normalize in 2023 chevron meanwhile seeing shares rise nearly three percent that company saying it returned a record$26 billion to shareholders in the form of dividends and share buybacks last year. Steve Grasso, is this the beginning of an energy renaissance for the big oil companies out there? I don't think so. I think oil had its time about a year ago. I think all these energy stocks had their time, their day in the sun.

19:12You know, Tim talks accurately that these companies are run more efficiently than they've ever been run in the past. That just doesn't equate to higher stock prices. They can't break away from trading and tracking the underlying commodity, Dom. And right now, it seems to me with all the geopolitical news that we've had, with the state of the world that we've had, oil should be trading 30 % higher. It's not. It's oversupplied. That's a negative headwind. And last thing, if you look at where Hess and Chevron and Exxon and Pioneer announced their mergers, all four of those players are lower today in stock price, negative for the market.

19:55Tim, what do you think? I think that the valuations in the sector have never been more attractive relative to the S &P. So oil companies are always cheap. It's nothing about, like, if you look at the multiple, whether it's EV, EBITDA, or PE. But I look at what Chevron did on that. Again, we're talking about, you hear the word record. Record for Chevron, okay? Record in terms of buybacks and div payout. They raised their dividend another 8%. This is a company that breaks even on their div, probably around$48 oil. They brought their debt to equity levels also down dramatically. So I guess, you know, to me, I love energy.

20:27I love it in this year. It's not, you know, you're not getting the growth in the energy sector, you're getting in other places. But you are getting companies. I also think that in Chevron's case, that deal with Hess is fantastic. And again, those Guyana assets are some of the best assets in the world on the upstream. I like Chevron a lot, and I like Exxon. Okay, Bono, one quick thought to you. Well, I just think one thing is that the current rain environment makes the dividend attractiveness of these companies. It has a dampening effect on them. To Tim's point, I think these companies are very well run.

20:53And over the longer term, you probably want them based on valuation, free cash flow, and share buybacks alone. But if you're playing the fast money game, which we are, the opportunity cost of investing here and not in growth just makes it tough for you to own them. All right. There's a lot more fast money here to come. So here's what's coming up next after the break. A new vision for Apple, the tech titan unveiling its flagship VR headset. But can the hype live up to its hefty price tag? We'll debate. Plus, more trouble for Tesla, the EV maker recalling more than 2 million cars, its second major recall in less than a month.

21:31So with the stock slumping, is now the time to kick this Tesla to the curb? Our traders are revved up on this one. You're watching Fast Money live from the NASDAQ market site in Times Square. We're back right after this.

21:52Welcome back to Fast Money. Stocks rising to close out the trading week. Both the Dow and the S &P posting another set of record closes. And the NASDAQ surging nearly 2 % boosted by meta platforms. The tech heavier index now less than 3 % away from its own record high. But it wasn't all smiles today. Charter communications plunging, as you can see, there are more than 16 percent after a big bottom line miss before the opening bell. Tim, are there any other moves in the market today that have caught your eye besides meta and charter? Well, I looked at anything that was real economy was under pressure today.

22:27And I looked at some of the miners that I you know, we talked about gold miners yesterday. So I have to be consistent and say, you know, I was way wrong yesterday in terms of making a call to go buy something today. Fortunately, I don't think that's how people watch our show. I do think you have a dynamic here where, you know, you look at some of the industrial names. It was a tough time. I think, you know, Charter and some other parts of the communication space look after a very, very good run. And again, if you if you look at the charts on some at least, you know, your Verizons, your AT &Ts and some of these names, they've had a very good run.

22:55And those things were under pressure today. And Altria, which had great numbers out yesterday, rallied almost four percent, which is like a 15 percent move for a tech company, actually gave a lot of it back today. So that, to me, is what is interesting. Again, small caps were down a couple percent on a day when you saw most of the market go higher. It tells you the divergence we have. Interest rates probably a part of that story. All right, guys, coming up on the show, Apple's new vision. We'll dig into that tech titans big headset bet. Well, its first new product in nine years live up to all the hype.