Staples Struggle and Chips Surge as We Head into New Year 12/23/24

0:01All right. Thanks, Leslie. And thank you, Mike. Live from the NASDAQ market site in the heart of New York City's Times Square. This is fast money. And here's what's on tap tonight. On the rise. Rates continue their slow, steady climb with a 10-year hit in 4.6 % today. So can stocks keep rallying in the new year of bond yields keep moving higher? We're going to debate that one. Plus, bummer for the builders on the back of those rising rates. Housing stocks have been hit especially hard. Is the sector a stay away in 2025? We'll break that trade down. And then later on, will Trump break the cycle of pain in the energy patch?

0:36The chart master ready to reveal the next move in Berkshire Hathaway and FinTech. trade it or fade it in 2025. Yeah, you know what we're talking about. I'm Dominic Shewin from Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Steve Grasso, Dan Nathan, Guy Adami, and then Carter Worth as well. We're going to start with two major market moves that caught our eye today. Semiconductor stocks surging after the U.S. launched a new probe into China's chip manufacturing. We'll dive into those moves in just a moment, as you're seeing there. But first, staples down today, the worst performing sector in the entire S &P, outsized losses and names like spirits maker Brown Foreman, Walgreens, Boots Alliance, Dollar General.

1:20That coming as 10-year yields take higher again, briefly touching the 4.6 mark. Again, a level not seen since late May. The dollar also trading higher, trading near more than two year highs at this point. So what do all of these moves signal is in store for the new year? Dan, Please kick us off. Yeah, no, I know we're going to focus on chips a little bit. I think that's where a lot of folks expect a lot of leadership to be, right? There's one secular shift that seems to be driving a whole heck of a lot of technology. So I think about Taiwan Semi. You know, they are in the catbird seat as it relates to manufacturing of high-end GPUs.

1:54I think a lot of folks think that NVIDIA and Broadcom are going to continue to lead there. I just say this, that money came out of NVIDIA clearly into Broadcom. If you look at the SMH, the ETF that tracks its semiconductor space, they seem to be going sideways. hasn't made a whole heck of a lot of progress in the last few months, despite some breakouts like a name like Broadcom. So I would expect investors to maybe early January, maybe take some profits to try to hold on to some of those names that have had these massive gains into the new year. But then at some point, if we do have a sell-off broadly on some of these names that have obviously been very crowded, then you'll see money come back into them.

2:29As long as Q1 earnings guidance is not disappointing relative to, let's say, where valuations are and expectations are. Guy, the consumer staples trade. By the way, also on the desk tonight is that sweater that you're wearing. Yes, this has been approved because it's holiday. Oh, it's beautiful. It is. I'm just saying. It was approved here. I'll wear a sweater tomorrow as well when I'm on closing bell over time. It's just the holiday season for me. Anyway, Guy, if you look at the consumer staples trade, technology we've talked about ad nauseum for so much of this year. The staples trade, though, is it as attractive given the fact that yields just keep going higher and higher?

3:05We don't need those staples in their dividend yields. We can just get them in treasuries. I think that's right. And I think the yield story is one that not enough people are talking about. They're starting to talk about it now. And you look at a 10-year yield of 4.6%. I'm of the belief, and I've been of the belief for a while, if you want to throw a TLT chart, you can see the levels that we saw last fall, so October of 2023, sort of 82 or so. I think that's where the TLT is headed, which puts us probably close to 4.9 % in a 10-year. And I think the market's going to actually start taking notice in a meaningful way.

3:35And to your point, dividend stocks, which may have been attractive, you know, a percent or so ago, are no longer all that attractive. On top of which, what you said and Dan mentioned, the strength in the dollars ahead went as well. So you've got to take notice. I know the S &P had a nice day today, but below the surface, there's some damaging things that are happening. It's not, though, just all consumer staples. I mean, look at Walmart and Costco. They've done pretty darn well, Steve. So how exactly does that staples trade play out? Yeah, so you're talking about large cap staples names, too. But if you look at the index, the ETF that you're talking about, the XLP, we stopped or we should stop around this level.

4:10If you look back August 24, August 5th in 24, this is where you have some congestion in the charts. This is where you have some flattening out. So you should theoretically see the market stabilize here, especially in the staples. I think rates will eventually start to come in. I think it's a product of the 10-year is more about future growth. It's more about inflation expectations. The shorter end of the curve is more about the Fed, obviously. We've had an incredible run off the election. There was a lot of market uncertainty. I agree with the guys. I think the market should come in. The market should come in.

4:46It should come in, but not crazy. I think we'd all feel happy about probably another 5 % lower to create a sense of urgency for people to get off and say, you know what, let me try to pick values where I perceive there to be values and to bargain hunt a little bit. And the valuation's a little steep in the overall market. Yeah, I think investors really showed their hand Wednesday afternoon, though, right? If they had a reason to kind of sell. You know, a lot of folks were coming on on Thursday and being like, wait, you know, this was kind of priced in. You know, when you look at the dot plots, maybe it was two, maybe it was three cuts in 2025.

5:18You know, it just showed you that they were fine to take some profits if they had a reason to do so. And, you know, again, this brings me to kind of Q4 earnings as we get into mid to late January. Might we have some reasons for investors to do so? You know, so I think about just going back to some of the stuff that's winners. You just mentioned consumer staples. You mentioned Costco and Walmart. If you look at the XLP, the ETF that tracks them, kind of a poorly constructed ETF, if you will, 20 percent of that. The top two holdings are Costco and Walmart. Right. And then you get down to, let's say, Coke and Pepsi and Philip Morris.

5:49They're the ones that have a lot of international exposure. They're the ones where the dollar is really a headwind, as Guy just said. So to me, I just think there's going to be places, you know what I mean, to kind of place your bets, if you will. If you think Pepsi is overdone down at 52-week lows, you think the valuation is justifiable, you know, you think that, you know, folks are going to kind of come back into some of these names. If there's an economy that is maybe a little less certain than it was this year, those are names that should do pretty well, the consumer state. Guy, I mean, one of the things that we talked a lot about is this American exceptionalism trade, right?

6:20this idea that you focus on the U.S., just domestic and everything else happening within our borders. Would it make sense to look at consumer staples that have less of that international exposure and ones that are maybe even mid-caps that have more U.S. exposure? Maybe. And if you can name a few, I'm on board with you. No, I mean, I'm not trying to be a wise guy, but, you know, Costco, I think, has been winning to exactly that, if you think about it. And, you know, you throw Walmart in the mix as well. So I think there's something to be said for that without question. But this index, this ETF that we're talking about, you know, throw Procter & Gamble in, which is 10 percent as well.

6:52I mean, the top three stocks and Walmart, we've collectively loved. We love Costco as well. But you're talking about valuations that historically make zero sense. And if the market ever sort of wakes up and says, wait a second, we're paying too much, then that whole trade unwinds in a pretty fast way. So, Carter, the charts have to be fairly dramatic. We've seen a good amount of damage from any of these stocks. But from a sector perspective, does it look like it could be constructive or is the downside momentum still there? Well, that's why we're on staples. And then let's go to semis a bit. But staples are so driven.

7:24You all covered the concentration in the S &P 500 consumer staples sector with the top two stocks being 20 percent Walmart and Costco. Consider the consumer discretionary sector. The top two stocks, Amazon and Tesla, are not 20. They're 40. We have this everywhere in the market. And in fact, the way to really measure the performance of consumer staples is not looking at the actual sector with its current concentration, which is a poor performer, up 8 plus percent versus a market up 25, 26. the equal weight S &P 500 consumer staple sector is down almost 5%. I mean, imagine that in what is a year that has been so good for equities as an asset class, as measured by, for lack of any other better way to measure it, the S &P 500.

8:10One of the parts that composes the whole, the S &P 500 consumer staple sector is up eight versus the 25, 26. But the equal weight is actually down. And we see that in semis, right? The equal weight semiconductor index is unchanged. It's ever thus. We have a concentrated market. We've had a concentrated market. And that is both a virtue and a vice. OK, because you brought it up, Carter, let's bring back the semiconductor conversation because the charts there are fairly compelling as well. Those stocks are surging after the White House announced an investigation into China's legacy chips, which go into everything from cars to household goods to defense systems.

8:52The probe expands the U.S.'s targets outside the booming AI space, and it aims to really examine how dependent the U.S. is on these types of products. So what does this mean for chip stocks overall? Guy, I'll turn to you for this first. Well, I mean, people obviously, I think there was a bit of a relief rally in some of these names today in the back. I mean, obviously, Broadcom had that huge move last week. Then we saw a sell-off. It got some back today. I think people may be breathing a sigh of relief. I'm not so sure that's warranted, quite frankly. I mean, there's still some headwinds out there, and in this space, it comes in the form of valuation.

9:25I mean, Broadcom is a name we have loved collectively on this desk for a long time on the back of valuation. But given the move you saw last week, there's no way you can make a compelling case in valuation, regardless of what they talk about in terms of total addressable market, the TAM that the Broadcom CEO spoke about. NVIDIA, we've talked about it 100 times here now. We've got it right. We've got it wrong. I'll say this. Price to earnings, compelling. Price to sales, no way. And those margins that they're enjoying right now, they're not going to enjoy in perpetuity. So I think the SMH trade is on the precipice right here.

9:58Yeah. What's also really clear, and you just said this, Don, that some of those other end markets for semis right now, whether it's industrial, whether it's auto, we heard from Micron last week that, you know, consumer electronics, whether it be smartphones, whether it be PCs, are not particularly strong. And so when you think about the exposure that some of those have to China and then you put together a weak end market or a bunch of weekend markets, I mean, the last trade, the last leg standing is really generative AI. It's spending by Google, Microsoft, Amazon, Meta. They make up 40 percent of NVIDIA's revenues.

10:29Like at some point, you're going to need to see the semi-trade broaden out. Carter just spoke to it. The equal weight S &P is not doing a whole heck of a lot. So, again, you know, and I started the show by saying this, I think a lot of investors would love to see some of that froth come out of some of the leadership. And then they're probably going to pile right back into the leadership until there's some reason for them to see some sort of decelerating growth or orders in life. And muscle memory, Steve, is there for chip stocks. Yeah, and they've been, to Dan's part, they've been the safety bet, right?

10:56So they have large cash on the balance sheet. But if you look at NVIDIA and Broadcom, the way we were set it up, people are going with Broadcom because they don't see a competitor. If Dan is NVIDIA and I go to him to supply all my chips, he could compete with me. Broadcom doesn't have that ability to compete the way NVIDIA does. So a lot of these companies, we know the top names. It's the five mega cap names that are the most, the biggest consumer of the chip space. If I'm a Microsoft, do I want to go with a potential competitor to get my chips from? Yeah, but one of the things about Broadcom, and I think, and Gene Munster and I had this conversation.

11:39I know he's on Fast Money. I mean, one of his big themes of Deepwater Asset Management for 2025 is custom silicon. It's basically who's going to partner with a Broadcom to create their own high-end GPU, which actually does, you know, kind of give them a second source rather than I think a lot of these folks are really sick of NVIDIA and the stranglehold that they have on pricing right now. So, again, that was a big reason why Broadcom moved that way. We've seen story after story after story, whether it's Micron, whether it's Meta, these guys all want to create Microsoft, excuse me, Google. They all want to create their own chips, and they're going to partner with folks like Broadcom.

12:13But I think that's the most important part that you just said, that they become, and I'm just using the analogy, they become China, right? So people want to start and diversify their supply chain. So if NVIDIA holds 85 percent of the AI supply chain, you've got to diversify around it. There's a handful of reasons why. But the investment for corporations, you know corporate tax isn't going up. That was one of the unknowns going into the election. So you have the ability to have a little bit of runway to say, do I want to invest more in my company? All right, guys, let's for more on all of this and the market outlook overall.

12:47Let's bring in Katerina Cimeney of Morgan Stanley Private Wealth. She's a senior vice president, also a private wealth advisor at the firm. Thank you very much for joining us, Katerina. You heard the conversation from the desk. I wonder from your perspective, if you are managing people's money, do all of these things matter in that conversation about how 2025 shapes up? Well, absolutely. You know, when we think about 25, we are expecting some type of a mid to high single digit returns. Market return 26 percent this year in S &P, followed by 24 last year. So it is only reasonable to assume that this level of growth is going to slow down and something is going to have to give.

13:34And of course, this assumes that we're going to see a couple of more Fed rate cuts and inflation is not going to spike up. But it will be safe to say that 2025 could be categorized as another year where it's all going to be about the Fed and inflation. OK, so if it really is, then if it really is, how much then do investors have to be reactive, Katarina, to the Fed? Do we just have to wait until they say or do something? Or is there a way that you proactively position for it? Well, it's a very fair statement. And, you know, when we look at the risks that the market is facing, there is not much we can do about the Fed or tariffs or the headline news that might be hitting us at the beginning of the year.

14:17What we have control over is our portfolios. And we tell investors that reaching the maximum portfolio diversification among stocks, bonds, real assets and alternatives, you know, this is something that we can do. And it's an absolute key in dealing with this market. Katerina, where do you get concerned in terms of 10-year yields? We're 4.6 now. For a lot of people, it's 4.5%. Other people say it's going to be the levels we saw in the fall of last year. Where does the 10-year yield go where equities sort of put up a caution flag? Well, bonds definitely surprised us. And the key here really is what's going to happen with inflation.

14:57Because if inflation were to spike, we like bonds on the risk-adjusted basis versus stocks. So it is difficult to see where the rates exactly are going because there are so many risk factors facing the market. But we think bonds play an essential role in the portfolio with equity risks out there. Katarina, sort of a piggyback on your Fed outlook and Guy's question on the 10-year. During my career, you bought the market at 17, 18 times, maybe even 16 times if you were lucky, and you sold the market at 21 times. Rinse and repeat, you sort of just followed it. That was your 50 ,000-foot-up top-down approach to how you traded the indice.

15:37How do you see valuations fitting in with your forecast for the S &P target and with your Fed and your 10-year, obviously, your ideas on that? Of course, market is extremely rich and not only in terms of valuations, but also in terms of earnings projections. And it's going to be a total order for us to actually meet all of the things to come together for us to to continue the growth in the market like the one we have been seeing. So what we tell investors is that they should focus on individual stock selection versus index investing on absolute quality. We like large caps over small. And the sectors like financials, energy, consumer staples, we're taking very protective stance and with focus on the dividends because there is going to be a lot of volatility next year.

16:29Even though we're optimistic on the market, we think we're going to end up the year at about 6 ,500. But quality is the name of the game. All right. So, Katerina, before we let you go, largely speaking, your conversations with your clients, are they generally optimistic about 2025, looking at the administration, the economy, everything else? Are your clients OK, optimistic, or are they getting more guarded? They're getting more guarded. They are concerned because it is impossible to ignore that market has done really well and they are questioning what they should be doing. And we tell them to avoid concentrated positions, make sure that, you know, to take some of the gains off the table as much as possible.

17:11Tax loss harvest, because we can't be enamored with certain sectors of the market. AI, the tech, you know, all of that was just such an exciting story last year. You know, but we have to protect the gains in the portfolio. Otherwise, we're going to see continuation of the roller coaster ride. And we might be giving up some of those gains that we enjoyed in 24. All right. Katerina Simonetti at Morgan Stanley Private Wealth. Thank you very much. Happy holidays. Holidays. All right. Let's trade this. Carter, over to you. What do you think the trade is for 2025, given what you just heard from Katerina?

17:49Yeah, well, I have no idea. So we get that out of the way. The truth is, right, it's a Wall Street convention that was adopted about 35 years ago to have a year ahead price target. I mean, who the heck knows? 12 months versus 13. What about 11? It's a feel good thing, a comfort blanket. Someone says to you, I think it'll be up 10, 12 percent. We also know, and this is important, that every year since strategies have been tracked, every single year they've predicted up years. Wall Street does not believe in down because it's called the sell side for a reason. They're selling stuff. What I would try to focus on is Q1 and what is the probability of a drawdown, some sort of give back.

18:25Januaries typically are not quiet. Often you have momentum and you get follow through and you get a big further January. Some people refer to the January effect, but you also get reversals. We know there was a big reversal in 2016 in Q1. We also know, of course, the COVID Q1 or even 2022, a drawdown of 14, 15 percent. I think one can expect at least a 12 to 15 percent drawdown in Q1 2025. All right. There you go. Coming up on the show, a make or break moment for U.S. Steel. The countdown is on for a big deadline in the company's Nippon Steel saga. What's at stake for this landmark deal coming up next?

19:04Plus, energy is one of just two S &P sectors in the red this year. So can the struggling space turn things around in 2025? The names to watch right after this. More Fast Money back in tune.

19:21Welcome back to Fast Money. The Committee on Foreign Investment in the U.S., CFIUS, is required to submit its decision on Nippon Steel's takeover proposal for U.S. Steel by the end of today. The White House will then have 15 days to respond. If President Biden rejects the deal, the companies will have an option to appeal it. Shares of U.S. Steel up 4 percent today on the back of maybe deal or no deal. What exactly gives here? Maybe we'll start with you, Steve. Well, it's no secret Biden administration and Trump administration, incoming administrations against this deal. And I agree with both of them why they should be against the deal.

20:00And specifically with them, I'm long letter X, U.S. Steel, because Trump has said that he's either going to give incentives, whether it's tax or some other way to support the steel prices in the country. And tariffs, we know that there's a 25 percent tariff in place now. That could go to 60 percent. That will boost pricing. We've seen this story before in the first iteration of Trump. I think near term you're going to see a bounce in U.S. steel prices. It's interesting. Barron's had a piece that this time it's not Trump's fault. And what they're talking about, I mean, if we can go back in the crack staff in E.C., go back to 2017.

20:38U.S. steel was on a lower left, upper right trajectory. Into 2018, I think it was in March, the tariffs came. The stock was$40 stock. It never looked back. It went straight down. So I'm sort of on the other side of this. I mean, Japan's supposed to be one of our largest allies, and I don't know what the problem is. I mean, they're coming in and trying to save this thing. They're going to save jobs. They're going to invest in the company. Clearly, U.S. Steel can't do it themselves. And, you know, we can be as, I don't know, as, I guess, protective of our company as we are. But if they're not running themselves well and somebody can do a better job, I'm all for it.

21:12So I don't know where the president comes off on this one. So, Dan, this is, by the way, if U.S. deal hypothetically gets taken over, it's not like the manufacturing leaves the U.S., right? It still stays here. And they're committing to more jobs. I mean, listen, I think you could make the case that, you know, once a deal like this is done, you could actually put a lot of pressure on them to keep it here. I'll just say this. I don't have that much more intelligent to say, but I've long said that, you know, Elon Musk should buy this thing. It's got a$9 billion enterprise value. And it has the X.

21:39No, then he's got the X. And when he takes it public, there you go. I mean, it's a rounding error for how much he's lost in the Twitter. All right. Carter, is steel someplace you want to be, given the charts? Yeah, I mean, if you look at some of these sort of world iron and steel indices, not a great looking picture. And it's really idiosyncratic, right, whether you're doing something like a Nucor versus U.S. Steel. What we do know, of course, is these were the greatest companies in the world. U.S. Steel, of course, was the most valuable at one point in the world. It was the apple of its day, just as General Motors and Exxon have each been or Cisco.

22:13But right now, these are small industries and they're small components in the general equity complex. The U.S. steel pattern itself, to me, it qualifies as so bad it's good. The deal doesn't get done. It sits here. If it does, you maybe get a little pop. All right. There's still a lot more to come on Fast Money. Here's what's coming up on the show. An energy sector in need of a caffeine boost. Can M &A lead the way to big gains in 2025? From big oil to the next big thing in nuclear, we're hitting it all with high energy trading. Plus, can the real estate market heat back up with mortgage rates so high?

22:47The keys to big gains for housing stocks and what could finally unlock opportunities for homebuyers. Next, you're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.

23:08Welcome back to Fast Money. Energy is one of the worst performing sectors this year, just barely clawing into green for 2024. And with tariffs and other potential headwinds on the horizon, the biggest players in the space might have to get creative to boost their stock values in 2025. Our Pippa Stevens has the details on that story. Pippa. That's right, Dom. Well, energy is the second to worst sector this year. And with the lack of positive catalysts for oil, 2025 might be all about Nat gas. It just hit the highest level in nearly two years. And looking forward, there are two key tailwinds supporting prices.