Rates Rise and Homebuilders Sinks, Plus the MedTech Stock Getting Skinnier, Thanks to the Weight Loss Drug Boom 9/5/23

0:01Live from the NASDAQ market side in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Builder breakdown, construction stocks seeing their worst day since February as rising rates take a hit on the sector. But is this shaky foundation just the start of more trouble to come? Plus, tipping point as the Disney charter carriage dispute continues. One Wall Street firm wonders if this will be a defining moment for legacy TV at the end of the bundle as we know it. We'll debate that. And later, Airbnb's extended stay giving it a boost. the high times for the weed trade rolling on, and one pharma company's bottom line could get skinnier from the obesity drug boom, and that's not a good thing.

0:38I'm Melissa Lee coming to you live from a brand new set here in Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Carter Worth, and Guy Adami. Gorgeous set here. Amazing, like on a new rocket ship. We're going to take off at any moment, right? Yeah, it's awesome. They did an amazing job. Now, we get to sit here and enjoy this beautiful set, but this is eight months of work from our crack staff back in D.C. And the folks here at the NASDAQ, they're the ones that should get all the praise here. But with that said, the sound system in this place kicks ass. Easy. Come on. Why don't you have to do that on the first day?

1:14Just like old times here. Bring some dire straights pregame. That was good. But, yeah, commercial breaks are fun. They're always fun these days. But the show is going to be even better with the brand-new bells and whistles that we've got here. And we'll show them to you as the weeks go on here. We start off tonight, though, with rates resuming their run higher. The yield in the 10-year Treasury is hitting two-week highs after their recent pullback. The two-year climbing back toward 5 percent. This move putting pressure on stocks to start the holiday shortened week. The Dow falling almost 200 points.

1:40The S &P and Nasdaq also closing lower. And take a look at oil prices. Crude now at a 10-month high after rising more than 1 percent today. The move higher coming after Russia and Saudi Arabia extended supply cuts until 2024. The dollar also higher with the greenback at its best level since March. So what do these moves tell us as we head into the fall? So let's get this straight. Rates up, oil up, dollar up. Guy. Stocks should be down. And it's great that Carter's here always. But last week he showed us some amazing charts. I think he had five of them, two fives, tens, and I think 30-year yields, all bouncing, trading up to resistance level and failing.

2:17But here we are. I think the story is rates, I thought, for a while. Ten-year back above 4.25 % is a big deal. Oil going higher. Tim can speak to this, is a big deal. Both of them going up, well, at least yields, for the wrong reasons. Yields are not going up because our economy is magically getting better. They're going up because I think you have to pay people a higher rate of interest to buy our debt. That's problematic. Yeah, and the dollar is fascinating because you could make an argument that this was the most crowded trade, short dollar, a lot of pain here, or at least a lot of people wrong on this trade, including me.

2:49I just, you know, I feel like the dollar, if you look at central bank differentials, has to weaken at some point. But the most telling thing about this market is that, yeah, I get all the underperformance we've had in some of the more cyclical stuff, especially since rates started moving higher. Big tech is leading the way again. And if you look at a chart of the outperformance of the semiconductors index, the SOX, or you could look at the SMH, it's a chart that most people would want to buy, especially if you look at that long-term average. I mean, if you look at this chart, that's a 10-year chart on this thing.

3:16you can basically see that even through this most recent move, and we've had some rockiness over the summer, as long as semiconductors and triple Q's or NASDAQ 100 are leading the market, the market's going to go higher. It may not be the kind of strength and breadth that people want to see, but we've had times to test that over the summer. Until that ends, the market's going to go higher despite what yields are doing. Karen? I sort of think the yield thing is really a problem, actually, to markets. So not to disagree with Tim, but I think that, to your point, supply, whether that's government supply, which we've talked about.

3:46I think there's also a lot of corporate supply. So you have pressure on the curve. And then obviously we always talk about, you know, it's just math, right? As those rates go higher, then the high multiple stuff should get cheaper. I think that's going to happen. The other thing really was home building, which I know we'll get to more, but this is just, I do feel like it hit some sort of point, actually shorted some today of the XHB, just as a broad, you know, it's home builders and building materials and stuff like that, because I do think we're actually now, with the pressure on the consumer and the housing prices where they are and mortgage costs where they are, we're at a little bit of an inflection point.

4:24It gets at a whole consumer problem, particularly in the back half of the year as we head into the holiday span. We've got student loan repayments that got started again. We've got people just paying higher interest rates across the board. And then people, if they cannot tap the equity in their home, what good is that equity in their home if they do hit a speed bump here? You say the rates have capped. Yeah, I'm in the camp that even if they were to make slight new highs, you're not going to have important move higher in rates. But what is remarkable about this strength in the dollar is that you have sugar bringing out to multi-year highs, orange juice.

4:55You've got cocoa and, of course, crude with a strong dollar, ignoring it completely. It's to some extent that commodity moves, which is an inflation thing, is important. We shall see about rates and how much more they can go. Yeah, it's fascinating that you're getting that move in crude because, you know, every 1 percent move in the dollar typically is a 3 to 4 percent move in oil prices. And I get that OPEC is and OPEC plus is showing some some accord. I would just point out two things. I don't love mega cap tech because of multiples or anything. In fact, I think the markets are looking very toppy.

5:29And I think there's major divergence between the leading indicators and the forward P.E. and all the things we talk about. I'm just going to say that in a world where we're challenged by growth and higher rates are going to hurt a lot of other companies, mega cap tech stocks once again are the ones that tend to outperform. At the same time, we were talking just three, four weeks ago about the breadth in the market. And right now, if you look at industrials have underperformed the S &P by about 7 percent since October. Transport's actually about 4 percent. Transport's by 7 percent. Small caps today.

5:57Those moves today were pronounced and they show you how the market is going to react to higher rates. So it's hard to argue with that. And to some extent, the move in the Qs, remember, it's outperformance, but it's making up underperformance. Qs since the market peak are still underperforming the market. So go back to October of a year and a half ago, meaning this big move is simply making up for the losses preceding it. Whereas S &P dropped 27 percent per month's peak, QQQ dropped 37 percent. We're still undoing that week. But what about the fact that the semis, to me, again, on a relative basis, are right back up near that high?

6:30In other words, there have been a couple of periods of underperformance, but basically near all time highs against the S &P. And that to me has been kind of the nitrous part of the Q's trade. Well, for sure. I mean, semis are acting better. Or this, the biggest tech of all, Apple, its relative performance to the sector peaked almost a year ago. It was September 30 a year ago. Apple, the biggest of all. So does that necessarily mean? Well, but the point is that it's not all tech, right? But it's case-by-case. I mean, Apple dropped almost 18 percent recently. It's bounced, but it's peaked the drawdown.

7:03The market was only down six. So it's case-by-case. The question is, is it right to favor tech from here, because it's all about from here, or not? My hunch is I don't think tech is an overweight at this point. I would either be equal weight or underweight. We've heard a lot of people, though, for a long time say, don't favor tech. The multiples are getting too high. The trade is too hot. You know, the run is too steep. And yet this is where we are. This seems like the sector you want to be in. Yeah. It's pretty incredible. Tim makes a great point. So the SMH, if you want to use that, made an all-time high, I think, November of 2021.

7:39Sold off, obviously, like everything else. Got back up there at the end of July. And it looked like we put in a classic double top. Sold off on the back of NVIDIA. And here we are back at 157. That is absolutely worth watching. I'll try to answer your question and say the higher rates go, the more expensive these stocks get. And at a certain point, I think you'll see a rotation out. And energy is going to be, again, be the beneficiary of all this. Yeah, you're saying that it's a problem. High rates are a problem for the tech trade. So are you starting to pare back? Well, I did sell some NVIDIA and sold some calls.

8:10But I think that we talk about things aren't a monolith necessarily. So I still think a name like Google and Meta, it's in the tech trade for sure. But it's not anywhere near the multiple. I mean, Microsoft. Of the mega cap techs, Google's taken over leadership. You're right. So, but I'm not going to trade around it if I still really like the story, which I do for Google. It is 20 plus times, 23, four times, but I'm sticking with it. All right. Well, our next guest sees a bullish signal in the bond move. Savita Subramanian is the head of U.S. equity and quantitative strategy at Bank of America Securities.

8:43Savita, great to have you with us. Welcome to our new set here at Studio B in the NASDAQ. Yeah, thanks for having me. First guest ever. It's quite an honor. I know. It's not an accident. So, what is that sign, that bullish sign in the bond move? bullish sign in the bond market. Well, I mean, 10-year yields are rising, and I think everyone's interpreting that, including myself, as a lot of different factors like supply, demand. There's a lot of supply coming online. And then meanwhile, China, the Fed, BOJ are no longer buying. So that's bearish for bonds. But I think it's also potentially a nascent sign of something positive happening, which is that companies are now refocusing on efficiency and productivity rather than juicing up earnings through levered buybacks and, you know, cheap financing costs.

9:30And what surprises me is that when you look at the equity risk premium and multiples on stocks, you tend to see investors willing to pay a higher multiple for companies that are actually focused on efficiency. And companies are now finally focused on efficiency and they have new tools. They have AI. They have automation. So I actually think there are a lot of reasons to be bullish about growth in the U.S. rather than just, you know, yields are moving up and this is like death to equity. I think the last time you were here on Fast Money, you had said something to the effect of, I'm the most bullish I've been in forever.

10:06In years, at least since the global financial crisis. Because I think that what we know now is, I mean, maybe we don't see as strong of returns from here, but we see more real returns. And I think that we're past this experiment of QE and zero interest rates and negative real rates and all of this really kind of unnerving stuff that has been hard to allow us to actually value equities appropriately. We're now at a point where earnings are still positive. We're seeing companies actually focusing on labor efficiency because labor inflation is showing up. So I think that we're at a point where productivity, which is something that nobody really thinks about anymore because we didn't really have it for a while, that's actually going to be driving the next leg of the bull market.

10:53It's interesting. You talk about no more free money. Companies have to be more efficient, which is a great thing. I agree with that. But at what point, if any, does this lag effect of 18 months of higher rates kick in? I think it's already starting to show up. But I think what's interesting is if you look at the S &P 500, and this is not true for any other equity benchmark, companies have actually gotten very disciplined about leverage. And I think that's the lesson that everybody learned in 08. And even consumers have gotten disciplined. So if you look at the U.S. consumer and the U.S. corporate, they've basically locked in long dated fixed rate debt obligations.

11:32So this is all going to be bad and net negative. But there's a while to figure out how to grapple with this. And then moreover, I think what's interesting is that if you look at sectors like industrials and energy and financials, companies that usually expand capacity during bull markets, these are companies that were denied capital for the last 10 years and have gotten very, very lean and disciplined and are now at a better position to handle a higher interest rate environment. So I don't know. I look at the market right now and I look at even, you know, the average consumer. And back in O.A., there were a much higher percentage of homeowners that had farms or, you know, adjustable rate mortgages.

12:15Today, just 15 percent of homeowners have adjustable rate mortgages, which is a whole other problem because now nobody's willing to walk away from their homes. And that's why we have this shortage of single family. So, you know, again, I don't think it's just gravy forever, but I do think that we're at a point where we have some visibility on what the Fed is going to do. They've already done a lot of the hard work. We're at, you know, 5 percent on short rates. I think we should be happy about that because that means we have some, you know, some some latitude to ease our way in the next downturn.

12:51And then on top of that, we've got consumers that are still relatively well capitalized, Maybe not as well capitalized as after they got a bunch of free money, but they still have relatively solid balance sheets. Let me ask you something just to touch on something you said, which is about greater efficiency to come. Right. We saw Meta, I don't know, talk specific stocks, but we saw the effect of the year of efficiency and we've seen it for a number of companies. But we haven't seen it from a lot of others yet. Right. Do you think that that is still a really meaningful amount of juice, I guess, runway for the market?

13:23I think there is still a lot of room to get efficient. I mean, I fully expect to be replaced by chat GPT or robot at some point, you know, hopefully not for a while. But I need to put my kids through college first. But, you know, I think that there are aspects of corporate that can be made much more efficient, especially the services industry. You're seeing this with restaurants. Our analyst on restaurants has been writing a lot about, you know, what the new kitchen looks like. There's a lot less people and, you know, a lot more automation. And I think there is room to do this across the board.

14:02That doesn't bode well for you guys, by the way. The kitchen with less people in it and just you like to cook, right? So I'm worried. You worked at Shake Shack. Yes. I worked at Pizza Hut. I mean, I'm all over the place. Please continue. But no, I do think it's a longer term story. I think AI is part of it, but not all of it. You know, I just think that we've had this wonderful period for the last 20 years where we didn't have to worry about labor inflation. We could just move stuff to cheaper areas of the world. And now we're moving stuff back to the U.S., but we're thinking about how to do things, you know, how to do more with less, which I think is really bullish for margins, for multiples.

14:46multiples. I mean, investors are much more willing to pay a high multiple for a company that has improved their operational efficiency than a company that just borrowed a bunch of free money and bought back a bunch of shares. All right. Savita, great to see you. Thank you so much for coming by. Great to be here. Thanks for having me. Bank of America, which gets back to Apple. Tim, maybe Apple's multiple is warranted. Well, I don't think it is. And I actually, you know, I'm one of these people that thinks Apple is one of the great companies of all time. And it's a very easy company to hold when you consider what they can do capital markets wise.

15:21But I and I look, you know, and Carter talks about it like what what Apple has done over the last year is it's a struggle, right? Relative to the market. What Apple and Microsoft have done over the last three weeks is pretty impressive. Microsoft's back over the 50. There is some sense that, you know, what looked like a real challenge straight down to the 100 day is something that we have to watch. I just think the biggest challenge with rates may be higher, we may be more productive, but the market multiple right now is the biggest problem I have, trading it 20 times forward. I mean, one thing it gets down to also, of course, is money flow.

15:52We know there's$5 trillion in the money markets. And as long as rates are going to stay here, I don't see what gets that money moving into the equity market because that is something that would help the bullish case. And for now, it's not leaving, right? You look at the record levels. I think it sits there. All right. Coming up, trouble in the charts. Restaurant stocks have been feeling a little heartburn recently, and the chart master spotting even more trouble in the kitchen. The names you may want to 86 from your portfolio next. Plus, Airbnb and Blackstone getting a promotion. Shares jumping as the stocks get ready to join the S &P 500.

16:25What the move could mean for these names when Fast Money returns.

16:32Welcome back to Fast Money. Consumer discretionary may be one of the best performing sectors in 2023 at more than 30 % since January. But the chart master sees trouble ahead for one pocket of the group. So, Carter, which pocket would that be? Sure. So I thought we'd take a look at restaurants and we've got several charts and we can just bang through them. And the point here is that restaurants versus retailers, right, versus all the stores like Urban Advertising Gaps, They have basically tripled the market's performance. XRT being the ETF that captures a broad swath of retailers versus restaurants.

17:06And you see it here on your screen. So on a 10-year basis, again, the S &P 1500 restaurant, all of those names that you know and more, 20 names, in fact, a tripling of the orange line, which, of course, is XRT. And that's every retailer you can think of. Now, if we look at the actual chart of the restaurant sub-industry group itself, we've got three of those. It tried to make a new high and couldn't do it. One way to draw the lines. Another way, of course, is that we've broken the uptrend line in effect since the COVID low. So you put them together, a third of three. And what you see here is an industry group that made a double top, couldn't break out, and is now breaking below this trend line.

17:49There you see it. But let's look at individual restaurants. because they're all doing the exact same thing. Again, this was the get out of the house, go and eat outside COVID story. And now all of these individual restaurant stocks are starting to break down. And we can pull them up one at a time. But the first you'll see here's Darden. That's a well-defined uptrend. And that is a break-in trend. And you'll see the next. It's the exact same circumstance. And so we've got McDonald's here. Same thing, a break-in trend. The relative performance is disastrous versus consumer discretion. Keep going.

18:24We've got others. There are three more, in fact, Texas Roadhouse. It doesn't matter which one you pick. That's the thing. The charts are all the same. We have Yum here, I believe, among the last two, Wingstop, and then Yum. And so the question is, this area, which, again, tripled the performance of retailing in general, is it a champion that's now rolling over? I think it is. We're seeing it in the casino stocks. all these experienced stocks, the sort of get out of the house COVID stocks are all on the ropes. So McDonald's, Tim, you think that there's a trade down effect that would help a name like McDonald's in particular out of this group?

18:59There's no question. And McDonald's has invested massively in efficiency and innovation and the things that have given them the ability to, especially through COVID, to take market share. If you think about the comps they had in the U.S., they had 12.6, I think, in Q1. They had 11.5 in Q2 as a follow-up. I'm just not sure they can do it. So I was slowly selling upside calls and getting called away in McDonald's from the 275 up to 300. I'd like to buy it lower. I think I'm going to get it lower, not because of anything they're doing wrong. Carter's making great points about that group. I think it's going to be tough for the spend to look like it did for the last 12 months.

19:34So Carter, when you see all these charts, they're all the same and they're all breaking below trend line. Where do you think that where do they find support? Well, each one is, of course, different in that sense, but the question is, having had that much outperformance versus Foot Locker, and you can pick all the ones that are so horrible, Target. I'm familiar with both of those. Yes, yes. But the point is, after having that much outperformance, is this underperformance still young, nascent, and i.e. more to go? To your question, I think yes. How much more? I have no idea, but I definitely want to be underweight or short the group.

20:07Darden, it's interesting Carter brings that up. classic potentially now double top, if you look. Down big today on seemingly no news, like a lot of these other stocks. That's concerning because valuation isn't ridiculous in the DRI. It's not crazy for McDonald's either, historically. It's amazing, though, that valuation hasn't caught up to my personal favorite. CMG. CMG. It hasn't. It's the only place you can go. When someone starts with that, you know. Well, no, but it's remarkable that it hangs in. Listen, at some point, somebody's going to care. Nobody cares right now. seemingly about valuation.

20:41Well, I mean, to Savita's earlier point, you know, a company that executes. They execute. Right. That's what you pay up for in this environment, efficient companies. But when you're talking about a 2x for some restaurant, you know, three at a certain point. 45 to 55 times is where it's traded for the last four years. And I couldn't have been wrong. I mean, it's just this is one that continues to defy gravity. I think if the consumer gets stretched, look, this is a place that has to be weak. But I wing stop. That's it. 80 times, right? Is Wingstop 80 times now? Wow. That's rich. It's a one, kind of you go there for one thing.

21:15Well, if you do that one thing, great. I mean, like, maybe it's worth it. I don't know. I don't know. Don't lie to the audience. You haven't been to Wingstop. No, but I remember interviewing the CEO the day of its IPO. No kidding. Yeah. We went to Buffalo Wild Wings one time. Yeah, we did as a group. We all did. Buffalo Wild Wings and Wingstop. Group out. I know. Quick story. We have time. No, because Tim ordered a drink. Remember? As I might. Send it back. What do you think they were doing backstage at the kitchen? It was an awful margarita, okay? I happen to be a perfectionist. It was terrible.

21:53Anyway, we digress. Coming up, two new additions to the S &P 500, Blackstone and Airbnb moving up to the big leagues. But can the stocks keep their gains coming? That trade is next. Plus, Zscaler on the move after reporting results will bring you the latest details out of that quarter ahead. You're watching Fast Money Live from the NASDAQ Market Side in New York City. Back right after this.

22:24Welcome back to Fast Money Stocks. Kicking off the short week on a down note, the Dow dropping almost 200 points, the S &P 500 shedding about 20 points, and the NASDAQ down about a tenth of a percent. Two big winners, though, Airbnb and Blackstone surging. On news, they'll be the newest members of the S &P 500. That goes into effect on September 18th. And in the after-hours session, shares of Zscaler giving back earlier gains. The cloud security company beat on the top of the bottom lines and gave better-than-expected guidance. Shares right now are slightly lower. Your pick, Guy, which is what you want to say.