Rates surge around the globe... And sell the strength in energy stocks? 8/18/26

0:02Mazda has been named Consumer Reports' safest new car brand. It starts with our approach. Every Mazda comes standard with proactive safety features. So you're more aware of what's around you, more focused on the road ahead, and ready before problems ever start. Mazda. More of what matters most to you. Go to mazdausa.com to learn more. Consumer Reports does not endorse or promote any product. Say you always wanted to have a backyard oasis. Here's the thing. If you get smart with your money, you can do things like that. With Empower, you can start making the most out of your money so you can go out and live a little.

0:41Isn't that why we work so hard? To have some fun with our money? Like treating yourself to something special or spontaneously doing something extra for a loved one. So use Empower and get good at money so you can be a little bad. Join their 20 million customers today at Empower.com. Not an Empower client paid or sponsored. Live from the Nasdaq market site in the heart of New York City's Times Square, this is Fast Money. Here's what's on tap tonight. The great rate rally, 30-year treasury yields hitting levels last seen nearly two decades ago. What's driving the move and what does it mean for stocks and other markets?

1:16And out of energy, oil stocks trading at a record, but the chartmaster says one part of the group is about to run out of gas. The names he thinks are in for a pullback coming up. Plus, semi-stocks give back a week's worth of gains. Meta drops as the landmark trial begins. And we're counting down to target earnings. Can a long-lagging retailer keep its momentum going after results? What can we expect to learn about the state of the consumer from the tea in Timbo? I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Karen Feiderman, Dan Nathan, Guy Adami, and Tim Seymour.

1:47And we start off with the big move in rates taking center stage for investors. The yield on 30-year treasuries hitting a fresh 19-year high. early in the session before pulling back slightly. That after the U.S. fiscal deficit marked its highest monthly total in over five years. But it wasn't just U.S. rates on the rise. Japan's benchmark hit its highest level in 30 years, and long-term German and French government debt at their highest in more than 15 years. For more on what's driving all these moves, let's bring in CNBC's Rick Santelli from the CME in Chicago. Rick. Hi. You know, some of those 30 years overseas trade by appointment.

2:23The 10 years where all the action is and indeed everything that Melissa just pointed out is definitely a global issue that is rising and putting pressure on rates everywhere. And it comes at a time where debt to GDP is a bit scary outside of Germany. Debt to GDP in Germany is only 65 percent. In France, 120 percent. In the U.S., 125 percent. In Japan, a record high in terms of advanced economies, 220 percent. And I've said all along, debt and issuance, debt and issuance, debt and deficits. Well, let's go to the whiteboard quickly. This is 2026 compared to 15 years ago, 2011, on issuance in T-bills.

3:05Every Monday, we do three-month and six-month bills. Right now,$90 to$95 billion, six months,$77 to$80. Here's what it used to be in 2011,$29 and$27 billion, respectively. On Tuesdays, every Tuesday, one-month and two-month bills. $90 billion on one-month bills,$80 to$85 on two-month. In 2011, it was$45 in one month. We didn't even have a two-month bill. We had to add it because the rest of the bills, you couldn't put any more size in because they were so large. And on Wednesdays, we have the four-month bill,$60 to$64 billion. It also didn't exist until 2022, which brings a grand total to$400, roughly, billion per week versus$101 billion 15 years ago, up 300%.

3:49300%. 300%. Now let's go to coupons. The two-year,$69 billion is your average monthly auction rate. Three-year,$58. Five-year,$70. 44 on the sevens. $42 billion on tens. And of course,$16 billion on twenties. On thirties, $25 billion. And then of course, there's reopenings. But if we look at the numbers in 2011, it's hugely significant how much it's grown recently. So you're basically up 100 % in the issuance on the coupons. Why is any of this important? Because we need investors to buy all of this supply. And it isn't only us. As Melissa pointed out in my earlier spot, Germany's about the only country that doesn't overuse T-bills.

4:35And here's the sad part. You want to know why these countries use them? They don't want to lock in higher rates. They're always optimistic they're going down. But like an optimistic homeowner, when rates are going up, If you have a fixed rate mortgage, you're happy. But in this case, the government's equivalent is a floating rate mortgage as rates go higher. Not the side of the equation you want to be on. Back to you. I mean, this it's interesting, the tactic, Rick. But I mean, the fact of the matter is that interest payments for the U.S. are skyrocketing, skyrocketing. I mean, they're they're expected to exceed a trillion dollars.

5:07Of course, you got to pay for these. You got to pay for them twice a month. Exactly. Exactly. And the$1 trillion mark was hit a while ago. This is nothing new. None of this is new. What's new is the fact that the Middle East war has just put a spotlight on all of these negative issues. And, of course, what's going on in Europe and Japan, that is relatively new. Because they're starting to try to stimulate in a big way at a time where they shouldn't be issuing any more debt. All right, Rick, let's connect some dots. You mentioned Japan. Scott Besson's made it pretty clear that he'll do whatever he needs to do to support the yen.

5:42And I think just by default, it means what he's going to do to sort of save our bond market, maybe save us a little extreme. I guess my question to you is, is it too late to do that or does he have some sort of bullets in that gun to do it? You know, I think what he's doing with that lending facility that he's kind of regaged at how it survives isn't necessarily a bad thing. But once again, we continue to use these derivatives instead of doing the right thing. In essence, the reason this is going on is because the Treasury Secretary doesn't want Japan to sell any of their position in Treasury notes and bills and bonds to do the interventions.

6:21So that's why he created this facility. But I'm not so sure that that's a wonderful idea in the big picture. And consider this. One of the big issues with Japan's holdings, of course, is that U.S. holdings and institutions like insurance companies, like hedge funds, Their coffers are full of Treasury securities because of the way the reverse repo market works. And in essence, there's a lot of nervousness that the basis or some type of trade going on between the futures and the cash could end up being a sore point in the markets. And he's absolutely correct that that could happen. So we have a lot of moving parts here.

6:56On one hand, it's a good thing. On the other hand, it makes me a bit nervous. Yeah, it's all talk today, Rick. But, you know, in a week, it might not be. And I'm just wondering if you think we're at a point now where people should be concerned and this will be an impact on the broader market outside the Treasury market. Or if you think that this is, you know, fretting over deficit spending is just, you know, another year, another another time to fret over deficit spending. I mean, we've been doing this for decades at this point. Well, I think there's a lot of politics involved in it. The current administration is not popular.

7:27The war is not popular. Midterms are coming around and affordability is a big issue. Connect the dots there. But in my opinion, I think if we see 10-year yields get over 5 % quickly in the next month or so, that would not be a good thing because it'll trigger other countries in the same direction but more aggressive. But in my opinion, this is going to pass, but it doesn't mean it's over. I think there's going to be one of these sessions or two where things get a little illiquid, rates pop, but they don't stick and they come back down after they blow out the weak positions. All right. Rick, always great to see you.

8:00Thank you. Rick Santelli with an amazing whiteboard. I mean, he does terrific work and his penmanship is just. Yes. So here we are. We've got markets close to record highs. Do you care about this? I care. As an equity investor, as a human being on this planet. Right. OK. That's a good way to distinguish which which me are talking to as an equity investor. Yes, I care. But, you know, we've all heard this for years. Right. And we still haven't been to the thing that causes things to break unless you think about the great financial crisis that that was a broken system. So I don't really care, except I do think that we're going to see a lot of issuance as well outside of government issuance.

8:47Right. And so who's going to absorb that? How's that going to get absorbed? What does that do to pricing? We get into this, you know, vicious cycle, not a virtuous cycle of higher and higher rates. and then, you know, the deficit just being bigger. But I come back to on a day-to-day, I just look at what I own. I want to be in things that have good balance sheets. We've talked so much about the cash flow story changing dramatically and some of those things that I thought had pristine balance sheets. But that is still how I'm positioned. My whole career, I've been told don't trade geopolitics, right?

9:18But I've also been told keep an eye on the bond market because that's the thing that is really going to drive, at the end of the day, a lot of the stock market gains. And you think about what's going on with the equity risk premium It is like razor thin. And, you know, Rick just mentioned this. It's like, you know, maybe it's the right thing to do. Maybe it's not the right thing to do as far as the Treasury secretary trying to support the yen. But when you think about all this stuff, you think about what's going on in geopolitics and he attached it to the war. If you just think about that. And the bookend of that is go back a year and a half or so.

9:45And we have the tariffs. Now we have an unpopular war that's costing a lot of money. We have a lot of our allies who are not particularly happy with a lot of these things. The president just threatened South Korea, which is one of our biggest allies. Right. They also hold treasuries. Right. So if you go around the world and you start threatening your allies, which we started doing going back to April of twenty five with that tariff wars, you start to say to yourself, how many holes are there to end up plugging? You know, if you end up seeing the sort of disconnect that we're starting to see in the bond market, I'm not smart enough to figure it all out.

10:15I keep hearing, you know, people say, well, it's the trajectory of the way that yields are going. this or whatever. You know, I don't know. Maybe kissing 5 % is the sort of thing that keeps an S &P 500, 7 ,700 on its way back to 7 ,000. The last time we had a 10-year that was at or near 5%, the S &P was at 4 ,200. You know, so there's just a different, and there's different drivers of that. I get it. That was early 23, and the AI thing hadn't started yet. But throw on the investment grade debt thing that we know in the public markets, and then look at what's going on in the private credit markets.

10:44And we have potentially a lot of stuff that could be wound up into one thing. And the S &P 500 is not discounting. It's interesting. Rick said it's going to be a day where, you know, yields spike and then sort of come off a little bit. And the fact that we're leading the show tonight with it now, all of a sudden, everybody's a bond expert out there. If you follow Twitter, suggest that maybe today is one of those days. I want to be crystal clear. I'm a bond bear. I still think rates are going higher. But you look at today's price action and maybe you get a couple of days reprieve here. Yeah. Tim.

11:12First of all, I like when Guy's crystal clear. It's nice. And definitely, I agree with what's been said. I think this is not about the war, though. I think this is the confluence of investment-grade issuance that is of a record, that$250 billion has already been raised in long-term and high-grade investment-grade debt this year. There's more to come. We have the greatest CapEx to GDP period of all time. This is one of the greatest build-outs of infrastructure. the world has ever seen. And it's happening in a confluence of less confidence in central banks, the deficits that we've all talked about.

11:49And the deficits just creep higher. But let's be clear, before COVID, U.S. was somewhere around 100 percent, 95, 90. Everything has moved higher. And now we're at a place here where we're wrestling with deficit dynamics when we have inflation. By the way, global GDP is probably close to 3 percent. You have cyclical upward movement in rates. It's all happening at the same time, at a time when the big unknown really is what's going on with CapEx. And I don't see that stopping. I also don't see the companies that are investment grade and offering an interesting kind of credit pickup on the spread basis to the U.S.

12:25government pulling back on that. I think it puts more upward pressure on the U.S. government. I also just think I look at Japan and Takeuchi deficit spending. Europe is rearming like crazy and is not going to get caught in the same thing that they have with Russia again. So, again, the good news here is that the rest of the world is seeing higher rates at the same time we are. The bad news is the rest of the world is seeing higher rates at the same time. And this isn't this is everybody in. And it's not great for equities. Right. On the supply side, we're not going to get any reprieve for all the reasons Tiv had mentioned, all the need to spend, the need to finance CapEx, et cetera.

13:06And you've got to wonder if on the demand side we'll see any sort of let up, given the high rates that are now being offered. I mean, I don't know how this cycle breaks. Well, one way out, which I don't think we're at that yet, is equity over debt. I think right now debt is far more attractive to the Google alphabets of the world than others. But I think that would be one way to address it. There's the other way. The more painful way is a massive sell-off in the equity market. And those dollars find their way to the bond market in some sort of flight to perceived quality. I mean, that is the other thing that I don't think anybody wants right now.

13:46Meanwhile, stocks falling on Wall Street today. The Nasdaq leading to the loss is down more than a percent. But our next guest remains the most bullish among strategists in the CNBC market survey. Lori Calvacina is the head of U.S. Equity Strategy at RBC Capital Markets. Lori, great to have you with us. Thanks for having me. All right. So do higher yields pose a problem to your forecast, 81.50 on the S &P 500? So it depends how much higher. And this is really the message we've been giving people since June, which is let's look at it through the lens of the 10-year yield. I think we can tolerate yields up to about 5%.

14:17I think if we go up to 5 % and stick there or we break meaningfully above it, we're going to have a problem in the equity market. And if you go back to 2022, late 2021 even, we had like a 300 basis point increase in 10-year yields from kind of that low up to the 2022 high. We had a 25 % drawdown in the equity market. There was a lot of other stuff going on as well. But let's fast forward to 2023 and 2024. You had moves up about 168 basis points and 90 some odd basis points. We got 10 and 5 % drawdowns in the equity market. 10 and 5%, that's a normal garden variety pullback. It does not feel good, but it does not derail a forecast.

14:54something more like an interest rate shock that you got in 21-22, where you had a meaningful step up into kind of a new regime, that's what you have to worry about. That's not our base case, but that's the risk to monitor. We love having Lori here, don't we? Sure do. She appears on many shows, but I know this is her favorite show. That's what she tells us. Well, that's what she, you know, she probably says that to everybody. Amongst herself. Is there a credit event sort of potentially in the wake of this potential move to 5 %? You know, I don't know that I would necessarily say that. Like, I think it's really, you know, in addition to the level, it's the speed of the move.

15:27That's what my friends in fixed income always say to me. And I talked to my rate strategist earlier today, Blake Gwynn, and he was telling me, you know, this has felt like a grind, you know, and he sort of expects it to grind up a little bit more. He doesn't seem overly concerned at this point. You know, I think the other thing we watch, frankly, is through the lens of the Fed. And it's interesting that pressure feels like it's coming off a little bit. But I think when you take it all together, right, the message we've been giving people since June is as long as you kind of avoid that interest rate shock, we can handle some P.E.

15:56compression because of the strength of the earnings. But we don't expect this to be a linear path, you know, to our 81-50 target. We think there are going to be some puts and takes. Laurie, you just mentioned the Fed. We don't have a meeting, obviously, in August. There is the Fed chair is going to be in Jackson Hole in a week or two or something like that. And then we have a Fed meeting in mid-September. What we're going to have, CPI. We're going to have PPI. We're going to have a jobs report. We're going to have some reads on labor outside of the jobs report. If we start to see CME FedWatch tool moving back up about 50 percent, 55 percent or something, what does that do to this whole situation here?

16:28Because you just said it took a little pressure off. We've had slightly more dovish data. What would it be if we started to get more, I don't know, stronger data, I guess? Like if we start pricing in the hikes again near term? Look, I think it can add to the potential for short-term indigestion. You know, we've said in our forecast, you know, and also when we're talking about tactical risks, frankly, that the interest rate environment is the biggest one to monitor right now. I would also add that you've got the midterm elections coming up. And as I was listening to Tim and he was talking about the rest of the world, I was rewinding to a trip that I took to Australia to see investors week before last.

16:59All we talked about was rising interest rates. They expected them to go up midterm elections. They looked at it as a risk factor. And also, interestingly today, if you look at the price action, they didn't believe, you know, sort of in the old leadership coming back, even though it was bouncing back vigorously. They wanted to rotate. So it's interesting to sort of see all that play out today. You know, maybe the international investor got their revenge. So, Lori, thanks for being here in person. So 81.50 is year end this year. How do you get there? Is that earnings? Is it multiples or both? So the 81.50 is a 12 month rolling target.

17:30And so we have five different models, and I'll say they run from sort of 80.43 at the low end up to around 83.50 at the high end. And 81.50 is basically the median of the five models. We actually have two of them that are getting above that 8 ,300 mark. I will say the least constructive one is the one with our valuation and earnings model. And so we're basically taking the consensus earnings for 2Q27 on a trailing 4Q basis, and then we're lopping 10 % off the top. Because typically, analyst forecasts are a bit too high. So we're putting some conservatism into that earnings forecast. Then on the P.E.

18:04side, we have three variables that go in, 10-year yields, the Fed, and then we also have CPI. For CPI, even though our economists are in the 1 % range and the consensus is in the low 2s, we're putting in 3%. And then we're adding in two hikes, and then we're putting 10-year yields at 4.75%. So that's giving us some compression, but the strength of the earnings, even with that haircut, still points to 8043. So that's a very, very conservatively, you know, I would say run model. And it's still pointing to some upside. Lori, good to see you. Thank you. Lori Calvacina, RBC. Meantime, chip stocks giving back yesterday's gains and then some.

18:38The SMH semiconductor ETF down 4%, erasing more than a week's worth of gains. Among the laggards today, Teradyne down nearly 9%. Marvell, Micron, Arm also seeing significant pullbacks here. It does seem like a chips up, chips down sort of cycle that we're in. We had that conversation at the top of the show last night. You asked if the move gives an all-clear sign in terms of memory. And I think the conversation we had is it would appear that way, but over the last couple months, we've seen moves up 10 percent, moves down the next day 8 or 10 percent, and it's playing out the next day. And I think this will continue.

19:10I will say, this is my opinion, although I think you can continue to see these ups and downs, I think the trajectory for most of these is lower. Tim, you agree? Lower? I don't know. No, I think it was an extraordinary run to the 50-day off of that 100-day bounce. I mean, semis had as good of a run as they've had, and that's saying something during this period, the fact that they've taken a breath here on a day when there was other reasons to rotate. I mean, market rotation today was extraordinary into health care, into staples, into places that are certainly conservative, excuse me, diversification.

19:44But also, yeah, they would be non-correlated possibly to some of the high-octane tech moves. So I guess there's a very large company, we all know who, that's going to be reporting towards the end of next week. That, to me, is where I think we're all positioning. And ultimately, I think the interest rate conversation is very important, and we're having it, and we're going to continue to have it. I think rates are going higher, too. That's not going to derail semiconductors. It's going to derail other stuff. I don't want to chase memory here, but I think there's high-quality semis that I want to own.

20:18this to me was running into a normal spot on a chart that they had to pause. Yeah, I don't think investors are placing enough emphasis on some of the halts that are going on from some of the state governments. You know, today it was Pennsylvania and Governor Shapiro. You know, it's Governor Hochul here in New York. And it seems like this is a very bipartisan issue. Right. And it doesn't seem like, you know, there's a lot of clarity about how these will affect people in their locales. I know there's a lot of negative, you know, kind of headlines out there about energy use and, you know, water and the list goes on and on.

20:50But these these facilities, they don't employ a lot of people. They just don't. Like so one gigawatt that costs you 50 billion dollars probably to make is going to employ maybe five, six, 700 people, that sort of thing. So if these things move into your backyard and there's a whole host of other things that you have to worry about, you know, employment from them is not particularly tops on the list right here. So I just think that this is something that is going to be more and more. It's going to be a political issue. It is right now as we head into the midterms. But if you see a stop down in a lot of the development of these data centers, all of these names are going to get killed.

21:23I mean, it's just that simple. And, you know, the other thing is important to kind of remember. It's like those backlogs that a lot of these companies are trading off of, they're based on these data centers being built. And right now, if you look at all the gigawatts that have been planned out, I think it's less than 25 percent that are actually being made right now. So, again, I think there's going to be a huge, well, there is a pull forward right now with a lot of these companies. And I think the deceleration in these backlogs is going to be the thing over the next couple of quarters that really causes investors to reprice these things.

21:52A lot of everything depends on these data centers being built. And to the extent that if we say, let's just say 25 percent of projects do not get built and the rest of the 75 percent have a longer time frame because the permitting takes longer. You know, all these other things that where you need political buy-in to accomplish takes longer. That timeline for the project, the cost for the project go higher. Right. Makes them less attractive. It's just math. And so have we sort of entertained that worst case? I don't think it's a worst case scenario, but it's worse than the case right now. We're just saying they will be built.

22:31I think that's what Karen's going to say. No, no, I think, I mean, I hear what you're saying and I can see, you know, here and Josh Shapiro and talking about, you know, being closed to a new data center build. But I do think already in process is an enormous amount. And I think we'll probably come up with some other ways to do it. And I think that there's a chance that the metas of the world try to address this in a way that works. They've done that before a number of times, not just them, but others. So, I mean, I think that, you know what, let me just switch gears for one second. I think we're going to have a lot more to discuss once the video reports and to hear what they think, how they see.