Rates And Commodities Diverge… Plus Lilly’s Latest Drug Concerns 6/6/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Lilly, the drugmaker, hitting another all-time high as it awaits an FDA decision on his Alzheimer's drug. Will it get the approval it's seeking, and what could it mean for the company? Plus, a new record high for Walmart. Shares of Robinhood take flight, and a stealth surge in the stock of the home goods retailer. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Dan Nathan, Guy Adami, and Lori Calvacina, head of U.S. equity strategy at RBC Capital Markets.

0:45And on a day where the major markets are relatively flat, check out the big moves in commodities, metals and oil both jumping in today's session. Gold and copper in the green, silver surging more than 4 percent, and crude and bread both pumping higher. The agricultural space growing as well. Corn, oats, soybean, sugar, OJ, all higher. But as a commodity complex heads north, rates continue their recent downturn. Yields lower across the board. The 10 year now at 4.28 percent, while investors turn their attention to tomorrow's big jobs report. So what are these moves telling us about the markets right now?

1:19Tim, what do you say? Well, I think the commodities markets have been ticking higher all year. I think they've been ticking higher for a couple of years. I think there's structural reasons in the case of some of the metals, some of the industrial metals. And there's also fiscal reasons. There are budgetary reasons as it relates to precious metals. Oil, I think, has been remarkably stable. So we've had some volatility in oil over the last couple of weeks, more around OPEC, less around fundamentals. Although Paul Sankey was here last week and pointed out it's not so great when you're having this kind of price action going into the deepest demand part of the year.

1:48But but back to what I think commodities are doing on a day like today is I think they're sniffing out central banks. Today was symbolic. It was momentous. It was five years in the making. It was the first time the ECB has cut rates, whether the Fed cuts or not. The question is not now. Will they cut? It's what's the pathway to more cuts? And I think commodities will also sniff that out because perversely, again, they cut. But they pointed out that inflation is higher. They had kind of painted themselves into the wall, into the corner. And I think you have a case where commodities are going to show more signs of inflation.

2:17I don't think it's going to help. And I think the demand side is good enough to keep commodity prices higher. I stay long copper. I stay long miners. I certainly stay long gold. I agree with that. And, you know, people think commodities, the first thing they think of is crude oil. And we have seen a pretty dramatic sell-off today, notwithstanding. But there have been other things going on. And recently, some of these soft commodities and some of these industrial metals, copper, have sold off. The reason why I'm still encouraged is pull up a Freeport-McMoran chart, and you'll see that stock made a basically two-and-a-half-year high, but it really didn't pull back on the back of the copper sell-off, which leads me to believe there's more run in this.

2:52And I still think, you know, I don't want to say super cycle because I don't think that's what's going on, but I do think the ECB just opened the door, and I think at some point the Fed sort of kicks it in, and the commodities will continue to go higher. Coordinated global easing cycle, which is basically what we're starting now, Lori. No, I think that's right. And I think, you know, putting the rates issue aside, I think that what we're seeing with this commodity strength, we've been seeing it for a while on the material side. There are lots of fundamental longer term drivers there. We're also starting to hear in corners the idea that China may be bottoming.

3:22Things may be turning around a bit globally. You know, and it's interesting on the energy side. This doesn't really speak to the oil price, but I spent the last couple of days at our energy conference. And I will tell you, the tone was with stability and oil prices. Things look pretty good for these companies. And there was tremendous interest, tremendous demand. And really, you know, just, I think, reflects the idea as well that we're kind of mid-cycle, right? You know, that we're not sort of teetering on the edge of recession. And these are areas you want to look at. Yeah, the eurozone stuff is kind of interesting.

3:50So the ECB, we know that, you know, inflation is lower than it is over here. If you're looking at the equivalent of the CPI, I think it's like two and a half or so, somewhere around that. But we also are expecting lower growth over there, too. So I think Tim, the way he kind of, you know, kind of laid it out is they kind of painted themselves in a corner. I mean, the Fed keeps talking the other way, right? They still want to wait that they're sure that inflation is going to come down before they kind of cut rates or so. And if you think about just what we've seen with rates going from 4.65 in the 10-year down to, what, 4.28 or something right now, you look at the dollars come in 2.5 % or so during that time period.

4:24I mean, I just don't see any reason why the Fed needs to kind of get in front of this or kind of join the party, like you just called it a coordinated sort of rate-cutting cycle. We know that's ultimately going to come at some point. But if too much of these other zones, call them, start lowering interest rates and it kind of causes some of these metals or crude to kind of get back going again. And if you're talking about, you know, China, which is so far behind all of us bottoming, then you're going to see a lot of these commodities come back pretty quickly. And we just could find ourselves in this sort of, you know, virtuous sort of cycle.

4:54Yeah, I think it continues to be. I know this is a global show, so I'll be careful. where we actually have a global guest in the house, but are Fed your problem? And I think this is a case where it doesn't matter that the ECB led the way. It matters really what the Fed's going to do. The interesting thing here is, though, we talk about the commercial real estate market. We talk about certain corporates where at some point higher rates might break the back of certain credits. But how about governments? You know, and how about you start to look at the EU with slower growth and you start to wonder when at what point, when again in weakening growth, it's going to put pressure on the euro.

5:29And this is a long way away. I think. But it sets in motion issues that we've had, which are there are weaker credits across the European Union. Remember the pigs? Remember these countries that we were bailing out over and over and over again? The world right now has decent growth. Laurie's absolutely. We're mid cycle. The fact that matters, we also got some jobs, some some some labor cost data today that was very Fed friendly. It was very friendly in terms of where labor costs are. We have a huge payroll number tomorrow. And I think the more interesting thing for the market at all-time highs is, what do you do with weaker news on the payroll number?

6:01Is bad news bad news or is bad news good news? Because right now it's been a week where rates have really rallied and the stock market has obviously done the inverse. Well, answer the question, Ken. Well, I think bad news is going to be bad. I mean, if the unemployment rate ticks, I think expectations are still 3.9, right? And I try to pay attention, cheapest thing you can do. But you get a forehandle. I think sort of people start picking up their head and say, what's going on? Is this thing now trending the wrong way? I think the market's not going to react favorably to that. That's somewhat counterintuitive because bad news has been good news.

6:28I'll say this, though, quickly about the ECB. I also think they sort of threw in the towel because not only did they cut rates, they basically raised their inflation expectations. So I think effectively what this is, this is just my read. We understand it's probably out of our control. We have to do it anyway. And I think to a certain extent that might be happening here as well. I'm still one of the people, one of the few that think inflation is a problem. This was really a hawkish cut. I mean, Christine Lagarde was right. It had to be. Yeah, yeah, exactly. Exactly. And, you know, she was basically saying that we're just moving to a less restrict.

6:59It's still restrictive. We're just moving slightly less restrictive. And they sort of had to, given what's going on in Germany. Right. And look, I think overseas, right, we have different mortgage markets, right? The pressures of interest rates are being felt differently, you know, in different parts of the world and different consumer cohorts. But, you know, I think it's interesting as we sort of debate these Fed moves, we look at these commodity moves. As I talked to a lot of investors recently, they've come to terms with the idea that post-COVID inflation is going to run hotter than it ran before COVID and that we're simply going to have to get used to it.

7:28And it's not the end of the world. The tricky part is how do central banks navigate that? Right. But I think, you know, what I feel like we saw today in the price action was actually pretty healthy. Yeah. So what happens tomorrow? So let's sort of walk through this. We had something that's weaker. So what happened? What's the reaction? It was lower. And I think what Guy's saying here is that what does the stock market do with lower yields? Right. if we're on our way to 4.2 or something like that. In this context, though. Yeah, I mean, because really what it would say is that sooner or later they have to be less restrictive, which is what kind of we heard here.

7:56And I guess we could make the argument, you know, Laurie, you're a strategist. In our lifetimes, when you have Fed funds at 5.5%, you have CPI at 3.1%, that doesn't seem particularly restrictive, right? And we haven't seen really that long and variable lag yet where we've seen a meaningful slowdown. Just look at some of this ISM data. It really does fly in the face of some of the stuff that we've seen from the consumer over the last couple of weeks. So it's a pretty complicated case here. No, I think complicated is the right word. And if we just sort of take rates and inflation and think about the S &P, you know, we saw these weird sector moves today, right?

8:26But the market itself didn't really do a whole lot. One of the things we've seen on our valuation modeling is that 5 ,300 is about where we deserve to be at year end. If we see PCE go to 2.6, if we see 10-year yields go down to 4.19, if we see the Fed do one or two cuts, that's basically modeling in consensus expectations to our valuation model. and it goes, you know, I'll spare you all the details, but it goes all the way back to the 1960s, you know, so it bakes in a lot of different cycles. And I think that's why it's interesting in here. The market just kind of keeps hitting this 5 ,300 mark and just can't break out.

8:56Like, we had a good couple days this week. But there's a pressure point here, right? And I actually tend to agree with Guy. I think if we get bad news on the jobs number, I think that is interpreted as bad news because people have kind of come to terms with the idea that the Fed is not going to blow the economy. And if we start to see signs that that's happening, I think that's going to throw this whole thesis off. But so what do you do in a lower growth environment where the economy is not falling from the falling? The sky's not falling, falling out of bed, whatever, whatever metaphor. We don't want to mix, guy.

9:26We don't like to mix metaphors. No, you look at me because you're putting it on me. Actually, I know what you did. I see mixed metaphors. I never mix metaphors. I was really looking for a pat on the back because they're there. Anyway, you have a case here where I think the sectors that will continue to outperform are some of the ones that have already outperformed. But I think there's a place also for this broadening. First of all, I love utilities here. I love them for a secular. And we all know the kind of the power generation story is one that between EV and AI is, and just a grid and a thing that needs to be built out in this country, but lower rates are going to continue to have utilities outperform, which Carter has pointed out that over the last 20 years, actually utilities have outperformed the S &P when you throw in that dividend yield.

10:03So that's interesting. I think that the mega cap tech world where there's still his growth, and I know we complain in earnings season, And this is where 40 percent of the growth, the overall growth came from those four or five stocks. I think you have to stay there. So NVIDIA is going to be OK, right? Because that's what America wants. Well, I mean, look, folks, relax. Or it's like that scene in an airplane where they walk into the cockpit and they say to them, we're all counting on you. So that's what they're saying. We're all saying that to NVIDIA. Right now, I'm less worried about NVIDIA than I am worried about some other stocks and consumer discretionary in places where I think that COVID, that final unwind, And that long and variable lag of COVID and COVID demand and dynamics that pushed a lot of discretion.

10:43And we're going to have a great conversation later in the show about one stock in particular. Real quick, without maybe even realizing it, I think Jerome Powell may have, in trying to be glib and clever, he may have painted himself into a corner because when, remember that whole, I don't see the stag. Or inflation. Or the inflation, which is really, that's like, that's how funny I mean, it's cute. However, one of the things he talked about was the unemployment, right? Well, if you start to see a tick up in the unemployment rate, which obviously we're going to start to find out about prior to the meeting next week, he's going to then have to answer those questions that he sort of opened the door for.

11:15All right. Well, for more on the rate retreat, let's bring in Andy Constant. He's the CEO of Damped Spring Advisors. Andy, great to have you with us. All conversations end up leading to NVIDIA. And in fact, that's where this conversation is going to end up going. But before we get to that, what are you expecting in terms of the jobs report tomorrow and the reaction to the bond market? Yeah, I mean, I think we've had a pretty big inflection over the last, call it a week, with weakening growth numbers, weakening jobs numbers, survey data. And that's caused a bond market rally. And really, for the first time, that's been the root cause of a bond market rally.

11:52Prior to that, assets have been supported by disinflation that's been coming down since the peak and may not get all the way down, but has been a driver for assets. And the Fed being expected to withdraw restrictive conditions and ease. And so that's supported both stocks and bonds. while growth has been robust, strong growth for many quarters now. And that's been keeping pressure on bonds. And so we had an inflection this week where bonds rallied a lot on falling growth, not the drivers that have caused price returns lately. And so I think that's interesting. And it speaks to what you guys have been saying, which is, are we in a period of time in which the driver of asset prices is going to be the direction of growth?

12:49And if it's lower, that has implications for stocks, that they should also follow falling bond yields with falling stock prices. Where does NVIDIA fit into this? Well, NVIDIA is interesting. I know nothing about single names, but it is interesting in that This is the first year over my entire history of looking at individual years of stock market returns across global markets where a company has dominated the returns so much. This year, it's around 30 percent of the total return of stocks. The largest companies like Apple, Google, and prior to that, certain oil stocks have, and Microsoft, never really are more than 5 % to 10 % of the index.

13:42In this case, NVIDIA is the dominant factor in markets. And I think that's what's the best word? It's masking what's happening to macro equities in that over the course of the last since the earnings, the stock is up, what, 30 percent. And there may be I don't know, but tomorrow we'll start seeing the is the last day where the stock will trade pre split. it, it's possible that there's some fluff that is keeping NVIDIA high, which itself has been causing overall equity markets to be high. Now, again, I don't know if NVIDIA is cheap or rich right here, but it does seem that there's some undeserved fluff in the stock associated with the stock split.

14:33And if it falls post-split, that might unmask what is a weakening environment for stocks as growth becomes the driver. Supports bond prices, but bond prices have significant supply that's coming. Inflation may or may not be dead yet. And the valuation of bonds has gotten very low relative to the front end of the curve relative to cash. So it'll be an interesting inflection point. And that's really what we'll see in the data, the NFP tomorrow, the average hourly earnings. Then we have a raft of supply of long-term bonds next week, the FOMC and the dot plot. And then, of course, the CPI number. And so what I'm looking for is whether we will, in fact have an inflection.

15:28And what that would mean to me is continued support of bond prices while stock prices fall. So just quickly, Andy, give us the lowdown on how you're positioned at this point. You know, last time I was here, I was saying the market had topped at 52.60. I covered some when it fell in April, but I'm short again at this level. And I'm starting to short bonds because I don't think both assets can rally. So I think I'll make money on one side of that trade or possibly both. Andy, great to speak with you. Thank you. Andy Constan of Damped Spring. Do you agree with that? Both assets shouldn't be rallying right now.

16:07Well, I think we've seen a lot of this, right? It's not uncommon, the correlation that we've seen between these asset classes. I do think that the bond market is also, it's the rates market. It's also the credit markets. We've seen credit spreads get incredibly tight. In fact, you can make an argument we're as tight as we've been. And therefore, I actually worry about that in a lower rate environment. So I agree. You know, the math around the NVIDIA, I was crunching these numbers while Andy did it. Maybe everyone's already done this already. But again, 145 percent when it's 5 percent of the S &P ends up being about 720 basis points of 1 ,250 or 12 and a half percent that we've had.

16:44That's almost 55 to 60 percent of the return profile. That's a very linear exercise and it's not totally accurate, But it does tell you where you've gotten. Again, if you took 5 percent of the S &P up 145 percent, that tells you what NVIDIA does. I think I probably get there from a different on a different path. But I do sort of share the idea that, you know, stocks, even, you know, the price action we've seen this week, I just don't love. And I think in addition to our valuation work, the sentiment indicators are still looking pretty frothy at this point in time. Yeah. So on the NVIDIA, it's kind of interesting.

17:17Dan Niles, friend of the show. And, you know, I think he's a really smart tech investor. He put a tweet out today, and it's worth taking a look at. He said over the next three to four years, he expects revenues for NVIDIA to possibly double or triple, actually, from here. The street, excuse me, triple. The street, if you're looking at fiscal year 2028, 2029, is expecting it to be up, let's call it, 100%. So right now, you'd say consensus is really low. But he did say this, and I think this is really important. He says by the end of the year, he expects it to be a digestion period for AI spend.

17:48And so you tell me where the stock goes if you see a meaningful deceleration before another acceleration in a couple years for the next phase of this thing. I just don't know. I just know from, you know, the March highs to those lows, it sold off 20 percent. But it's since then gained one and a half trillion dollars in market cap in like two and a half months. I just think that there's a lot of it's different this time. And that's the thing that makes me a little nervous. All right. Meantime, Walmart hitting a new all time high today. This is a company holds its annual shareholder meeting in Bentonville, Arkansas.

18:16saw the stock has been on a run in 2024, jumping nearly 30 percent year to date, far outpacing its rival. Target, Guy, the higher income consumer. Will they stick to Target if the economy turns stick to Wal-Mart? Oh, excuse me. Yeah, no, I get the answer. And yes, I think the end with collectively, I think we've been saying that for quite some time. I mean, the environment that we find ourselves in, it works for Wal-Mart in ways they probably never imagined. And I think the The stock is reflecting that. Now, the naysayer will knock Walmart on valuation, and it probably is a tad rich. But you know what?

18:49I think it's deserved of that valuation, especially if the trajectory that I think is going on in terms of the consumer and the economy continues. That works for Walmart. I think you stay along the stock. Still unbelievably much lower than its five year high in terms of forward P. The five year high was like in 2022 and it was 54 or something like that. And it's earning a higher multiple because the margin profile of this company is changing and it's changing with their investment in digital and software and some of the dynamics around even the product mix. But think about where we were. I'm just I'm looking at a chart.

19:22Think about those inventory updates that we got from Walmart and Target and how different the world feels from that point. We're the smartest guys in retail, the smartest guys in terms of ERP and logistics and all the management. You know, October of 23 was one point. But really, as you went back into 22, this was a case where we were not sure that they were going to be able to turn this boat around. And they really have. So I'm long Walmart. The valuation doesn't bother me because I see it very defensive in an environment where I think we actually could see the market multiple pull back. I mean, what has five below what have the dollar stores really told us that is the lower consumer is really under duress.

19:59Right. And a lot of that is because of high interest rates. And the higher end consumer, right, has all these buffers, whether it's low mortgage rates, whether it's lots of cash sitting in money market funds. And by the way, if you look at those assets, they've absolutely ballooned in the last few years. So I think you do want to continue to follow the high end consumer. And to be honest, I'm hearing a lot about that on the road from investors. They're looking at this retail environment saying, look, the sector is starting to get some valuation appeal back. You can't just buy everything in the sector.

20:26You have to go with the ones that are executing and are in the right consumer cohorts. Yeah, so one of those companies that is executing on the retail front, and we haven't been able to say this for too long, if we were playing Would You Rather, I'd probably go with Amazon here. It's got a much higher growth rate. Were we playing that game? No, I wasn't. I don't remember saying let's play a game. In fact, I think we said tonight we weren't going to play that game. Anyway. So I'm playing. You can take your ball and go home, Jim. Okay. No, I just think it's really interesting. When you look at the margin structure, you look at how margins are going higher.

20:54A lot of that has to do with the improvement in the retail space here. Obviously, you have AWS, which is a huge part of that margin structure. It's kind of bottoming and should benefit from all this generative AI. So to me, I just look at the margins, the way they're increasing in Amazon. I find it more interesting than Walmart. Again, if you were playing that game. I think it's time to play. Let's go to commercial, Mel. Good game. Important game for us. I think it's a great game to play. Coming up, NVIDIA pulling back from record highs today. the potential regulatory hurdles facing the company and what they could mean for leadership in the AI race.

21:26Plus, Robinhood splashing the cash. The fintech title, Titan, shelling out a big chunk of change to buy crypto player Bitstamp. What to make of this deal next.

21:38This is Fast Money with Melissa Lee, right here on CNBC.

21:50Welcome back to Fast Money. Federal regulators are gearing up for an antitrust investigation into AI heavyweights, including Microsoft, NVIDIA, and OpenAI. For more on what the crackdown could mean for big tech, let's bring in CNBC's Eamon Jabbers. Eamon. Hey there, Melissa. Well, here's what we know as of right now. Multiple sources familiar confirmed to CNBC that the Department of Justice and the Federal Trade Commission are in the final stages of setting up a deal to divide up antitrust inquiries into NVIDIA, Microsoft and OpenAI, several of the most dominant players in this rapidly emerging AI space.