Nike’s Historic Drop… And Payment Stocks Getting Burned 6/28/24

0:03John, thank you very much. Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Money, and here's what's on tap tonight. Running afoul shares of Nike erasing more than four years of gains after its earnings report last night. Trading at levels not seen since the depths of the pandemic. The move has one of our traders actually hitting the buy button. We'll find out who and why. Plus, the first half of 2024 is in the books. Hard to believe. We're at halftime, folks. Will the year-to-date winners keep leading the market through the next two quarters? We'll debate that and lay out your playbook for the rest of the year.

0:39And later, banks lay out their post-stress test capital plans. A lot of dividend hikes to tell you about. We count down to Tesla's delivery numbers and a check on our 2024 trader acronyms. Is Karen at the helm? Is Tim flexing his blicep? We will reveal the leaderboard later in the show. Good evening, everyone. I'm Tyler Matheson in for Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour. He's really not on the desk. He's not here, but we'll count him on the desk. Karen Finerman, Courtney Garcia, Steve Grasso, welcome one and all. Good to be with you. Thanks for being here, Travis.

1:15Thanks for having me. We start, however, with the historic plunge in shares of Nike. That stock seeing by far the biggest drop in the S &P 500, underperforming the second worst stock by a factor of two. Nike's near 20 % plunge marks its worst day since going public in 1980. All after a massively disappointing earnings report last night. The sneaker giant missing earnings and revenue forecast for the quarter. Slashing guidance, it now expects fiscal year 2025 sales to be down mid-single digits. Analysts were looking for nearly 1 % growth. For the current quarter, Nike expects sales to drop 10%.

1:55Warning of slower online sales, macro uncertainty in China. Never a good thing. and, quote, uneven consumer trends around the world. The stock closing the day at its lowest level since March of 2020. But, Steve, you are a buyer here amidst a really soggy report. Yeah, and it's not to say that I'm so happy about the report or I think I'm bullish on the report. There's a couple things going on. A, they have the Olympics. We talked about this. This is going to be an overwhelmingly important marketing event for Nike, and I think they're going to shadow out all the competition as far as the branding and the marketing ability and the advertising and the PR.

2:38I think that's going to be in their corner. Secondarily, when you have this opening line, worst drop ever. That makes me want to buy something. So it makes me want to buy something because things overcorrect. Markets shoot way too high and they shoot way too low. Algorithms push the market. And the average lot size in an algorithm is sub 100 little shares. So it creates this chase. If you want to get out of a stock and you have 100 other institutions trying to get out of the stock, it feeds on itself. So it overshoots the level that it should be at. You also said that it was around the pandemic low.

3:14This is not a pandemic. Greater China is about 15 percent of overall volume. North America, they have issues. They also have issues with competition. but I think they're going to be able to have this flush. People will let it settle in. And I don't think I bought the bottom, but I think that it's a good start of where the bottom could be. Karen, you own it. You listened to the call you said. Yeah, last night. Was the call worse than the debate or better than the debate? I couldn't watch the debate. I just couldn't watch it, so I don't know. So you went there. Yeah, as a shareholder, I'd rather do this, listen to that, than the debate.

3:52So a lot of things I thought about the call. I mean, one, obviously, it wasn't about the court. The guidance was just awful. And one thing that really stood out to me on the call was, I think, you know, Donahue trying to rally the troops, talking about how proud he was of this team. And I don't know. They may be working super hard, but I don't think the results right now are anything to really be proud of. To be cheering your team over. Right. I think a little mea culpa or a something, you know, some sort of fire in the belly would have been, I think, a better reaction than I'm so proud of what we've accomplished.

4:28Because a lot of things were going wrong, right? Some within their control, some without. China being slower is not really in their control. But their aggressive overshift to direct-to-consumer now having to shift away. They did okay in performance, but leaving lifestyle, I mean, you know, losing share to Awn and Hoka and Adidas and New Balance. They don't own this area the way they used to. The way they used to. You've got Hoka, you've got Awn, you've got Adidas coming back. Right. And so the bloom is off the rose now. And, you know, my hope, I would, this, the three-day rule, I think, I think, Steve and I talked about this in the green room, I kind of changed my three-day rule.

5:07The first day is actually the after hours trading of the event. So that was day one. This is day two. I may look again at day three. I think that I was surprised the analysts weren't more disappointed with this, actually, because some of the new numbers, they have higher P.E. multiples. And I don't think this should be in the penalty box for a while. One other thing, the question about is Donahoe still the guy? Yeah. So he's been there. Terrible timing on his part. January of 2020. Very difficult time to take over a, you know, consumer products company. However, he was on the board for a number of years before that, so he does know the company very, very well.

5:44It was interesting that we were talking in the agreement about this, this letter from Knight or interview from Knight talking about he's still our guy and he's great and all that. Sounds like George Steinbrenner giving an endorsement to the Yankee manager. Not exactly. Right. It was definitely not what Howard Schultz did, which I thought was awful. It was definitely not that. But, I mean, the pressure is really on him now. My hope is that they put out numbers so low that they feel very, very confident that they can beat them and get back into the little bit of momentum in the stock, but also having their credibility somewhat restored.

6:17Yeah, all of their global sales areas, North America, Europe, Asia, Pacific, Latin America, all missing and substantially. And whenever sales go down like that, it is definitely not a good sign. We've got a little breaking news out of the financial sector. Banks outlining what they plan to do with their capital excess after this week's stress test results. Leslie Picker has been going over the details. A lot of dividend hikes here, Leslie, I think. A lot of dividend hikes, and we just got one more from Goldman Sachs. That firm hiking its dividend to$3 per share from$2.75 per share beginning July 1, 2024.

6:57What's interesting about this release, though, is the firm highlights its so-called stress capital buffer. That's essentially kind of a byproduct of the stress test results from earlier this week that tells a bank how much excess capital above the regulatory minimum it needs to hold, kind of based on how they performed on that test. So that stress capital buffer is 6.4%. And in a statement, the chairman and CEO David Solomon says, quote, this increase does not seem to reflect the strategic evolution of our business and the continuous progress we've made to reduce our stress loss intensity, which the Federal Reserve had recognized in the last three tests.

7:38We will engage with our regulator to better understand their determination. So that increase he's referring to is the increase in the stress capital buffer, the amount of capital that the firm needs to hold above the minimum. So that is kind of the interesting story with Goldman, which just came out. You can see shares little changed on this news, however. We did, as you mentioned, Tyler, see some news on dividend hikes as well from the other firms. Wells Fargo said it has an intention to raise the dividend by 14 % to$40 per share from$0.35 per share, also assessing its capacity to buy back stock.

8:19JP Morgan increasing the quarterly common stock dividend to$1.25 per share. That's about 8.6%. And it's the second dividend increase that that firm has done this year. And J.P. Morgan also saying it has plans to have a new common share repurchase program of$30 billion beginning July 1st. Morgan Stanley increased its dividend by 7.5 cents per share for the third year in a row, making its quarterly common stock dividend of 92.5 cents per share there and also renewing$20 billion worth of a share repurchase program. Citi increased its dividend, as did Bank of America as well. So pretty interesting results given what was largely seen as a tougher than expected stress test this year.

9:07Tyler. All right, Leslie, thanks very much. Leslie Picker reporting. Courtney, let's trade the banks or maybe most pointedly pick a bank, any bank, maybe Goldman, maybe any other one that strikes you. Yeah, and I think really the banks have actually started to look attractive here. And I think when you come into these stress tests, there was a lot of concern as they were going to be stronger than usual. But these banks have already set aside the capital, anticipating that it was going to be stronger requirements this year. That's what you're seeing is they're actually able to increase their dividends and return more capital to shareholders even after this, which I think is actually a positive sign.

9:38I would look at some of your big banks like JP Morgan. I don't think you can go wrong with them. I think that's something we constantly want to look at. But I don't think it's a bad thing to be a part of here. Tim, thoughts? Hey, Tyler. First of all, I think the difference between who's buying back shares and who's paying higher dividends is always interesting. And J.P. Morgan, not surprisingly, talking about buybacks. I look at Citibank, who's paying three and a half percent dividend yield right now after a 75 percent move in the bank and a discussion and a backdrop for efficiencies and an ability probably to generate even more cash flow.

10:12So it's my largest of the money center bank positions. And I think it's just about re-rating. I think think of the macro for the banks. The consumer has a job. The inflation outlook has gotten a little bit better. Rates remain high. We got a little bit lost in higher rates that sometimes that was bad for banks. The capital flight dynamics certainly were. But but higher rates typically have meant higher spreads on loans and certainly higher NIMS. So that's really the story here. And banks that are beleaguered for years and years and through if you look all the way back to the May SVB incident of last year, It's only in the last couple of months that banks have exceeded some of those levels.

10:48I think they've got a room to go. Karen, are you into the banks or not? Yes, yes. I have a lot of bank exposure. I like J.P. Morgan. My biggest bank exposure now is Citibank. I have some Bank of America. I'm not as delighted with them. But, I mean, J.P. Morgan is, you know, the fortress balance sheet we see because now they're able to do 30 billion of buybacks. Although, because they trade at such a premium to book, as they buy over, significantly over book, over two times book, they get more expensive price to book. However, on a price to earnings, I can see why they want to buy back their stock.

11:20But it's kind of expensive. But I like it. I think that we're going to see good numbers. I think the economy is still hanging in there. Credit quality, I think, is still hanging in there. And we're going to start to see more M &A, more fees, and the asset wealth management. Investment banking coming back a little bit. Yes, that would be great. And asset management is doing well. Steve, thoughts? So I usually always go to a default, and I follow Karen on the J.P. Morgan. And J.P. Morgan seems to be the leader of the pack. You know, I think at the end of the day, just pull the lens back, Jamie Dimon's not going to be there forever.

11:52And I think there is a Jamie Dimon premium to J.P. Morgan. And I'm sure he's going to or they will backload it so that there'll be some great news that comes out when Jamie's no longer there. He's savvy enough, smart enough to be able to do that. But Tim, Karen have been talking about Citigroup. Citigroup has outperformed on a yearly basis the rest of the banks. JPMorgan Bank America year to date are pretty much exactly the same. And Wells Fargo was that most improved player. So I think people are playing Citigroup as the biggest turnaround story, if you will, and they're probably comfortable staying with that.

12:28All right. Let's turn now to the broader market, shall we? Stocks wrapping up a big first half of the year. The Dow with a modest 3.8 % gain, but the S &P was up nearly 15%, and we know why. We'll tell you in a minute. The Nasdaq, the real standout here, up more than 18 % since January as NVIDIA. That's the why. Its massive run boosted the tech-heavy index and helped the S &P. Major markets did close near their lows of the session today, though, even after both the S &P and Nasdaq hit new intraday records in early trade. Now, as that crossed the 18 ,000 mark for the first time ever, investors digesting this morning's economic data, core PCE, the prime among them, increasing a seasonally adjusted 0.1 percent for the month and up just 2.6 percent from a year ago.

13:17That is the lowest annual rate in more than three years. I think the PCE is the one that the Fed likes to follow. Consumer sentiment also coming in a little better than expected. So what's in store for stocks in the second half, folks? Any thoughts here? Court? Yeah, I think the PCE numbers are really important here because that's what the markets have been doing, is holding their breath with what's going to happen with inflation. You're not seeing about a 95 percent chance that the Fed is going to lower interest rates at least one time this year. And the question is when that will happen. Is that going to be September?

13:50Is that going to be later? But with numbers like we had out today, being that they're data dependent, it's more and more likely that that will happen at some point in time. And I think that's what we want to focus on. And you also saw some consumer spending information, consumer income. You saw incomes actually were up half a percent last month, which is good. You're seeing inflation coming down, income holding up. That means the consumer is still on good footing, which is a good backdrop for the overall economy. Steve, first half down, second half forecast. Historically, they say that the second half is going to outperform as well.

14:19When you have the first half perform so well as well as we've seen it perform so far. And you do have to look forward to the rate cuts. I think that the consensus is around September for the first rate cut. If you look on a historic basis, seasonality, the first 15 days of July are positive, dating back to 1928 in the market. The first 15 days of July. 28. What happened right after that? I don't know. So when you think about it, that goes back. That's a pretty good data set when you're looking at that. So you're fighting with seasonality if you're a bear. It doesn't mean that the second half of July you can't get a pullback.

15:02I still think that we should see a pullback between now and the end of the year. We should touch that 200-day as a blip, not for a long process, but I think it will be healthy to see a nice little drawdown and then see a nice big drawdown. Usually, don't you get a post-election bump up no matter who wins? Is that generally the case? Not in Mexico. No, no. You went terribly wrong. Thoughts on the market going from here? I mean, I'm just staying with what I've got. I do think maybe we'll see a cut, I guess, but I don't know that it makes that much difference because I don't think we will see a big series of cuts.

15:38Why? Why do we need to do that? Yeah. I don't, you know, until inflation is really back in the bottom, which is hard to do. Yeah. I don't know why it needs to. It's coming down, but it's not there yet. It's sticky. It's a long one. Yeah. The last mile is a long one. How about you, Tim? Well, I look at the market and everyone's trying to drum up comparisons to 1999. And the move the markets have had is so extraordinary. I think it's time to at least put in the books that this is one of the greatest bull markets of all time, one of the least loved. And that's often a formula in great bull markets on some level, because I think a lot of people have been calling for recession.

16:13A lot of people have been concerned about the lack of breadth. 34 % move on the S &P from last October and 58 % from October of 22. So those numbers are what they are. But if you think about the S &P relative to other times in that 99 period on a free cash flow basis, it's trading two standard deviations cheap to where we were in 99. And I guess, again, I am less concerned about the lack of breadth in the market. I think we've had periods where you've seen real outperformance. It doesn't bother me that energy is traded off. I'm a long-term investor in energy. I like how the sector is being run.

16:48I'm a long-term investor in banks. So the backdrop that we have, which is one that everyone just talked about with a relatively benign rate and inflation environment, is pretty good for the stock market. And so I think there's still a lot of people that are looking for weakness to buy, not weakness to sell. There's a lot of fear out there. And I think right now the fundamentals, obviously, look, I don't like consumer discretionary. We talked about Nike. We've talked about Lulu. They have competitive issues. I won't get back on that conversation other than to say it's not just about competition.

17:19It's not just about companies that are looking at different dynamics and gross margin. I think the consumer is in a tough place here, and I think discretionary is going to come into some pressure. All right, Tim, thanks. Top strategist at Wells Fargo Security is concerned about investor overconfidence over the next six months. Chris Harvey is the firm's head of equity strategy. Chris, welcome. How do you react to what Tim just said about the consumer maybe getting a little more timid? Are you seeing any signs of that? So, Tyler, what I think is happening with the consumer is you don't have to worry about the consumer buckling under.

17:55The finances are okay. What you have to worry about is where he or she is going to spend their money. What we're seeing is the consumer saying, I'm not paying that for that. And where are they spending their money? They're spending it in Costco. They're spending it in Walmart. They're spending it in TJX and Ollie's in Burlington off price. What is that telling you? It's telling you that they're stretched. They're not finding a lot of utility in the market. And they're being very, very selective. And that's what we should expect going forward. Don't expect a ton from the consumer. But the consumer is not going to knuckle under at this point in time.

18:26They're just going to be very, very selective. Let's talk about the great hero of the first half of the year, and that would be NVIDIA, which has been on Wells Fargo's sort of hot list for quite a while. What do you see in NVIDIA? Is it if you own a bunch of it, is it time to trim? Some people are doing that because it's become such a large part of their portfolio. So there's some inertia. Yeah. So, Tyler, that's exactly what we did. So we have it in our, excuse me, in our SIGPIX portfolio, right, which is our best ideas portfolio. It's been a top idea. SIGPIX. Just rolls off the tip of your song.

19:01That's why you named it that. Signature PIX portfolio. I'm going to take a little bit of heat on that one. That's SIGPIX. It's been a top idea for a while. Now, it's performed, as you know, exceptionally well. And we just keep bumping up into our risk controls. So we trim it back, we trim it back. But it still remains one of our top ideas. And the bigger picture, right, NVIDIA is part of that momentum trade. And so is that momentum trade going to break, bend? What is it going to do? We think that the momentum trade is only going to bend here. It's not going to break because a lot of the macro factors that you need to break it just aren't where they need to be, whether it's credit spreads, whether it's the valuation of the contrarian basket, or whether it's the economy, which is not accelerating.

19:43So you're a little worried about investor overconfidence, but not all that worried, it would seem. No, because what I think is this is a period in the market where people put on more and more risk. You're not getting penalized for putting on more and more risk. At the beginning of the year, many people thought the Fed would be cutting several times at this point. What was their penalty? S &P up 15 percent. When that occurs, I feel pretty good. It's like at Vegas. Just put in the middle and let's keep it going. Anybody have a quick question for Chris before we let him go? Yes. So how much of the seasonality are you putting into it?

20:17How much of the election year cycle are you putting into it? And then when you're rolling and not to get too far ahead of us, but when you look at Q1 of 2025, whoever is in office right there, is it a let the air out of the balloon event? Right. So a lot there. So the first thing I would say is that the presidential cycle is really important. And we saw what happened with the debate and former President Trump's probability went higher. That's really important to the market, because if he wins, the probability that the Senate goes to GOP also is very high. What does that do? That's a more it's a less regulatory, strict environment.

20:54Right. So what you should see is more M &A activity. Get more M &A activity, more IPOs, more risk seeking. and the market can go higher. And traditionally, with a GOP Senate, that's a very good formula for the equity market. There you go. Chris Harvey, thanks very much. I appreciate your time tonight. Yeah, have a good weekend. Any thoughts here, Court? Comment? You know, I see what you're seeing with the overconfidence because you're really starting to get the investors who are just continuing for this FOMO trade. Like, they want to go into the risky areas of the market. But on the flip side of that, you're seeing record levels of cash.

21:25So there's this two sections that are happening right now where people are invested, they want to be really risky and get these high returns. But on the flip side, they're not willing to put all their cash in. And that's happening both at the retail and the institutional investors. And that's where there's going to be this other leg of this, where the second that interest rates come down and money markets aren't paying better, you're going to start to see some of that money go back in, probably not to those high-flying areas, but the broader market. So I think at some point in time, you're going to see that happen as well.

21:48So you're pretty positive on the markets over the next six months then? We are, correct, yes. All right, good. Let's take a break, shall we? Coming up, Dell dropping despite a big positive call from Citi. The major catalyst that the firm says could turn this name into a key AI player. And a number of fast movers catching our attention. The trades on all these moves when Fast Money returns in two minutes.

22:15You're watching Fast Money here on CNBC. We'll be right back.

22:31All right, folks, welcome back to Fast Money. Citi staying bullish on Dell despite its recent pullback. Analysts maintaining their top pick call on the stock as it expects the name to lead in computer hardware. Citi sees Dell as a beneficiary of strong AI data center spend and as a potential new member of the S &P. Citi also bullish on Apple after what it calls the phone maker's best worldwide developers conference ever. Karen, thoughts on these two? Yeah, so Dell I like, I own. I like the story where I feel like we're in the earliest innings. The stock was much higher when they reported earnings.

23:08There was some disappointment about their margin for the second half. And I think they're just right where they want to be on AI storage server. They also have the, hopefully the enterprise pen will come back, but they also have the PC business. and I think that we will see a second half PC refresh, the combination of during the pandemic, people were buying tons of PCs. We're getting four years into that and now we're going to have some AI enabled, Microsoft and others. And I think that'll be a good catalyst for a PC refresh as well. So a lot of good things going, not super expensive, although it is a hardware company, so multiples should be cheaper, but it's not super expensive have given the explosive AI growth.