Rising Dollar, Rates Threaten Market… And Major Moves in Health Care 12/19/24

0:02Live 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 Dow just barely breaking its 10-day losing streak, but the dollar and yields both continuing their treks higher after yesterday's Fed decision. Will that spell gloom and doom for equity markets in the new year? We'll debate that. And health concerns from weakness in the insurers to another disappointing drug trial. The sector getting hit hard today. We'll dive into all the headlines and dig in on whether the sector is worth another look. Plus, Nike and FedEx surging after hours.

0:31We'll go inside the numbers. She has a French fry maker, Lamb Weston, getting skewered, shredded maybe, and how private equity could completely change the landscape for college sports. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan, and Mike Coe will join us shortly. We start off with the two major moves that could threaten stocks in the months ahead. The 10-year Treasury yield climbing towards 4.6 percent after yesterday's Fed meeting. It spread against the two-year now its highest. It's been since June 2022. The dollar also continuing to strengthen, hitting a two-year high of its own.

1:04Those moves as the central bank revised its outlook for 2025, now expecting just two more cuts. That sent stock markets reeling on Wednesday. While the major averages tried to claw back some of those losses yesterday, today, I should say, a late-day fade sent the S &P and Nasdaq just into the red, and the Dow well off its highs. So it did manage to break that 10-day losing streak. The Nasdaq currently the only index with a gain in this historically strong month. So will the new year hold new troubles for stocks or can the rally get back on track? And I guess the key here is we mentioned the dollar and the yields.

1:37If they keep going higher, what kind of headwinds will they be? Look, there's no question that significantly higher yields are bad for the equity market. But as we talk about quite often, I don't think anybody wants to see yields diving. And I don't think I think a 10 year below three and a half also isn't a great sign here. The dynamic that we're going to talk about, you know, budget deal, you know, new government spending, no government spending, no limited government spending. new administration. I mean, this is part of the dynamic that I think is what was driving yields over the last couple of days.

2:04I mean, typically when we talk about the Fed and what part of the yield curve they can control, we typically talk about the short end, but not necessarily the long end. And that's more of a barometer of inflation. But it's also a barometer of other factors, including technical factors, but including budgetary factors that I think are, at least in today's headlines, part of what I think we would be talking about. I think for now, this move is more of a function of how significant you've had a breakout now above some of the recent resistance. The dollar moved to, you know, 108, almost 109, at least at some point today.

2:34And really through at least the top of the old range where you had a bit of a double top at 108 probably feels for people out there that are fearful that the dollar could go to 114. And in that case, you start to have this question about multinationals. By the way, a dollar that high is certainly going to at least damp down some of the inflation. I mean, it's at least an alternative to at least what's been going on with inflation. So today's action after the volatility of yesterday is a little concerning because, again, these would be factors that I think could lead to more volatility if you have these kinds of big moves.

3:10But I think we can't lose sight of the fact that going into yesterday's Fed meeting, you had the markets that had rallied almost 14 % from Fed meeting to Fed meeting. I mean, I think we need to relax a little bit in terms of talking about the equities. But these two factors that we're leading the show with are things we have to be watching. Yeah, and what is also interesting is that going in, you know, looking ahead to next year, a lot of shops in the street were anticipating the dollar to peak sometime in the beginning of 2025 and then to decline. But here we are. I mean, if the Fed is taking out 50 basis points of cuts next year, then those estimates need to be revisited.

3:41And so then you think, yeah, is that hit? Plus the geopolitical uncertainty abroad, will that make the dollar even stronger? Well, it's interesting. I mean, for the Trump administration, they do a lot of things that would be supportive of the dollar. And yet also he talks about not wanting a strong dollar. So I don't know where that's going to end up. I think it is he, by the way. It's what? Either does he, by the way. Well, none of us know, actually. Right. I don't know. I think about when I you know, when multinationals, it's not great for them when they're importing those dollars where they sell abroad and get fewer EPS back.

4:16I don't know. I always sort of discount those as really just wanting to see how the business is rather than what the EPS is in the short term. So I think to me, the things that weigh more heavily are tariffs, which obviously are tied in. But that to me has a bigger, you know, if we are in a tariff war, that's more problematic to me to the market than the dollar, even though it relates to the dollar. Yeah, I would just say this. If you have that dollar that remains strong or gets stronger and you have these multinationals that are selling into, they're generally selling into weaker economies. I mean, that's also something that I think is really important.

4:49And then there's another thing to look at. A lot of people thought, well, let's look at the Russell 2000. Let's look at small caps. They're not going to have the same pressures as they would from a strong dollar. But they also now, if rates are going to stay higher for longer, they have a higher interest expense. They have a higher access to capital. And I think those are all things that are probably restraining growth to some degree. And then to start, your question was the dollar strength, the yields, and this or whatever. I think we've got to focus on why this is all happening right now, right?

5:14So, you know, everyone predicted a recession that never came in 2023. And then we had this kind of spending boom in and around generative AI. If you look outside the Faithful Eight over the last year or so, there, what? You're still trying to push that Faithful Eight. No, it's, okay. Have a ball, Dan. But I think embedded in a lot of those consensus estimates for 15 % year-over-year earnings growth next year is that other sectors are going to kind of pick up the baton a little bit. And I'm not just so sure in that environment where we're talking about higher for longer and we're talking about a stronger dollar.

5:46So and then I go back to like Goldman Sachs, who, you know, remember in October they suggested that annual returns for the next 10 years are going to be about 3 percent. Yet their economist thinks that growth in the U.S. next year is going to be better than expected. I think about two and a half percent GDP growth versus consensus at like 2 percent. Now, I'm not like putting those things at odds. I just think there's a lot of folks who think both of those sort of things, low returns, but better than expected growth. And I don't think both of those things can be true. I think part of what exacerbated the move, possibly drew at least more attention to the move and had markets react to the move, which is what markets do.

6:20They look at central bank differentials. This is a day when you had a BOJ decision. They kept rates on hold. This is the BOJ that no one believes is ever really going to hike rates as maybe they should or should have. And at some point, maybe they'll have missed their spot. But it does mean that the Fed suddenly is out there looking significantly more hawkish than the rest of the world. That will do something to interest rates. That will do these differentials, I think, a dynamic where you could continue to see rates higher here. This is on top of all these technical factors, which I think we're probably going to start to get into that conversation later in the show.

6:50Seems like a heap of risks to the markets, which are sitting close to record highs. But we're already there, though, right? I mean, what of them is new of the risk? I mean, I guess higher rates for a longer period of time. Okay, the Fed being less bullish. And so therefore a higher dollar. or a hawkish Fed. I'm not saying this Fed was hawkish. Your hawkish cut that you talked about that we got. More hawkish than the hawkish cut. It was more hawkish than I had thought. A couple other things are happening. As we get later in the year, I think you'll see desks slower. I think there are no buybacks right now, which have been very supportive of the market.

7:29I think we'll see those re-engage earlier next year. It was interesting to me that the VIX, it came in a little bit, but that was a very significant move yesterday, and it's still pretty elevated. So I wouldn't be surprised to see more volatility. But overall, I'm still optimistic. Mike, what's your take on where we sit right now? Well, I mean, first of all, speaking to Tim's point, we have to see these central bank differentials because we have very different economic pictures in these places. China, Japan, and certainly Europe and Germany are really in the throes of it, frankly. So they're going to have to be accommodative on their side.

8:10And our economy is relatively strong, right? So or quite strong, I would actually argue. So that in combination with inflation sort of ties the hands of monetary policy around the world. And so we're going to see how that plays out. Although I do agree that, you know, some of the stronger dollar is going to help offset the inflationary impacts. And I also suspect that when we're looking at China specifically, even if they are faced with some tariffs, they really are in a demographic pickle and they have to encourage continued exports. The whole notion that we had only five years ago or so that they were going to sort of mature as a developed economy and sort of focus more on services domestically doesn't hold much water when you have a demographic population that's upside down in terms of age.

8:55So, you know, all of those things together. And I think basically the monetary policy is that's it's, you know, not something that we can really control for. All right. We want to get to a newsletter here on the latest developments in Washington. House lawmakers reaching agreement on a stopgap spending bill to avoid a government shutdown. CBC's Emily Wilkins is on Capitol Hill with the very latest. Emily. Hey, Melissa. Well, yes, we do now have a plan B for keeping the government funded after the Friday night deadline that is coming up. The question is, of course, Can it actually pass now this funding bill?

9:28It has a couple different components in it It does include that disaster aid relief aid for farmers and it also extends the debt limit for another two years So instead of january of 2025 lawmakers now don't have to deal with it until january of 2027 And this bill has already gotten the green light from president-elect donald trump He posted on truth social earlier today Encouraging both republicans and democrats to vote. Yes on the bill and to do it tonight. Now, of course, while there's a lot of momentum around Republicans, Democrats have not been big fans of this bill. The Democratic leader in the House, Hakeem Jeffries, spoke with us a little bit earlier.

10:07Listen to what he had to say. The Musk-Johnson proposal is not serious. It's laughable. Extreme MAGA Republicans are driving us to a government shutdown. Right after that, Jeffries actually went into the room behind me where he's meeting with Democrats. And just a little bit ago, we heard cheers and chants of hell no, hell no coming from the room. So it looks like if this bill is going to pass, it's going to have to be with Republican votes only. That could be a concern because there are a number of Republicans who are concerned that the debt limit is being raised without trying to decrease government spending.

10:48It could be a long night ahead. And at this point, Congress is certainly not out of the woods when it comes to a shutdown. Melissa. So just to get to the votes needed for this to pass and avoid a shutdown, Emily, not advocating that this is a great bill, whatever, leaving that all aside. Every single Republican who went out to vote, do they need any Democrats? So at this point and to not get too wonky here, we are expecting votes to come up. If they do it through an expedited process, they're absolutely going to have to need Democrats to pass it. However, if this next vote fails, they could try a different process.

11:21It takes a little longer, but they could do it with just Republican votes. But remember, we're just talking about the House here. Then this bill has to go over to the Senate, where it is controlled by Democrats. So I think a lot of question marks, a lot of hurdles remaining this evening. AMNA NAWAZ, The New York Times, The New York Times, The New York Times, The New York Times, How many Republicans can they lose, Emily? AMNA NAWAZ, The New York Times, The New York Times, The New York Times, The New York Times, I think, at this point, it's about three or four Republicans. It depends on what attendance today looks like.

11:45And we already know there's at least one Republican, Chip Roy, who has raised massive concerns about the fact that extending the debt limit was included in this bill. It's a very thin margin. Emily, thank you for keeping us posted. Emily Wilkins in Washington. Let's get more from Andy Constant, CEO and chief investment officer at Damned Spring Advisors. Andy, great to have you with us. Nice Christmas tree. No, thanks, Melissa. In terms of what do you make of the Fed and what they did yesterday and where long-term rates will go? Yeah, I mean, I think the big takeaway from yesterday is the Fed succeeded in out-hawking the risky asset markets, which were expecting more dovishness, while they failed to out-hawk the bond market.

12:26And so the bond market did the work for them and moved fairly meaningfully after what was a hawkish outcome. The meeting was a big shift because after 13 months of decidedly dovish posture, the Fed acknowledged that it may have been premature to act as if the mission was accomplished. You know, it took 13 months to reach this decision. It's not going to be reversed, I don't think. I don't think there's going to be a re-pivot until the inflation is dead or the economy tanks. So this was a significant pivot. Do you see any room in 2025 for an even more hawkish pivot? And I'm asking this because Bloomberg was citing a trade in the options market linked to SOFR, which basically bet on a very hawkish pivot in 2025, which would indicate perhaps a right hiking path.

13:19Yeah, I can't get there. I think with interest rates rising as they have and likely to continue to rise, I could see the 10-year drifting out to 4.75 % or 5%. I don't think they're going to rise significantly more than that. But with that and potentially a slightly weaker equity market, you could actually start to see the economy. If these rates stay higher for something more than a few weeks, if they stay higher for a few months, I think you're going to start seeing the economy soften a little bit. And that should allow the Fed to basically stay on path. Andy, it's Karen. Thanks for being on today.

14:04I know you often talk about how they refund, not just how much it is, but how they actually do it. Do you think that's going to change a lot? And if so, how? Yeah, I mean, I think the fiscal outlook is uncertain. And the sequencing of the agenda for the Trump administration is not certain. But what we do know is coming is on February 3rd, the teabackle meet, the first time that Treasury Secretary Besant will have the mantle. and one of his underlings will run that meeting, and they'll have to decide whether they're going to change the policy that the prior administration had, which resulted in over the course since quantitative tightening started, resulted in 50 percent of the nation's debt being financed with bills.

14:59Secretary Besson has been very public about saying he thinks that is manipulating the economy via the Treasury secretary role, which is not their role, and that they should extend the debt financing. That could have an impact on the long end as well. But it's unclear whether that'll happen at this meeting upcoming or the next one. Given all these uncertainties, Annie, short term, are you constructive on equities? Do you think the environment is good? Yeah. Ahead of the Fed meeting and earlier this month, I started selling equities short. And I've also been short bonds since the Fed cut, the 50 basis points in September.

15:41I covered a lot of my equity short today, and I covered all of my bonds short. I think the rest of the month could be choppy. But I think if the economy, the destination is higher for the 10-year bond because the two-year bond is going to stay around Fed funds until a cutting cycle starts again. So the drift up in the 10-year should be bearish bonds in the new year. And that should keep equity multiples in check, which to me means that, you know, the easier path is downward in the first quarter. All right. Andy, thank you. Great to speak with you. Happy holidays. You too. Andy Constant. Interesting, you know, the notion that if if yields stay within the range, but higher for a few months, that that will be enough grit in the wheels of the economy, so to speak, to to slow it down.

16:36Yeah, I think a lot of us, you know, that move from four percent to five percent when we had about a year ago or something like that. I think the fact that it just kissed five percent and then came off really quickly. I think that's the kind of idea that a lot of folks think if we continue to go higher here. And I think if it goes back there, I'm not sure it just does what it did last time. There might be enough reason for them to stay that way. And to your point, you asked it right away. I think you asked of Steve Leisman last night as we were kind of parsing through what happened about an hour or two before.

17:02I mean, what if we actually go from a point where the dots suggest, OK, we went from three to two cuts to no cuts to maybe, you know, raising interest rates? I mean, that would be a thing that the 10-year is going to run in front of, right, obviously. And so at that point, you're going to have a stronger dollar. And Tim mentioned this, I think, earlier. You know, if we go back to those highs in the dollar, the U.S. Dixie or whatever the heck they call it, to 114, that's where it was when the 10-year was at 5%. You know what I mean? So that is, at this point, that would be a huge, huge headwind for stocks and valuations.

17:33Because if you were willing to actually put a couple turns or two or three on the multiple of the S &P 500 when you were expecting, you know, 150 basis points of cuts about a year ago, you're going to have to do the opposite. You know what I mean? If we start getting up there. So we're at 23 times. You could see this at 19 times. Just on differentials alone, the dollar can go to 114. I mean, again, weakness, Canada and shambles, all of it. For sure. And we are of the view, I think we I mean, I am of the view that that those differentials are real. I'm of the view that ultimately you've got a case where the dollar will at least represent some of that.

18:10I also think the the market is not priced for any hawkish Fed. So I'm not talking about necessarily even rate hikes. But what we saw yesterday was a Fed that is balanced in terms of their outlook. It's also coming from one of the most extraordinary runs in equity markets in a long time. So I think mega cap tech, maybe the favorite eight, what is it? Faithful eight, dude. Faithfully, I think the favorite eight. I'm going to start my own favorite eight. But whether it's eight or seven or six, there's no question that the rest of the market has been significantly underperforming stocks, not a little bit over the last two weeks.

18:47And that is something that I think would continue even more so in the rate environment we're in. All right. Coming up, earnings season may be winding down, but we've got two big names on the move tonight. The details on the quarters from Nike and FedEx next, plus a lot of movement in the health care space today from an update on the murder of UnitedHealthcare CEO to a popular weight loss drug taking off the shortage list. Everything you need to know when Fast Money returns.

19:21Welcome back to Fast Money. Nike shares just taking a leg lower in the last few minutes. Well, it's barely, basically barely right now in the green. Oh, it's climbing again. Interesting. The company beating earnings estimates. This is the company's first quarterly report under new CEO Elliot Hill. The conference call is underway, which accounts for a lot of that volatility. Courtney Reagan is here with all the numbers, Court. Yeah, so actually, Elliot Hill just sort of wrapping up his opening remarks. But just to talk about the quarter really quickly, better than expected, certainly. But remember, the company came out and sort of warned, look, the holiday quarter is going to be weak.

19:51They pulled their guidance. They postponed their investor day ahead of Elliot Hill coming in. And so really, everyone's focused on what's looking ahead because we knew things were kind of messy. And so I'm going to look down because quite literally, he just sort of started making some of these remarks, outlining his strategy for the first time. Elliot Hill saying, look, they need to be sharper in their product, especially with a focus on individual sports. They need to reignite sports marketing, focus on big events, big athletes. He noted that they've become far too promotional. They also need to build back earnings trust with wholesale partners.

20:21And he named names, went through the executives that he's met with at different retailers like Dick's Sporting Goods and Foot Locker, which I found very interesting. He just noted that there was a lack of newness. They weren't delivering inspiring stories. And those are the some of the things that they want to get back to. So really sort of outlining some big ideas really right off the top there. We don't yet have they had not yet given earnings guidance, at least in the last, what, 45 seconds or so. Usually that does come on the call. We don't know if that's going to be the case this time around because he is just new to the CEO seat.

20:49Yeah. So we're up three and a half percent right now. Is there any sort of inventories were flat versus last year? Yeah. How do they keep that like that? I mean, what were they selling? You know what? I wish they gave us more detail. But to be quite honest, in the beginning of the first 20 minutes, it was all forward looking. They really didn't give us much color at all about what happened in the quarter. I imagine that's what the CFO is talking about right now, interestingly. But he was all sort of looking forward other than saying that about 50 percent of what they sold online was promotional and only 50 percent at full price.

21:20And he wanted to change that. That was the one inventory nugget they gave so far. So the mix of online, not online was a little bit better. Yeah, exactly. Down about 2 percent. So the gross margin being somewhat better if the rest. OK, so this was better than feared. Way better. Way better than feared. You know, and again, obviously, we've seen shares fall after each of the last four earnings reports. I think expectations were pretty low. The company sort of gave us this level set. Look, this is going to be a kitchen sink situation. We've got a whole new reset coming. And it does look like that's what Elliot Hill is trying to do here.

21:52Really enthusiastic. Obviously, had been with the company for a long time, retired. And now he's back. Really enthusiastic without a lot of detail. So this is and it's funny. It's different how if you read financial media, they're going to say these numbers were better than feared as opposed to better than expected. It's better than feared from price action perspective, better than better than expected. And that's what we maybe got out of the gates. But ultimately, what's the there there? And that's that's what I think it gets back to. We Nike's not lost in the forest. I mean, there's an argument about innovation still needing to be upstarted, jumpstarted.

22:27But the reality is this is the biggest, the best global athletic brand in the world. But sales were down 8 % year over year. I mean, ultimately, to take this stock higher, we need to see those numbers change. Yeah, each of the regions was slightly better than expected except for China, which obviously has been a rough spot in a lot of ways for a lot of different retailers. But very important for Nike to figure that out soon. Yeah, I mean, also, I mean, yes, it's a big brand, it's a great brand, whatnot, but there has been brand deterioration. Yes. I mean, there has been reports that, like, if you look on resale websites, nobody wants those Nikes anymore.

22:59Those prices are going down. And it's funny. I even saw some data today from folks that sort of look at social media channels, Alt Index. I think they said that Nike had lost a million Instagram followers in the last 90 days, 4 million since April, which is kind of interesting, right? Since they're so big on imagery and those big marketing campaigns, I mean, to unfollow, that's an active action that you have to take, right? So I found that interesting with that brand heat. Jeffrey's also talking about how the brand heat remains low. Yeah, so you said they pulled guidance, analyst day, that sort of thing.