Rebound Falters… Plus A Warning Sign for the Retail Space 8/7/24

0:00And we are live from the Nasdaq market site right in the beating heart of New York City's Times Square This is Fast Money, and it's a big Wednesday, so let's jump right in. Easy come, easy go. Stocks starting the day out with a bang, raising hopes for a recovery rally, but a rough bond auction, turning things around quick. Red flags for retail. A big bank sounding the siren on the consumer. We'll speak with the analyst behind that call and maybe find out where she is still seeing opportunity. And a mega day for media earnings. Supermicro's not-so-super day. And Novo Nordis slimming down. after failing to impress stories and the moves behind all those stocks coming up.

0:40Hi, everybody. I am Brian, in for Melissa once again. As we note that we are live in Studio B at the NASDAQ. We are contractually required to mention it repeatedly. Dan Nathan, Guy Adami on set. We've got Julie Beal and Tim Seymour with us as well. Thanks, everybody. Let's have a good night. All right. Let's start right here. Another not great day for your money. Now, the day did begin nicely. The Nasdaq up more than 2 % at one point today, but then a big bust, and we actually ended the day lower. Basically, a three-point round trip, percent round trip for the Nasdaq intraday. Certainly do not see that much.

1:18So what exactly happened? Well, some are blaming the reversal on a lousy government bond auction. Terrible demand for 10 years, that hurt sentiment. And interest rate stocks did get slammed today. The small cap index down 1.4%, bringing its losses just this week to 3.5%. And it's only Wednesday. Homebuilders and biotech ETFs also down about 2%. But it was not all bad. You had a little flight to safety, I guess. Apple up 1.25%. Google also rising as well. Guy Adami. Yes, sir. Welcome back. You were worried last night. I had reason to be. But I do remember one thing about last night, which is that you said you thought yesterday's little mini rally was a blip and a tough tape.

2:07That appears to be correct, or at least today. And then what do you make of this big intraday reversal? Yeah, get used to it, I think. I mean, 130-point reversal in the S &P today. We bounced about 6 % off the lows that we saw on Monday, which was significant in terms of how quickly it got there and just the scope in which we did it with all what happened with Japan and all those different things. And they're sort of reversal in terms of what's going on with yields. But I think the bottom line is the economy is slowing. I think the unemployment rate is scaring people. And I think people come to the realization that, wait a second, maybe this whole AI trade and everything we predicated our belief system in isn't as sturdy as it thinks.

2:46So today actually makes a lot of sense. Is there a way, Tim, to take away something broader on these big reversal days? You start out hot. The buyers are there. I mean, we I don't want to call it a collapse, but a three percent intraday move on the Nasdaq. We don't see that very much. What do we read from those types of turns? Well, that the market wasn't oversold, first of all, and I think that that's totally fair. And one of the things we've learned about the wave of passive investing is when you have a move to the door, it creates enormous volatility that you might not have seen. And there's been a lot of active managers out there that haven't really believed in fundamentals.

3:23So it creates the kind of panic we've had. And we talked about yesterday and we'll continue to talk about what are the ingredients in the vol spike. And so even if we separate out carry trade, Japan, et cetera, the reality is, if you look at the underperformance today, it was smack in the face of the areas that have been given the most leadership. And you mentioned AI, you mentioned semis. The SM8, the semiconductor ETF closed almost 3 percent down. And so, you know, the S &P effectively closed exactly where it closed on Monday, but this time heading to the downside, as you pointed out. It's not very auspicious.

3:58And I think the reality is we haven't reconciled really anything. It's nice to have seen stocks hold major levels, but there's a lot of argument from technicians that there's ways to go. But I would just get back to the fundamentals. I think one of the things we're seeing from earnings right now is that we might even be at peak margins for this cycle. I think that's that's something else that the market hasn't really digested. And that's not a recession dynamic. That's truly corporate specific. Dan, would you call this a risk reversal? Yeah, I see what you did there. I would, in a way. So there's two things, and Tim just kind of referenced the technicals.

4:32So if you want to go back to Monday's opening, the S &P 500 is probably 1.25 % away from that, and the NASDAQ 100 is about 2.5 % away from that. So keep a close eye on those levels because, you know, you go through those, and there's probably not a lot of support just from a purely technical standpoint. And Tim also said that maybe we weren't that oversold, right? There was a little panicky on Monday's Open. We had a good couple-day rally, but it just didn't feel like it was in particularly good hands. And then to Tim's point about the fundamentals, I think if you're calling peak margins for the cycle, if we start to see deceleration in earnings and sales growth, and then you start to see basically analysts starting to ratchet numbers down, we've been talking on the desk that double-digit expected earnings growth for this year, about 11.5%, I think, per FAQ said, and maybe as high as 14 % for next year.

5:20It just seems overly optimistic at this point. So at some point, as we get closer to the end of Q3, you might see analysts and strategists ratcheting down earnings expectations for this year and next. Interesting. So, Julie, number one, do you agree with what Dan just said? Number two, if you do, I mean, then we wonder, I guess, where those estimates end up, because to get to a whatever 19, 19 and a half multiple, we still math says prices may have to come down a little more. Yeah, I think that's exactly right. I agree with Dan. I think we are kind of in this place where we're putting a lot of hopes and dreams into the second half.

5:55And it's just not clear to me that we're going to be able to deliver that in terms of earnings growth. Listening to all of these conference calls, guidance has been pretty timid. And the overlying circumstances is we just aren't able to price the same way that we used to. And so that's when this argument of have we reached peak margins becomes really, really relevant. When I think about today's market action, it's really clear to me, along with the idea that passives are there, is that there's not a lot of conviction, right? Most people who are professional investors, many of them are kind of in this market against their wishes in terms of the AI trade and even the move into small caps.

6:32And so anytime there's a whiff of trouble, they all back out and run for the doors. And a lot of us are still trying to figure out what are the drivers? Is it interest rates? Is mercury in retrograde? You know, is it the PMI that's saggier than I am when I'm wearing a bathing suit? Like, I don't know. But I know that we don't have a lot of leadership. And that's what's really making for volatility. Well, I don't think I would push back on that, Julie. But, you know, who am I to say? With that said, margins, Tim mentioned. Julie, let's talk about margins real quick. Because in March, people were making arguments for super micro SMCI on valuations.

7:08The arguments on a price to earnings ratio was compelling. 30 times the growth rate. But our concern all along is when margins turn, watch how quickly they'll take these stocks out to the woodshed. Look at the move since. I mean, this stock is down 65 percent-ish from that prior all-time high. Multiple is still compelling, but margins are declining. And, again, I know Dan agrees with this. I think you're going to start seeing more and more of this. And when margins become a concern, it's sell first, ask questions later. Yeah, but again, we kind of went into this yesterday, Tim, which is Supermicrocomputer, a company that probably nobody had heard of a year ago, maybe two years ago.

7:48Maybe if you're in the industry, you had heard of it. Now you've got a stock that went from nothing to whatever it was,$1 ,000. It's down 60 % off of its highs in a couple of months. That's the kind of stuff, forget about the company, that just crushes investor confidence, I think. Well, I would prefer to look at a Micron or a Dell because I think they're real companies, at least, that have a history of performance also outside of this AI space. and their ones. I mean, Micron to me, I won't play Monday morning quarterback, but I can just tell you, I did feel the dynamic there with memory, even AI and their ability to deliver a chip that actually could be able to be part of a super memory dynamic is something that was kind of ridiculous at the top.

8:34So Dell, again, has reinvented itself and there's dynamics to the story there that are still very exciting. But I think those would be the examples for me that are more telling. NVIDIA, obviously, on some level is I don't think the story has changed there. We got some news in the last 48 hours that maybe, you know, Blackwell was going to take longer to come to market and deliver the same kind of numbers that the street had started to price in. But I think overall, you know, what we're seeing is frothier stocks and the ones that to me are really more outliers. And I think I think micro is one of those names.

9:06I would prefer to go to the names that people thought of as big companies that were suddenly transformed by AI. And I'm not talking about NVIDIA, but I am talking about the first two. Yeah, I'll just mention that the quality of the names that started to kind of take off a little bit. You saw Intel, for instance, about a month ago, go from$30. They've been basing there for, I think, two months or so and went to$37 on, you know, some sort of expectation that they're going to have some product next year that's going to compete with NVIDIA. And that just wasn't the case. So for every great story like an NVIDIA, there's an Intel and there's an AMD.

9:38And so the quality that folks were going for was getting worse and worse, right? So when I think about there's Taiwan Semi, and then the flip side of that is global foundries. And that thing has just been also decimated, right? So again, I think investors are becoming a bit more choosy. They're probably starting to question the sort of trajectory of the story. And again, if we do start to see a deceleration, we're going to get a lot of news on August 28th from NVIDIA. And again, I'd like to see, even if they're able to keep current estimates in place. How is the stock going to react? I can't imagine we're going to have the sort of reactions that we had last year, these big gaps.

10:17We're going to move on to media. Julie Beal, very quickly, any reason to buy Intel at all? It's now what we call a teenager. It's under 20. It's being sued by shareholders. Breaking news tonight, the stock. You know, because it could be a value trap. A lot of people look at it and go, oh, it's Intel. It's got to come back. And that's not how the market works. It doesn't have got to do anything. No, I think all of these semiconductor names are problematic. because they have a really high level of fixed costs. And so when they get a minuscule amount of revenue deceleration, it collapses their margins.

10:47And that's why we try to avoid names like that. Yeah, avoid maybe. We'll see what happens. But Intel, under 20. All right, now to another tough industry, and that is the media. Pretty grim out there. Warner Brothers Discovery out with their results. I won't call them earnings, no earnings. Another big loss, another big miss, and a big write-down. Julia Boorstin has the details. I don't know if I summed that up appropriately, Julia. That's right, Brian. A miss on the top and bottom lines as the company takes a$9.1 billion write-down, a Goodwill impairment charge on the devaluation of its linear TV networks.

11:23CEO David Zaslav acknowledging what he called tough conditions in the legacy business, saying that the write-down better aligns the company with its future outlook and that they always thought this would be a multi-year transition to respond to what they describe as an ongoing generational disruption. The company is stressing its strength in digital. It added a better than expected 3.6 million net new subscribers in the quarter, though its loss for the streaming division was larger than expected and revenue for the division declined 6%. But for all of the company's focus on digital, the media giant continues to be dragged down by its linear assets.

11:58The network segment saw an 8 % decline in both revenue and earnings. And Brian, David Zaslav was just asked if losing the NBA and the loss it was impacting their distribution deal negotiations. He didn't really answer. He said he wasn't going to speak to any specific piece of IP or content. Back over to you. Yeah. Wow. Julia Boorstin. Dan, I don't even know. Again, kind of like an Intel. This is Warner Brothers Discovery. This is CNN. This is brands that we know. But yet the stock can't get out of its own way. Any reason? Listen, it's very simple. I mean, the ground has been moving below big media's feet for, I feel like, 10 or 15 years.

12:37And when you think about losing an asset or losing a piece of content like the NBA for a company that's already struggling with their linear TV, it just makes it that much worse. And a lot of these networks have had a hard time also putting this content on some of these streaming models to a lot of folks. And we've talked about my parents have no idea how to find the Olympics on Peacock. You know what I mean? Like that sort of thing. So a lot of folks out there. All right. Should I have said that? No, I don't want to look at me. You're not just your parents. My folks, the same thing. Yeah, okay.

13:05First thing I do is go to Peacock, which is excellent, by the way. I have no idea how to download Peacock. I mean, that's the other point. You don't download it. But, yes, but I get your point. We took this wildly profitable industry and decided to take it out behind the woodshed. That's my point. Thank you. Guys, you get to Englewood Cliffs from time to time. Time to time. Crack staff. We have a – I mean, it's fair to say crack staff. Is that true? The best. The best. So if they were the best, they could pull up now a 20-year chart of WBD. And you'll see we are trading now at levels we last saw in the financial crisis, when I think the stock was a$6.50 stock.

13:41So to answer your question, it's going to trade probably 200 million shares tomorrow, which will be about 10 times normal volume. It probably trades down to those levels. If you're looking for a trade on what will absolutely be capitulation, tomorrow's the day you've been waiting for. Okay, let's talk more now about media and media stocks. with somebody who has forgotten more about media than we'll ever know. That is Tom Rogers, founder of CNBC, now CNBC contributor, executive chair of Orbit, among other things. I am not, I'm going to say something about bankruptcy, Tom, but it has nothing to do with the stocks.

14:16I want to make that clear. But it's kind of like the trajectory of this business. Hemingway famously wrote, there's two ways to go bankrupt. Gradually, then suddenly. And it feels like the ground that shifts that Dan was referring to has just opened up in the last six months. Where's a bottom here? Well, I think it's a great question, but it's really two very different stories between Disney and Warner. And you've got to look at them differently. Obviously, not a good day in either stock. And there was a lot of disappointment on the amusement park side of Disney. But when you look at what the whole problem has been here, would streaming ever make up for the decline in the traditional linear business?

15:09And Disney can say, and I don't know why they didn't talk to this. I don't know why it hasn't been something that analysts have highlighted. But they got to a point in the last quarter where combined direct-to-consumer streaming revenue actually exceeds the revenue of their traditional linear businesses. Now, obviously, revenue top line is not margin, and they got a long way to go before the margin on the streaming side begins to make up for the loss of profitability on linear. But that's a major milestone that none of the other traditional media companies have yet hit. OK, these are good points.

15:54And I want to be clear. There were some things that like Laura Martin, maybe the top media analyst out there, noted that she liked the margins in some of the areas. She liked the fact that that they added 800000 subscribers. But I think to your point about making money, Tom, last night we talked about Rivian, an EV maker. Right. And they're selling cars and trucks. Some of them are$100 ,000, but it costs them a lot more to manufacture the car. So revenue is going up, but profitability is not there. It sounds like that's kind of what you're sort of analyzing with Disney and Hulu and everybody else.

16:31Will there ever be a time of streaming profitability? Does the model ultimately work? Because if it doesn't, Tom, I don't know what the industry is going to do. Well, Disney, for the first time, did hit streaming profitability. Remember, I've been very cautious about Disney, warning over and over again over the last several years that when people compared Netflix and Disney, Netflix was miles ahead. That's clearly the case. But you can't take away the progress Disney has made here. Warner is a bit obscure because what is in the Warner streaming numbers is cable HBO. So it's not a pure look at streaming per se when they talk about direct-to-consumer.

17:20And that clouds the picture, obviously propping up to some extent revenue. Now, when they say they only had 3 million-plus subs, I think they probably lost a bunch of cable subs. And so their actual streaming subs may have increased more than that. I don't know why they don't give a clear picture, but that is a company that is nowhere near being able to get to the point that its streaming revenues are equivalent to its linear revenues. And with that company, linear represents 80 percent of the revenue and profits of the business. You gave Tom a bunch of accolades as you invited him in. You could have just basically said it in one word.

18:02Dan, you know what that word is? Stud. Stud. And he is. So here you go, Tom. You know, since we're on the Hemingway thing, the sun also rises, and it rises in the form of Netflix, which, by the way, has given you a bit of a pullback over the last couple months. So all the things we've been talking about and hearing, is this recent sell-off in Netflix once again an opportunity for traders to get back into stock that's been almost bulletproof over the last 10 years? Well, I think if you believe in media still as something that is going to be an overwhelming focus of consumer discretionary spending, it is clearly going to be the leader.

18:42It is, by all metrics, is way ahead of everybody else. You know, when you look at Disney +, introducing maybe 16 new shows for the season max, introducing at Warner, maybe about the same, And Netflix has a model where they're able to introduce 92 news shows in a quarter, which is just a remarkable difference in terms of how the machine works, being able to drive engagement. Now, they haven't proved themselves on advertising yet. And all these companies are clearly setting themselves up to be hugely reliant on advertising. And Amazon came to the party and depressed everybody's pricing by throwing basically all of Amazon Prime viewership into the advertising pool now, along with YouTube, which has become the streaming leader.

19:37And so that is something which Netflix is going to have to prove itself on and has a long way to go to do that. But in other respects, yes, it's way ahead of the pack. And it's at this point probably something that is worth investing in. Tom Rogers? Stud. No, he is. It's unbelievable. I mean, he's a visionary. I mean, think about what he's done in his career. And by the way, he's not just hanging out and resting on his laurels. I'm not really sure what a laurel is. He's still kicking it. And he's a grandfather. I mean, look at the man. That's it. That's it. That's it. I agree with everything you said.

20:11Are you a Hemingway fan, by the way, Brian? Yes or no? Absolutely. It's almost as much fun spending time with you guys as it is with the grandkids, I must admit. Well, next time, be on set. Guys, you don't even know what Hemingway's Boat was named. What was the name of it? I'm not really sure. Pilar. Pilar. Pilar. And it's in Havana, Cuba. Read a book called Hemingway's Boat. All right, on deck. You can't do that. I just shut it. I'm the host. More numbers. Is it raining? More numbers just rolling out. We're going to go under the hood on Robin Hood with Kate Rooney, who I believe is in the house.

20:43Kate Rooney. And J.B. Diamond weighing in. what maybe the most powerful bank CEO in the world had to say about markets, rates, the upcoming election, and much more as part of his bus tour. We've got a lot more to do. Just getting started on Fast Money. We're back at 2.

21:04All right, welcome back to Fast Money, everybody. We've got an earnings alert on Robinhood. Now, the stock is up about 3%. The company reporting a beat on both the top and the bottom line. And Kate Rooney in the house to break out the Robinhood numbers. Kate, good to see you. In the house. Great to be here with you guys. All right, so it was a beat across the board for Robinhood. Record deposits as well. Revenue grew up 40 % or so year over year. Monetization looked a lot better. Average revenue per user was$113. It was about$8 better than expected. And then transaction-based revenue, so pretty much a barometer of trading, was up 69 % from a year ago, primarily driven by options.

21:37That made up about 55 % of the total. Crypto was about a quarter of that. And then equities were only 12 percent. So a lot of talk in the call that's going on right now about trying to court more active traders at Robinhood. Margin balances grew 20 percent. I spoke to CFO Jason Warnick, who said they're continuing to take assets from every major brokerage firm. Deposits hit a record. It was$13.2 billion. And of that, roughly$3 billion for an asset transfers. And then the size, this is kind of interesting, maybe important,$130 ,000 per customer. So it does signify a higher income investor. They now have$140 billion under custody.

22:12Schwab, for some context, still has more than$4 trillion. We did also just get an update on some of the August volumes. They say they look pretty much the same as July, up about 20%, with a billion in net deposits in the first week of August, guys. So what would be the headline if you're going to write the headline, Kate? What would be the one thing that stuck out to you the most? I would say the deposits, that they're taking market share and that they're trying to get that active trader. They're coming for TD. They're coming for Schwab. And they're making some progress. Kate, thank you. Dan, they're becoming a bank, it sounds like.

22:40Well, listen, they've really upgraded their offering. That's why they're able to get 50 % of their sales in options. So if you think back to the meme stock stuff a few years ago, you could only YOLO options. You could buy a call, buy a put. Now they're really going multi-leg, so the offering is much more in tune with an active trader that wants to use this technology. Julie, I'm old enough to remember when people got mad about payment for order flow, and they wondered how things could be quote-unquote free. Now everybody apparently loves the hood. Well, I mean, it's hard to argue with free, right?

23:08We give over a lot of private data to Google just for usability and search. So it's a little bit the same thing here. I still think that's a concern for us longer term. The other thing, too, is the way that they acquire customers in terms of the incentives, it's not super sustainable. And I think in order for the value and the multiple to really change and improve, they have to do a little bit better on that. But I was impressed by the ARPU growth, up 34 % year over year. That's not nothing. And I think they're well on their way to getting where they need to be. You like the stock, Julie? You know, I really I prefer interactive.

23:42I think it's a better quality business. I think the payment for order flow there, it creates a limit of how much your customers are willing to have their data sold out that way. Tim, you got a Robin Hood take? I think after a 45 percent pullback in 15 days, I want more out of a great quarter for a company. I look at the assets under custody of 57 percent. And isn't that effectively the move in the stock market from year to year to the end of the second quarter? So I think there's a lot of questions in terms of how they do in a difficult market. I think it's a different type of investor. It's nice that they're adding to the offering.

24:18I'm not you know, look, there's there's a lot out there that they're going to do well and are doing well now. but what differentiates them. So I just think the stock shows it's vulnerable during these periods of volatility and that the the their primary trader is probably right in that group of volatility. Yeah, well said. And I believe something did say if something is free, you are the product. All right. Coming up, all the after hours action that you need to know about in big oil, big real estate and more. Plus, the latest big thoughts from Jamie Dimon, what the CEO had to say about inflation, the Fed, and maybe even the election.