Rates Hit 16-Year High, and Zuck and Musk Square Off Amid Threads Launch 7/6/23

0:00Right now on fast, rattled by rate. Stocks struggling as bond yields spike to levels not seen since before the great financial crisis. And as we count down to the jobs report tomorrow, should investors fear markets will wilt under the blistering move in bonds. Plus, the billionaire battle royale Zuckerberg and Musk facing off online. Meta's new social media app Threads racking up millions upon millions of users on a single day. We'll have the blow by blow and the escalating war of words between Musk and Zuck coming up. And later, New York City delivering bad news to a host of gig economy stocks.

0:31We'll have the latest on Uber, DoorDash and Grubhub's suit against the Big Apple and its new minimum wage laws. I'm Melissa Lee. This is Fast Money. We're live at the Nasdaq Market Site on the desk tonight. Courtney Garcia, Steve Grasso, Tim Seymour, and Julie Beal. We start off with the unrelenting rise in rates. The two-year yield jump in another seven basis points today, rising above 5 % for the first time since March. And its peak for the session, it was at its highest level in over 16 years. Longer-term treasuries followed suit with the 10-year crossing back above 4%. The move coming after a much stronger-than-expected private payroll report raised expectations for more rate hikes.

1:06Those worries also setting stocks lower, though markets close well off their lows. The Dow down more than 500 at its lows, still put in its worst day since early May. So today's action is a sign that the best is behind us for stocks. Or maybe this is a nice sort of like blow off before earnings season begins, Steve. Yeah, I think I'll go with the latter for 500, Jack, if it's a game show. But I think Mike said it well. He said he thinks this is a result of better economic growth coming forward. Obviously, the front end of the curve is going to be Fed responsible. Back end, you could pick your poison.

1:41Is it going to be a long recession, a deep recession, a shallow recession? It's eventually going to be a recession. But until we get to that level, we traded up 600 handles and change in the S &P all talking about a recession. Let's not talk about the recession. Let's talk about earnings. Earnings did not collapse the way people thought they would collapse, which meant that the market went higher. Will earnings collapse this time? I don't think so. I think that corporations are starting to spend some money, are starting to see through some of the headwinds with the overall economy. I don't know if we can go much higher from here, but I don't think we're crashing.

2:19But like we're in this again, once again, in this sort of, you know, good news is bad news for the stock market scenario, Courtney. I mean, stronger than expected private payroll report. People are wondering, does the Fed stay higher for much, much longer? Is that second hike from here in November, do the odds go up of that? Could there be even more than two at this point? I mean, these are all questions that are opened up thanks to this number this morning. Yeah, I think what's probably off the table for most people at this point is Fed cuts later in the year. That's what we'd all been talking about earlier.

2:47And I think people are finally putting that aside. But realistically, and you had a good point, the markets have done really well, over 500 basis points of an increase over the last year from Fed rate hikes. So what is another 25, 50 basis points from here? I mean, they're probably going to be able to continue to do well in that environment. But I do think you want to be cognizant. We are going to be in a higher for longer. And that's where some of your higher, you know, longer duration assets are probably still going to continue to be under pressure. So I am optimistic. But again, some of those like seven stocks that have been really running things up just don't chase those right now.

3:18Yeah. You know, Julie, I know that you watch Fast Money even when you're not participating on the show. So last night we talked about 4 % being the key level and whether or not that spells sort of the end to this rally. We popped up above 4 % on the 10-year yield. And what did we see in the markets today? We definitely saw a dip. What's your take on this spike higher in yields? I think there's a lot of psychology at play right now where, you know, there's this thing that my kid does when I try to tell him to do something. He says, don't tell me. And the market has just been consistently saying, don't tell me to the Fed.

3:53And Jerome Powell is being really clear, rates are going to be higher for longer. And the longer the market just continues to say, don't tell me, the more risk we have of a more precipitous collapse. Right now, so much of what's driving this rally is enthusiasm about new technology. And I think that's valid to a point. But you are seeing earnings being softer, weaker, generally speaking. And the concern that makes sense to me is do companies run out of pricing power while they're still having to pay higher wages for their workers? And I think that's where the crunch happens. And that's what people are worried about.

4:27Yeah. And that's what we could see in this next earnings period, at least in the guidance going forward, Tim. You know, it's interesting because people often say, you know, the 10 year yield, the highest since before SVB. A lot of things are different since SVB, including our levels, including valuations of stocks at this point. And then you put on top the rates. So a lot is different since then, even though rates have reached that same level. And there was a lot of mixed signals in those numbers today, right? So you had a non-manufacturing ISM that was close to contraction last month and now up 3.7 handles or something to kind of almost just under 54.

5:05Huge, huge relief for the largest part of our economy by far. Those ADP numbers showed that there actually was tech hiring in terms of AI. I mean, 3 ,200 jobs added out of the tech region. I don't know if they were all necessarily attributed to AI, but there were a lot of signals in there that the economy is better. And be careful for what you wish for, because did we really want to see 48 on the non-manufacturing ISM or 100 ,000 jobs on ADP? I mean, this is a market that really I don't think is necessarily pricing for less fed right now because there's no reason why they should be. I would take some solace in that the economy is not deteriorating as fast as possible.

5:44And again, although those jolts numbers were down again, job openings, 9.8 million jobs for the number of applicants out there. There's still two and a half jobs for every person looking. So the labor market is better. All the while, all we did last night was talk about some of the things that are getting worse with the consumer. We've actually talked about that for a couple of weeks. So I'm not wildly bullish here. Stocks have had a great run. These were great numbers. Anybody who thought that the Fed was suddenly getting ready for the first round of week numbers to throw in the towel is wrong and has been pointed out.

6:16Fed fund futures out one year show no rate cuts and show 25 bps to the end of the year and even out to the end of 24 are not showing a whole lot of cuts, maybe another 50 from there. But anyway, I thought today was a fascinating day. Vol happens very quickly. If you look at one point, the VIX was up 20 percent. If you look at market positioning, AAII bull bear. I mean, bulls are out in full force. Positioning is certainly heavy. You've had a lot of complacency. The vol was too low. That's what today was. I don't think a lot more. Yeah, we poked above 16 on the volatility index at one point, which is still low, even though we saw a spike of about 20 percent.

6:54But Tim makes a good point. I mean, nobody wants to cheer for an economy that is weakening. But at the same time, that just underscores the battle that the Fed has in front of it. If 2 percent is, in fact, the inflation target, if 2 percent is the inflation target, we're still seeing this sort of strength. Then how much harder do they lean or how much longer do they keep this this battle going in terms of keeping rates higher? And that's the concern here. Well, 2 percent. I think that it's 2 % now. We don't know what it's going to be somewhere a little bit more forward in the overall economy. But just remember how much money was thrown out there during the pandemic, after the pandemic.

7:28How much aid? There's so much money from that. Does that have the long variable lag too? How long does that money stay floating around? Because it seems a little extended for there still to be the pandemic aid and the money. People are racking up debt on their credit cards. It could have been, but there's still unutilized credit on the data points now. They're not maxed out on the credit cards right now. So there's still more to be had on that front. But where is the long and variable lag with the Fed? Which one ends first? And I think the Fed, we already know it's going to be one, two, maybe three.

8:05I'm sure the market will factor in. Courtney brought up the most important point, which I think is now everyone's saying there's not going to be a cut. And if you look at the way the market has been reacting to all this negativity or however, whatever headwinds are coming at us, it's pretty encouraging. Yeah. Julie, do you think that the consumer is still juiced by stimulus at this point? I mean, I don't know. It seems like a lot of it is gone unless they're still feeling wealth and the wealth effect from housing, which has stayed relatively strong, as well as the stock market? If you look at the data, you know, people talk a lot about this$2 trillion in excess savings.

8:43And, you know, we've spent down a little more than$1 trillion. The thing is, is that the part that people don't really think about is that remaining bucket is typically in very, very high net worth individuals. And they're not spending that money. They don't need to. They've bought the yachts that they're going to buy. They're kind of done. And so that money is kind of gone, actually. And you see that. And that's kind of why you're seeing credit card payments starting to really tick up is that the lower income consumer, the one where there's more velocity in the actual spend, those are the ones that are actually out there and spending.

9:18And so I think the consumer is as healthy as the job market is because clearly our consumers are just happy to spend, happy to put on their credit card as long as they have a job. If they lose their job, I think that unwinds really quickly. And that gets back to how hard will the Fed push here? Our next guest says the Fed is dead serious about keeping rates higher for longer and that chasing high flyers can only end in tears. Rosenberg Research founder and president David Rosenberg joins us now. David, you know, to the naysayers out there, to that thought, you know, they'll say, as we mentioned at the top of the show, the markets have advanced significantly since the Fed started raising interest rates.

9:55And so I'm wondering, have we seen now the cracks of this starting to appear in terms of the whole, you know, ending in tears bit? Well, I mean, the stock market hasn't really been rallying since the Fed started raising rates. That was back in March of last year. And last year, the S &P 500, you know, was down almost 20 percent, you know, for the year as a whole. You know, the stock market at any given moment of time is going to be influenced by a whole range of factors. You really have to take an eclectic approach. And, you know, there's fundamentals, there's valuation, there's market positioning, there's fund flows, and there's momentum.

10:35And there are times where you can get a serious momentum-driven market. And so I don't think we can argue a 19 multiple, that's pretty rich. Benchmarked against risk-free rates over 5%, a bit of a no-brainer. Of course, we've had the, you know, the generative AI boom going on, so on and so forth. You know, it sort of looks a little bit like the Internet mania we had back in the late 1990s. Again, it was partly fundamental, but that was a massively momentum-driven market. So I don't know if the market's telling you anything about earnings, anything about the economy. It's been a sentiment and momentum-driven market.

11:14I think rather devoid of the fundamentals. and at some point the Fed's tightening, which is an ending, is going to break the back of something. It wasn't the regional banks. That wasn't the backers. The regional banks reminds me of New Century Financial closing its doors in January of 2007 when I was at Mother Maryland. It was a big ho-hum and we moved on. But whoever thought we could connect those dots down the road to what happened in 08, you know, between Bear Stearns and Fannie and Freddie and everything else that happened. So the reality is this, unless you're willing to say that hope is going to triumph over experience, how many aggressive, pernicious Fed tightening cycles of the likes we're seeing right now, the most acute tightening cycle since 1981, and people are saying that this is somehow going to end well, that somehow the U.S.

12:02economy, a credit-driven economy, is immune to such higher interest rates, is totally ridiculous. It just tells me that people can't see past the tip of their nose. the next 12 months is going to be really rough. That's when all the lags from the Fed are really going to be kicking in hard. So the lags will be kicking in, and that's what the Fed believes too, David. So I'm curious, do you think we're fully priced in basically for a hike at the next meeting? November, the odds are going up slightly. In your mind, is there a possibility beyond two, or is a variable that the Fed keeps rates much, much longer in order to, higher for longer in order to battle what's going on and to get inflation back down to two?

12:44Well, there's a risk that they will go two or two plus. And it's not a forecast, just an observation as to what the Fed is looking at. This is not our father's or grandfather's Fed. I don't get a sense this Fed has confidence in its forecasts or confidence in its models. It is basically telling us that it is data dependent. And everybody comes on CNBC and they talk about, well, yeah, of course, they're data dependent. But I've never seen a central bank so focused on the data that are inherently contemporaneous and lagging. They're focused on inflation. Even though inflation expectations are so well anchored, they're so nervous that at some point the dam is going to break.

13:27But they're focused on inflation, service sector inflation. Service sector CPI is in the Conference Board's index of lagging economic indicators. They are mainly retentive on the unemployment rate, which is in the index of lagging indicators. And of course, we're talking about nonfarm payrolls tomorrow. Nobody talks about the work week. So we're adding more bodies and we're furloughing them simultaneously. It's a very interesting dichotomy. It's like cognitive dissonance. How are more people, cut their hours. The work week is back to where it was in April 2020 when the economy was locked down and nobody talks about that.

14:02So the Fed's focused on lagging indicators, they inherently take time to turn. This is what the Fed's focused on. And I think they've already, you know, tightening into such a deeply inverted yield curve, which of course everybody says is a relic of the past, ignore the yield curve. They see that every cycle. I think Fed has already gone overboard. Then again, maybe a recession was always in their plan to destroy the inflation they created through the overly accommodative policies they pursued in 2020 and 2021. So we'll correct one mistake with another mistake. But for the people that say, where's the recession?

14:34It's like they were saying the same thing in 2000. Oh, it was in 2001. Where's the recession? I got that in Merrill every day in 2007. Where's the recession? Where's the recession? Okay, yeah, well, it came in big time in 2008. So yeah, the lags this time are longer because the Energizer bunny called the Biden budget buster that was actually gave the fiscal stimulus was a gift that kept on giving. But you see, that's coming to an end. And now we're going to see the full throttle of these lags that everybody's talking about. Well, where are the lags? They're staring us in the face. And I think, right, it might not be this or next quarter story, but it's going to be coming in the next 12 months, or else we'll just take the history books, throw them out.

15:16We'll tell everybody that Mother Nature and the business cycle has been repealed and that recessions don't exist. But they always follow the pattern of what the Fed's already been doing. I mean, he's already told us that he's the modern day Paul Volcker. We revere Paul Volcker. Everyone reveals Pearl Volcker. He killed inflation by back-to-back recessions, right? David, it is always good to get your thoughts. Thank you. David Rosenberg, Rosenberg Research. Tim, it's sobering to listen to David. He makes a lot of fantastic points, as always. But how do you reconcile that with what's going on in the markets and a call for what's going to happen or might happen in the next 12 months with the markets we have on our hands right now?

15:56No, he sure does. David does thoughtful work. He's done it for a long time. And the data points he's bringing up are undeniable. And let's be clear. I mean, Volcker's cited as a hero. But when Volcker was obsessed over the psychology of inflation, which he felt he had to break, and it didn't matter if he broke the economy. I don't know where this Fed falls in line with that. But what's clear is that the sequencing of this market has been very different than people had expected. And that means not only the timing of recession, which David pointed out, I think people probably got wrong in 2007 through nine, and maybe they're getting wrong here.

16:33The things that are the most important to me are valuations always matter at some point. And I do think that a 19 times forward, which is well or two or three turns higher than where we were pre-COVID on a forward, is something you have to pay attention to. The other thing is, again, where you've seen some of the stocks that have moved the market. When the world's largest company moves 54 % from January 4th to this point, without fundamentally game-changing news or growing their earnings profile, you have to ask some questions. And the biggest question for investors is, is any of this going to get away from you right now if you take what's been a pretty decent run?

17:11I'm not saying that you should be running for the hills. I'm saying you've had a very good run here, and I think rotation and the market that you have is very different than the market you had two months ago. All right, now let's get to new developments in the social media battle between Elon Musk's Twitter and Mark Zuckerberg's new app Threads. Reports on Musk is threatening legal action over the new social media platform. The details now from our Julia Boorstin. Julia. Well, Melissa, Twitter's attorney, Elon Musk's attorney, Alex Spira, wrote a letter to Meta threatening to sue, accusing it of stealing trade secrets to create a copycat app of Twitter in Threads.

17:46Now, as the fast-growing threads from Meta hit 30 million users overnight, there's no question it has drawn the attention of rival Twitter. Spiro writing, quote, Twitter is serious concerns that Meta has engaged in systematic, willful and unlawful misappropriation of Twitter's trade secrets and other intellectual property, accusing Meta of hiring dozens of former Twitter employees who had and still have access to Twitter's trade secrets. Meta spokesperson Andy Stone responding on Threads. Earlier, he posted a thread saying, quote, no one on the Threads engineering team is a former Twitter employee.

18:25That's just not a thing. I have reached out to Twitter for comment and have not heard back yet. And we have not gotten any more detail on how Meta expects to respond or plans to respond to this legal query. Melissa? But this is not a, I mean, is this a, this is not a formal lawsuit? Is it a formal anything at this point? Or is it just say, hey, be on notice. We think this is happening. I think it's the latter. It is definitely not a formal lawsuit. It is a threat and it is a warning, a shot across the bow from Twitter saying, if you are using our information, if you are scraping our platform, then that is against the law.

19:04So we'll see how Meta responds. We'll see if there's any more detail from Twitter. I mean, it would be great to get a comment from them and what their goal is with this letter. but they're certainly paying attention and looking for similarities between Twitter and threads. Right. Julia, thanks. Julia Borson, by the way, Elon Musk tweeting just in the past hour or so, competition is fine. Cheating is not. This was in response to an article report that there was this sort of letter going out. Anyway, we'll have much more in the billionaire battle and the ripple effect on the social stocks coming up later in the hour.

19:38Meantime, Amazon CEO Andy Jassy sitting down for an exclusive interview with our own John Fort. The outlook he had for the e-commerce giant next. Plus, an apple a day keeps one of our traders away. Boy, someone on this desk tonight sold out of apple completely. And the name they're scooping up in its place. Don't go anywhere. Fast Money's back in two.

20:03Welcome back to Fast Money. Amazon shares down today, down by 1.6 percent. But on a tear this year, CEO Andy Jassy speaking exclusively with our own John Ford on closing about overtime. Here's what he had to say about the strength of the consumer. It's an uncertain economy. And so whereas in the past you had multiple variations of a product and people might shade towards the higher price variations, you're seeing the opposite. People are trading down whenever they can and they're quite interested in bargain hunting. And so it's why we've worked with our hundreds of thousands of selling partners to provide millions of deals.

20:37in this Prime Day. So we want customers in an uncertain economy where they're very conscious about price, where they want to extend their dollar to be able to have a very broad assortment of items they can buy at deeply discounted prices. And so that's what we're hopeful they'll get. A trade down is not a great thing for a retailer, Julie, in general. And that's what Jassy is talking about. Yeah, I think you see that kind of across all the landscapes. But what it really means is that no matter where you are in the income segment in retail, you have to have good merchandise. Before, it was the rising tide that lifted all boats because we were just so desperate to spend money staying at home in our pajamas.

21:20But now you need to be able to execute well. You see that in the divergence of fortunes for Dollar Tree versus Dollar General. If you have the right merchandise people are willing to shop still while they have a job. But if you don't, they absolutely will not be in your store. So I think Amazon is particularly well positioned in the sense that they can really look at demand trends and what people are excited and enthusiastic about buying and they can push those thoughtfully. Yeah. Courtney, where do you stand on Amazon here? I do think they're going to continue to be under pressure here. I mean, my biggest problem with them is they're extremely expensive.

21:54They trade at, what, 72 times extra earnings. It's done fantastic this year. It's up over 53 percent. But you are starting to see like even in AWS, you're starting to see people are really trying to optimize their spending. They're pulling back there. You're seeing consumers are trading down. And then even on the Whole Foods side, people are wanting to get cheaper groceries. They're trading down to like a Trader Joe's or a Walmart for groceries. So I think they are going to continue to be under pressure here. They've done fantastic. But yeah, I wouldn't be jumping in here with two feet. That's the problem.

22:21Every segment of their business, people are trading down. true but but when you look at that multiple that they've been paid on it was always the aws kicker that everyone john ford asked them repeatedly over how many years when they're going to spin out the first interview so since the first interview so that's the that's the holy grail to where you're going to sell amazon because that's going to be good stock bad stock or good stock mediocre stock so there there is a lot when you look at the the comparisons that we put up there, those stock prices are beta compared to Amazon on Wayfair, right?

22:56So you're going to get a bigger bang or a bigger upside to that stock because you didn't get the run and the sustainable run that you had with an Amazon. But people buy Amazon because of AWS. That's why no one ever understood when Bezos was running it that he could turn on the spigot or turn off the spigot whenever he wants. Now, Andy Jassy is running into how do I become cost effective? How do I get some efficiencies out of this. And to your point, there's even competition, huge competition in AWS. How does he milk that a little bit longer and make the focus on that where people are willing to pay an outsized multiple on it and then throw in the kicker of AI?

23:34Yeah. Tim, do you own this going into tough times? There's an argument on both sides. Well, I think you own it going into Prime Day. And if you look at the expectations are mid single digits, mid to high single digits on prime sales this year, year over year. You've seen the stock run into prime day. And for the couple of days, it's happening. So five days in. So kind of like this entire period here, Amazon, which, you know, traded down in a difficult tape today. But I like the play here. And I also believe some of the cloud trends and some of the pressures around AWS, I think we're starting to see at least a little bit of a bottoming there.