Signs Of A Weakening Consumer… And Pressure Mounting On President Biden 7/8/24

0:02Live 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. Burrito Bummer. Shares at Chipotle getting rocked since it's 50 for one stock split. Other quick serve names also getting hit. Mickey D's, Wendy's, Starbucks and beyond. Will this struggle ripple through to other consumer stocks? We'll debate that. Plus, fighting back. President Biden vowing not to step down and step aside. What as a candidate? What do Wall Street and Washington think about the president's forceful pushback against its critics? And later, cocktails in a can.

0:34We'll take you inside the battle for shelf space that's brewing between the beer giants and the ready-to-drink distillers. No, Tim, we're not talking Bartles and James. Oh, thank goodness. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. I'm the Deaths tonight. Tim Seymour, Karen Feinerman, Guy Dami, and Lori Calvacina, head of U.S. equity strategy at RBC. And we start off with the fast food implosion. Shares of Chipotle down another 5 % today, hitting their lowest level since late April. The stock now down nearly 15 percent from its all-time high hit just under three weeks ago.

1:05Ten percent since its 50-for-one stock split went into effect at the end of last month. But it's not the only restaurant stock struggling. Starbucks resuming its downtrend down nine of the last 10 days and 11 of the last 13. Wendy's is trading at levels not seen since May 2022. And even McDonald's is down more than 15 percent this year. Non-food stocks like Etsy, Nike, Wynn also well in the red today. So with weakness being felt across the consumer spectrum, could there be a reckoning in the broader market? Tim, what do you think? Well, the broader market may be OK because the math doesn't really add up in favor of a lot of these stocks.

1:42So if you think about what's been driving the S &P, and I still think that, you know, the rally that we had that resumed today in semis, which is return to glory, they have returned to glory. But back to McDonald's, we've been telling this tale for a long time. We lined Guy up to eat from three different value meals on this desk. That didn't end well, by the way. Well, we don't know what the end of that story was at home. But I do know that we have heard from McDonald's. We have heard from Wendy's. We have heard from every fast food and even fast casual. And when you have a valuation like the one that Chipotle has, I recognize this is a story that really has connected in every place you are supposed to have over the last three years, whether it's loyalty, whether it's digital, whether it's their expansion, whether it's international.

2:24It's a dynamic where, yeah, I get it. They have they have really delivered. And I think that's fine. But at some point, I think the consumer has run out of gas and we are still getting hit. Inflation may be fine on the headline and certainly what we're seeing year over year on CPI and maybe even PCE is getting down to the Fed's target. It's not abating right now across the consumer. So whether it's Starbucks, then you look at things like even, you know, Pepsi is one year lows. General Mills is one year lows as you're getting more of the stapely part of it. And I'll tell you what, I think there's a lot of, you know, I think there's a lot of window dressing in consumer discretionary, especially around that ETF that has mostly Amazon and Tesla in it.

3:02Actually, it looks like it's been performing very well if you're just buying the ETF. I think discretionary continues to go lower. And I think the valuations for those that were expensive when we paid up for it can go a lot lower. The cumulative effect of inflation is hurting people without question. I mean, you mentioned McDonald's. McDonald's is actually trading right around the low we made in October of last year. And you recall, that's when the market was bottoming out as well. So McDonald's has not traded well. And if you listen to the CFO a couple of quarters ago, they basically told you that people are feeling the pinch in terms of cost.

3:31No doubt about it. Auto loan delinquencies, auto loans transferring into delinquency status now at 13 year highs. We're getting all kinds of consumer credit reports this week. I do agree with Tim. I think the consumer is strapped and they've been trying to combat inflation with credit. And that just doesn't end well, Mel. We've been hearing an outside fast food as well, Karen. And from all the full spectrum in terms of the kind of consumers that these outlets cater to, whether it be the Dollar Tree stores or the dollar stores and like a McDonald's all the way on up to a Nike and a Lulu. I mean, it's sort of it hits every price point.

4:06Yeah, it does. Just to go back to Chipotle for a second, there was a gigantic run in the stock on the announcement of the great earnings and then the stock split. And so I think it's just retracing that a little bit. Not very much, actually. I mean, this is a bad move for Chipotle, but they've seen these kind of drawdowns a number of times. Guy could probably recite it by memory how many times they've done this. But to your point, though, it is it is sort of concerning. I would rather have them trading down into earnings than up because Tim brought up last week. The banks are trading very nicely into earnings.

4:40And I really don't love that setup. Yeah. I mean, Tim had mentioned, you know, the structure of the markets is such that these stocks can trade lower and we can be fine. But to the extent that consumer spending makes up a big part of the economy, at some point, do you get concerned? Should we be concerned at some point when we get all these data points in? I think it's fair to look at, you know, these different reports that have been coming in. And I agree with a lot of what's been saying, I think, especially Guy's point on the cumulative effects of inflation. And you're seeing pressure if you look across income brackets on things like hotel searches.

5:11If you look at grocery spend, it's not just one cohort that's getting hit here. I think at the end of the day, based on the data I'm seeing, the consumer still has some buffers, but I think they're tired of using them. And I think the capacity is just not there. And it feels like certain lines have been crossed where consumers are mad and they're acting out about it. So at some point, at what point is the mathematical sort of structure of the market overridden by the fact that consumers are slowing down? I think we're a ways away from that, actually. And it's just interesting because we had this payroll number on Friday where most people were at the beach.

5:43and but you know we were here on fast money and we talked about the dynamic of of where be careful what you wish for the fed has this dual mandate but actually um you know 4.2 4.3 percent is kind of where they want things to stop on unemployment i'm not sure they will meanwhile i think inflation will stay elevated for some of the things that we've just talked about and that ultimately will also continue to push down the consumer and eventually the market but we haven't had the growth scare because right now this is still full employment and in fact employment that still says the consumer's got a job and they can pay their bills.

6:12But as we know, they're reallocating different parts and different segments. And so there are some big, big winners in here. We know Walmart's been a big, big winner. We know TJX has been a big, big winner. And I think those are places where I think you can see outsized gains. And some of those places can continue to perform, especially when the reason they've been so successful is everything we just said. It's interesting, Tim. You know, they do. I'm sure they being the Federal Reserve, they've wanted the unemployment rate to go up for a long time. They'll never admit that. Or maybe they have in quasi language.

6:39But the question is, can they stop it from going up to a meaningful level? And I agree with you. I don't think they necessarily can. And if you look at the revisions, I think 13 of the last 15 months, revisions have been negative. And I think at some point, this all filters in. And if you ever want just proof positive, again, the economy and the stock market, we all know are two different things, but never before, at least in all the years we've been doing this, have been so wide apart. And just look at the president's approval rating when it comes to the economy. It's at record lows with the stock market at record highs.

7:07Something's got to give. I just want to add on Tim's point on Walmart, almost at an all-time high, Costco too. I mean, if you're delivering to the consumer, if they feel like they're getting value, or if you have merchandise they really want, like an On or a Hoka versus a Nike, an AM long Nike, which is not fun, then they're still there. That consumer is still there. Right. And I mean, should the premium be paid for those names or do you go into the lower multiple? That is not, that's a hope story, right? That's a hope for a turnaround of some sort. Market's a discounting mechanism. We're going to get opportunities.

7:39Nike's near. I tell you what, they're another bad day away from being COVID lows. And again, this is the premier brand in athleisure and certainly in footwear, at least in the sporting world. So I think you're going to get opportunities. I don't think we're there yet. I don't know that we had a once-in-a-lifetime generational pull forward in some of these places. We had a consumer that didn't have any bills to pay for a while. They were getting checks from the government. There was a dynamic year where we saw the spend. We've had the margin expansion that comes with AI, that comes with a lot of the technology improvements, the digital, the DTC.

8:11These are all things that are great for apparel and for retailers and places that I think have outperformed. And some of the multiples didn't even get that lofty because, again, they became more profitable. But I think you have a ways to go here. Unfortunately, I think the winners are ones you can stay in. And I wouldn't run too far away from Walmart here. But I think names like Nike, names like Lulu, names like McDonald's are all ones I want to buy. I want to buy them soon, but it's not here. Name that was mentioned on the call, Tim mentioned. We've talked about it on this show. Look at the last two years of TJX, for example.

8:40The stock has probably doubled. It looks like a biotech stock. It's obviously not. I mean, there's something clearly going on at TJX. And I think that speaks to all the things we spent the last seven and a half minutes talking about, the trade down and who's winning and who's losing. TJX wins, Walmart wins, and then some of the others, some middle people like a Target, for example, they do not win. And I think it all speaks to the strapped consumer, not the healthy consumer. Is Starbucks a turnaround to buy? It hasn't been for me yet. I'd rather be in TJX. I just self-would you rather, I know.

9:12I'd rather be in TJX higher. By the way, there are double standards on this desk. As there should be. It's just what happens. The Starbucks situation, I feel, I don't know that they've righted the ship exactly. And I do feel like they are in the crosshairs of that consumer who feels like, wow, I'm really getting priced out of my daily coffee. That's not a great position to be in. Meantime, amidst all these concerns, RBC Capital up their year-end S &P price target a week ago from$5 ,300 to$5 ,700. You say it's a nervous raise. Yeah, we describe ourselves as a nervous and jumpy bull. And look, we got to the middle of the year.

9:48We try to regularly update the model, sort of true up for how far we've traveled. Frankly, looking into the back half of the year, I said, let's just replace the 12-month back tests and, you know, studies with six-month studies, right? I do think we're in a market where visibility is just more limited than it used to be, you know, on a go-forward basis. So at any rate, you know, we kind of looked really hard at the data. We looked at how markets perform in the second half of a presidential election year on a six-month forward basis when AAII net bulls are about where they are right now. And we found there's a case for about a 4 % to 6 % type gain from the midpoint of the year on some of those models.

10:20Other models that we have, our valuation model in particular, makes me nervous. It looks like the market's baking into me at least three rate cuts, maybe more. I don't necessarily think that's realistic. So, look, we felt like we were struggling with a little bit with the market in certain respects, but we also felt like other data points were telling us we could go a little bit farther. 5 ,700 is not that far from where we are right now. So we told people, get ready for some potholes. You know, we all live in New York City. They're pretty unpleasant when you go through them. We think we're probably confronting something maybe a little bit worse than what we saw in April.

10:52But ultimately, we do think there's a path higher into next year. And we do think that markets can power through that ultimately. You mentioned presidential election cycle. And so does it matter who is in all? I mean, there are some contours in terms of divided Congress, president, et cetera. So it's interesting. I would say the scenario, if you look at a Republican sweep, and this is not so much looking for this year, but looking, you know, your typical year in different power dynamics. Your two best scenarios are typically a Democratic president and a split Congress. Your average return there is about 16 percent.

11:22Or a Republican-led government on all three branches, that gets you about 13 percent. So if you think those are kind of two scenarios potentially on the table, maybe people are leaning more to the Republican sweep right now, you know, it can get you feeling a little bit better longer term. I do think when I've looked back over the history of how markets trade in the second half of presidential election years themselves, The key thing is to get resolution, to get past the event and to have a clear winner and not be fighting about who actually the winner is. You can count the votes for a couple of days.

11:52But if you look back in 2000, when the case was kicked up to the Supreme Court, we did not get our typical late-year post-election pop. If you look at 2016 and 2020, markets traded pretty similarly calendar-wise in terms of selling off early in the year, rebounding, chopping around, around election, and then having a post-election pop. That's what we're looking for if we just get a clear answer. So it's great having you on the desk all the time. It's particularly great when you can come on and say we've raised our target by eight and a half percent. Help the viewer understand, because you said nervous bulls.

12:22I think there's a lot of nervous bulls in this market. And again, I think there's been a lot of chasing. This may be the greatest bull market of all time if you go back to October of 22, but certainly October of 23 when we moved 35 percent on the S &P. But mechanically, how do you come up with that number? How do you get 400 S &P points on a 53 to 57? It's a great question. And, you know, people who follow our research regularly, you know, sort of know that we're all about the math and all about the data. And we also really try to stress because there's always this constant debate, I mean, about, you know, kind of how do you use strategist targets?

12:54And, oh, my God, what does it mean when somebody raises a number or cuts a number? These things are a compass, not a GPS. Okay. They're a rough guide. In my particular case, I'll say strategists, I've been doing this over 20 years. Strategists have different approaches to how they do it. So that's the first thing to understand. My particular methodology is to look at a number of different tests and then either take the median or the average of what those are producing. And so on the low end, my valuation model, which has me nervous. I mean, you know, it's frankly, it tells me the market's overvalued after for the past year and a half telling me it was undervalued.

13:26That one is pointing me to kind of 5 ,200, 5 ,300 on the S &P. I have other models, my cross-asset model in particular, the political test I just mentioned, the sentiment indicator, that are getting me to 5 ,700 to over 5 ,800. We also have an economic test, which is in the 5 ,300, 5 ,400 range. So we take the median or the average. In this case, I think I ended up taking, I took the median, which is actually that sentiment test. If you took the average, it would get to 5 ,600. So you can justify that. We've been very intellectually honest with people and said any of those is a reasonable outcome.

13:58Where I'm struggling with a lot is the sentiment, because my indicator has been one of the best stars in the sky to navigate the market with over the last year and a half, and it's just hovering under one standard deviation. Every week I update, I say, OK, it's going to go over, and guess what? It hasn't. It's going to give me that sell signal tomorrow. Guess what? It hasn't. I finally got to a point where I just couldn't sit around and wait for that to happen. It's just hovering right below. And guess what? Right below 4.5 % is your typical six-month return. If we get over that hump, over that one standard deviation, it's going to kick me into a flat market, have us right back where we were at the end of March.

14:31We're waiting for that to happen, but we can't sit around and let our target languish. That's honestly how we're thinking. Yeah, and I'll just sort of say the math dictates the number as opposed to a lot of people pick a number. I want my target to be 6 ,000 and they do the math that's required to get there. So the intellectual honesty and the work you do, I think is really interesting. And that's why we love having you on. But to Tim's point, you know, valuations at a certain point, They sort of matter, and I'm looking at it. The trailing P.E. right now for the S &P 500 is 26.5. Just for reference, the five-year average is 23.4.

15:04The 10-year is 21.5. And forward right now is about 21.3. Again, 10-year average is just sort of 18, and that's with rates at where they are now. So, again, you don't trade on valuation, but the market is definitely expensive historically. Meantime, a mega reversal in shares of Meta today. The social media giant hitting a new all-time high this morning, but then gave it back, dropping almost 2 percent to end the day. Guy flagged the move. Karen also noticed this. Obviously, this is a major holding of yours. Yeah, this is my biggest position. So I'd much rather. So it hit an all-time high on Friday.

15:37I would much rather it went from Thursday's 509 to today's 529 than this up 10 and then down 10. I mean, it feels like that was just some bit of a top. I'm not going to change my position on it, but it did feel kind of toppy. Didn't close quite at lows of the day. It was heavier than average volume, more than, you know, double. Yeah. I think the low of the day was 526, the close of 529. To Karen's point, she's right. It's how it gets there, and that's what's always interesting. And, you know, again, go back to June 20th with NVIDIA, which, by the way, although it's rallied off that 119 or so low, it still hasn't approached that 140-ish level that we traded to on June 20th.

16:18That was a reversal day. And today, quite frankly, in Facebook, you're seeing the same type of activity. So, you know, you can trade sideways for a period of time, but you absolutely have to flag a day like today when you see price action like that. Broadcom, too, that week of the NVIDIA reversal has not reached that level yet. Just as much as we've marveled at NVIDIA, you have to marvel at this move in meta, you know, basically from from Jan of 23. I mean, this is a four, four to five bagger and it's extraordinary. And really, they've benefited from two or three important themes and secular investment trends in the market.

16:52So they were big beneficiaries. They coined the phrase the year of efficiency. So companies that came out here and showed that they actually were focused on the margin. This was a company we always knew that what percentage of the world's population is on some type of a meta platform, is it? What's the population? Nine billion? I'll go with nine. I don't know. No, I think it's a little less, but I think it's like 35 percent of the world. I mean, so there were those that always felt that if they just focused on free cash flow, we don't even need growth. This was a company that was, you know, ridiculously cheap and at its low, I don't know, was trading somewhere on 12, 13 times, maybe not even including the cash.

17:26Right. Right. That was absurd. Like it's a five bagger, but never should have been in that one bag. That was ridiculous. So that created a great opportunity. It's still not expensive here. Yeah. And then and then they've really been on board for one of the first few that really that's not an NVIDIA that's actually benefiting from AI. So the question is the valuation is not expensive. But after this kind of a move and it's not just because it's moved four hundred dollars a share from that point. But you have really priced in a lot of stuff. Can can the next two years be close to this? I doubt it.

17:57They don't have to be for Karen. I'm sure to be a very happy shareholder. In fact, I bet you'd probably prefer to see some of the volatility calm down and slow and steady wins the race. I'm a tortoise. I didn't call you that. I've been called worse. It's all right. Coming up, Intel's big day, the long-lagging semi-getting a big bump today. What analysts have to say? That will drive a comeback. That's next. Plus, the 4th of July weekend may be over, but the TSA is reporting some fireworks of their own. What a record-setting weekend for travel means for the airline stocks. Don't go anywhere. Fast Money is back in two.

18:37Welcome back to Fast Money. Intel topping the tape today, soaring more than 6 % after Mellius named it a top pick for the second half of the year. The research firm says Intel's AI roadmap doesn't get enough respect and sees shares climbing to$37. That's another 8 % higher from here. Even with today's gains, Intel is down 33 % in 2024. So is it worth jumping in? Is it one of these stocks where you're thinking a turnaround is around the corner, which we've been thinking for quite some time? Tim. No, the turnaround's not around the corner. And we've gotten a little bit of insight into the product map.

19:09And I don't think Sierra Forest is which is now coming to the market. It's probably a year behind AMD. I think there are some things about Intel that are overlooked, which is that they've done a remarkable job. Yeah, I said remarkable on their capital markets dynamic. So between 10 billion and 10 billion euro subsidies in Germany, eight and a half billion here from the U.S. government. They sold 49 percent of their Ireland stake to Apollo for 14 and a half billion. Their Brookfield JV in Arizona is something they collected almost 12 billion on. So they're not going to sink the company CapEx wise from an enormous budget that certainly is required here to build out Foundry.

19:44I think they're going to be there. I think they're going to be there at some point. This is a case where the valuation is not the reason you chase it. It's a company that strategically has to be there. And I think while you really just go back to the here and the now on where they are competing on PC and data center and, you know, PC, you assume they're going to be OK in a refresh cycle. And I think that will pleasantly surprise data center. They continue to lose ground to AMD. The theme to the note overall, though, is time to dust off the AI laggard. So the thinking is that in the second half of last year, we saw all these laggards just have massive runs in the back half of the year, including Intel, Dell, IBM, to name a few.

20:21So are we, you know, prime for sort of a repeat of last year? We go back to the ones that have underperformed, especially since, you know, we've heard about all the CapEx expansion from the hyperscalers already. So what else in the second half is there for the primary AI plays? That catalyst won't exist in the second half. Could absolutely work. And Ben does amazing work. He's been on the show a number of times. So if he says 37, I'll say he's right. He's probably undershooting it a little bit. I mean, stocks go from 33 to 37 seemingly in hours these days. With that said, I mean, just again for context, and I'm not comparing the ability of Intel to compete with an NVIDIA, but Intel is going to do$62 billion of revenue next year.

21:00The trade's about$145 billion market cap. I mean, just for perspective, I mean, that's historically where these things sort of trade at, 16 and a half times next year's numbers. I mean, just on valuation alone, I think it's OK. By the way, if Carter were here, he would point out you're probably seeing a bearish to bullish reversal that started in middle of May, and now the turn is in. And so this thing could sort of levitate before your very eyes and be trading 37 by the end of the month. I do think Dell is a little bit different, though. It's not like it was just a laggard and people thought, oh, it's cheap, so we'll try that.

21:30They actually put up numbers that were wildly higher than where the street was. And so I don't put that sort of in the same bucket, although I do think that people are looking for anywhere that has a lower multiple. Just find me a lower multiple. And a hardware company like Dell does have a lower multiple. There's a lot more Fast Money to come. Here's what's coming up next. A record-setting travel day as millions make their way home from the long holiday weekend, the impact on airlines, and the latest headlines on Boeing. All that next. Plus, presidential pressure building up as more in Washington call for President Biden to step aside.