Stealth Inflation Reads… And The Haves And Have-Nots 3/26/24

0:01Live 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. Surging prices from copper and cocoa in your record levels to the jump in beef, crude, cotton and even lumber again. How will these moves impact the Fed and markets next moves? We'll debate that. Plus, how about a little would you rather on a Tuesday? Spicy. The traders set to weigh in on a few leaders and laggards in a host of sectors, banks, industrials, travel, autos and more. And later, Viking therapeutics surging. The new data behind the move, a spectacular day for one DJT.

0:34Should buyers fear a day two and beyond and Germany going to pot. How it's moved to legalize cannabis will impact the sector. I'm Melissa Lee coming to you live from Studio B at the Nasdaq. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan and Guy Adami. We start off with a stealth price surge that may signal inflation may be sticking around for some time. Cocoa price is topping the$10 ,000 mark for the first time ever today. The sweet staple has risen nearly 130 % just this year. And it's not the only commodity on the rise from pork to OJ to cotton. Agricultural asset prices are surging across the board this year.

1:09In fact, the DBA, the Invesco AGETF, is up 18 percent since Jan 1 on pace for its biggest quarterly gain on record. So do these moves suggest relief on the inflation front may not be as immediate as we hope? Guy. Rhetorical question. So the answer is yes. And, you know, we look at this DBA made a 10 year high, I think today and the major components, coffee, cocoa, soybeans, corn, live cattle, sugar to a certain extent, that doesn't even take into consideration what we're seeing in copper, what we're seeing in the energy complex. And you throw in a couple others. So to answer your question, no, I don't think inflation is tamed at all.

1:47And I thought you'd start to see a reacceleration last fall. Maybe it's a little later than I thought, but it's happening now. You're a little bit worried that it's stickier. I am a little bit worried. I mean, we've talked a lot of times every however often the Powell conversation comes up. Why does he need to do it when especially inflation seems to be persistent, not as bad as it was? But this is certainly more evidence of that. And so I keep thinking, all right, maybe the market's like effervescent. They always think, all right, even if he doesn't cut now, he will one day. So let's put a high multiple on it.

2:19I'm a little concerned about that there won't be three cuts. And actually, was it James Gorman today? Did he say maybe they don't cut at all this year? He would not be surprised if they didn't move at all this year. Right. Well, if we were at this point, six months from now, I would say, yeah, that seems the case. So I'm not that excited about this idea that we're going to see a cut and the market's going to rally. The consumer, though, is still relatively strong, despite the higher prices that they're paying at the grocery store, at the pump. It's for car insurance, for health insurance, you name it.

2:55They are still spending. They are employed for the most part. They're spending and they're spending for now. And I think we've all acknowledged that the financial conditions out there are extremely loose. You can look at credit spreads, which I've quoted go all the way back to June of 2007, tight in terms of at least a high yield OAS. And I think the Fed did a terrible job last week in terms of their messaging on inflation and what they would do and how they would actually maybe begin to cut before that happens. And, you know, and you never go out and say that. He's still data dependent. Those words were uttered over and over again.

3:28But the reality is that look at higher inflation in the form of higher interest rates that are slowly feeding into just higher prices. I mean, the cost of living has gone higher. Look at gold, which I believe closed at an all time high today. Gold, a lot of times people say actually struggles under inflationary environment. But actually, it's really the opposite. It seemingly does hold its value. I think what we're seeing in gold and Bitcoin is loud and clear, says the message on inflation is far from over. You know, as it relates to the consumer, I mean, we didn't even mention education, health care.

3:58Look at some of these things. I mean, they're just structural. When you think about wages, you think about demographics. And, you know, I just go back to like, you know, we talk a lot about the CPI. You know, we're at what, 3.2 percent or something like that. The average CPI, I think, over the last 25 years has been about two and a half percent or something like that. You know what Fed funds has been on average over the last two and a half years or 25 years? It's basically been 2%. So at some point, maybe the Fed needs to kind of rejigger that CPI target. I know that we've spent some time debating that or whatever.

4:25But the structural changes to, like, our economy and then some of these other more advanced economies with the demographic shifts going on, I mean, we're not going to get education under control. We're not going to get health care under control. So all that stuff that gets stripped out of the consumer stuff, at some point, I think we're probably going to have to change the narrative about where these numbers are. because that's the stuff that we spend a lot of time talking about on this desk. There is a dichotomy between, you know, where the consumer, where the individual person thinks the economy is, particularly when it comes to election year polls, and the picture that the Fed paints of the economy, which, you know, when they had the press conference, it was basically an all clear for 2024.

5:04And so you have to wonder, like, at what point does that converge and how does it converge and what does that mean for spending, for corporate profits, et cetera? Well, there's there's a couple sort of counters to what we just I don't know. I'm sure if that answers your question. Where do they want real rates to be? Right. So we have the 10 year and we have inflation. And right now, there is some room there if that's what the Fed wants to allow to allow the right. Right. Then they could have real rates by cutting. They would have real rates be small. That's one. And then one other thing that sort of unexplainably GDP has been really good.

5:41Is there a productivity element in there that could persist that would give the Fed some cover to do that? I don't know. I just pose it as a question because we haven't been able to figure out why is GDP so strong. Right, right, right. Yeah, so productivity could be an aspect that's not reflected. What's also not reflected, though, yet are some of the headwinds that we will face in terms of inflationary pressures that we have not fully seen yet. And I'm thinking about some of the things that we invest, like the notion of reshoring. We talk all the time about the reshoring place. Well, you know, reshoring is inflationary.

6:14And so if we're going to invest in a stock because of the reshoring trend, then you've got to see it at some point in the economy. No doubt. We had three decades of China exporting deflation, and that was good. That was good for everybody. We all know China's in a very different place, both structurally their economy. And if you look at the CRB index, so the Commodity Research Bureau index, you could look at the CRB rind, which is slightly even kind of second derivative inputs. But CRB is really, first of all, it's up over 11 percent this year, just year to date. That tells you the kind of move that we've seen.

6:46But if you look at it relative to history, when was the last time we were really having this anxiety when markets were kind of going haywire and also commodity prices were going to the moon and people were investing? I remember when people started investing in the resources asset class for the first time. A lot of people didn't even know. Obviously, you know what it is by the name, but they didn't really know what that meant. It's back in 2007. If you look at the CRB, it's making a run at those 2007 levels that were a function of a lot of different things. It includes speculative environment and where I think we are.

7:15And, you know, certainly interest rates were in a different place. And yet that was the beginning, really, of when the Fed had to cut to zero. We'll do something later, the have and have nots. But in terms of the consumer, they're spending, but they're combating inflation with debt, which I think is a bit of a problem. But people have no choice. And the reason why it's interesting, I think we've learned the hard way that asset prices have nothing to do with the economy, because if it was just about asset prices, the president's approval rating would be through the roof. And it's probably at historic lows now through the prism of just the economy, which tells you something about how people are feeling out there.

7:47We've got a news alert on Merck, the FDA approving the company's drug Windrevir for the treatment of adults with high blood pressure. Shares are, in fact, jumping in the after hour sessions. So this is something that we will watch very carefully. For big pharma, this is good news. We've certainly seen a lot of big pharma struggle because of looming patent cliffs, et cetera, the need to replace blockbusters, former blockbusters, with new drugs. Although Merck's not one of them. Merck is one that really, you know, no one can talk in the same breath as Novo and Lilly. But Merck's about as close as you can get.

8:17They've been outperforming. Again, it's a portfolio that's connecting. If they're connecting in an area that we know is at least, you know, half a step away from also the GLP land, but also what they've been doing in oncology, what they've been doing in some of the other key parts of what I would say the high margin drug world. Merck's near all time highs. It's now through all time highs. And I think it probably goes higher. It's interesting. Real quick. I mean, we've talked about this, but Merck will do 34 percent more revenues than Eli Lilly and trades at half the market cap. And I understand that Eli Lilly is in a completely different world.

8:48But don't underestimate how valuable and, I think, unappreciated the stock is, despite the fact, as Tim just said, at 130 and change, this is an all-time high. All right. Let's get back to what rising prices say about inflation. CNBC's senior economics reporter Steve Leisman joins us now. Steve, I know you notice all the commodities that we've talked about that we've listed here hitting new highs, et cetera. You know this. Is this on the Fed's radar because consumers see it, consumers feel it? and yet the Fed gave the all clear at the last meeting. Yeah, pardon me, it is. Pardon me, I just had a drink there.

9:28Water, of course. Let me calm you down and then make you a little bit more anxious. The first thing is this. Commodities don't feed directly into consumer prices. So, pardon me, you can have a surge in commodity prices and it won't necessarily show up in the CPI. The problem is that we have still high service inflation and goods inflation and commodity deflation, disinflation, has offset some of that. What we're losing through these higher commodity prices is the offset to higher service prices. This is the reason why coming out of the meeting and the last past several days, I've been very concerned that the market's gotten a little too bullish on the outlook for the Fed.

10:14The reason is because when I look at the outlook for the March CPI report to be reported in April, I don't think it's going to show very much improvement. We have a PC report coming on Friday, and it seems like it's going to be kind of, you know, pretty much constant or pretty much unchanged relative to where it was in the prior month. So I think there's reason for concern here and not a lot of reason for optimism when it comes to the next couple months. I think inflation does eventually come down, but I think we're partially seeing, by the way, better global growth. Stephen's Karen, thanks for being on, especially with the throat issue.

10:54Good luck with that. But why do you think that Powell seemed to be so dovish? I think people maybe read a little bit more into what they wanted to hear into Powell. I think Powell was kind of neutral, and especially the thing that I thought was most neutral was looking at the dots, right? The dots shifted a little bit to the right. We were one vote away from losing that three-cut average or median among the Fed officials. And look, whoever was saying, I think it was Guy saying earlier, the Fed is indeed data dependent. Maybe it was Tim. The Fed is data dependent. If these numbers don't improve, you ain't getting your cuts.

11:36And so I think what you want to think about is if we don't get an improvement in March, which will be reported in April, what does that say to you about a June cut? And if we don't get the June cut, what does that say to you about the ability or the willingness of the Fed to execute three cuts this year? And I think that is definitely going to be suspect over time. I just think you've got to be very careful here. Not that the Fed won't necessarily cut three times. They may do it. The question is, how much risk that you're wrong are you building into your outlook? It felt to me like the market went all in on the three cuts.

12:12I think there's some possibility or probability there's only two. And Gorman may be right that there's only one. Steve, thank you. We appreciate it. Steve Leisman. Our next guest says, now is the time to shift focus from valuation gains to earnings growth. Fidelity Director of Global Macro, Urien Timmer, joins us now. Urien, great to have you with us. Welcome. You're pretty bullish when it comes to this rally that we've seen so far. Well, it's been obviously a very unusual cycle. I mean, we can credit the pandemic for that. And we're still feeling the effects from that. So the market bottomed, in retrospect, it's easy to say, but it wasn't so much in real time.

12:55But the market bottomed October 2022. And then this January, the S &P 500 cap weighted index finally made a new all time high, which, you know, any technician or market historian will say, OK, that those are the bookends for a bear market and the beginning of a bull market. And the S &P 500 equal weighted index started to make new all time highs just a few weeks ago after 26 months of sitting in limbo, basically. And, you know, a chartist will look at that and say, you know, that's more likely than not a basing pattern. And, you know, valuations are very high, as we all know, 21 times forward earnings, 23 times trailing earnings.

13:37And typically at this stage or by this stage, the baton would have been passed from valuation gains to earnings gains. And the good news is that those earnings gains are happening and that the market is broadening. 81 % of the S &P 500 stocks are now above their 200-day moving average. And fourth quarter earnings season was really good. The estimated growth rate going into earnings season was 1%. And at the end of earnings season, it was 8%. So we have some good momentum. But the market has a lot of growing to do to start coming into its valuation. And that, I think, remains the challenge here.

14:18It's poised for perfection. And as you just discussed, even little things that might happen later than sooner, like rate cuts or earnings gains, leaves the market kind of not over its skis, but it needs everything to go right here. You just mentioned the equal weight S &P 500. It's up about 5 % year to date versus the market cap weight about nine and a quarter or so. So we still have this outperformance from the concentration of these large names. When I think about the large names on a day like today, or just look at the way an Apple trades, right? Look at the way a Tesla trades. These were two of the largest stocks in that top 10 or whatever, the S &P 500.

14:58And you're kind of losing them. They're kind of losing their growth story. I mean, clearly losing their growth story. So when you want to shift from valuation to earnings now, if we start to see some of these companies that have been massive outperformers, Let's say we get a downshift of growth in the back half of the year. That could set up a pretty nasty scenario for the S &P 500, which you just said is expensive about 21 times. I mean, it has been a conundrum to kind of war game, if you will. What happens when the MAG-7 or I look at it as sort of the nifty 50 because we've had episodes like that in the past.

15:35What happens when they lose their momentum? can it be a bullish broadening where the rest of the market sort of picks up the slack? Or is the power of those MAG7s so great, you know, because they comprise almost a third of the overall index, that if they lose their way, the index has to go down? And so I am heartened by, you know, just the year is only three months in, but I am heartened by the fact that, you know, the market had to really walk back from an unrealistically large number of expected rate cuts at the beginning of the year. The market was expecting 6, 7. It's now down from there and probably still too high.

16:15But the market's been able to do that without falling apart. And even with the MAG-7, as you just mentioned, they're starting to fray. But it's not really hitting the market, at least not yet. And so I'm hardened by the resilience in the broader tape. And I think it highlights the fact that, you know, 493 stocks, not to exaggerate, but a large part of the market has been sort of in this market purgatory for over two years, just sitting there doing nothing, being in a long trading range while the Fed was obviously raising the cost of capital and while earnings declined modestly. And now, presumably, as that vice gets lifted from the market with the Fed, you know, maybe giving back a few rate cuts, a few rate hikes, that the rest of the market can start to breathe again.

17:10Urien, thank you. You're welcome. So I want to pick up where Urien left off. And that is, you know, in terms of the digestion going from six cuts anticipated at the beginning of 24 to now three, when we go from three to zero, one, zero, whatever. We've digested that very well in terms of the market action. But what happens from three to sub three, do you think? Well, counterintuitively, I actually think that would be really bullish for the market because it would suggest nothing happened, nothing broke. This market can withstand no further or no new rate cuts. And I think that would actually be probably supportive of equities.

17:48I think people are wishing for the wrong thing in the form of rate cuts because if you go back historically, when they start to cut is when things start to get dicey. What do you think? Yeah, it seems so far the market's just said, well, they will cut. They will cut. Right. And that could continue even if they don't cut for a couple. Oh, it'll happen in 25. Exactly. So we're good. Well, we've had this conversation. We had it, I think, last week that the market's early cycle. I mean, you know, so it depends on what you're looking at. I think the RSP ETF, which tracks the equal weight S &P or just that outright, like really is basically making effectively lows or hitting those lows against the S &P.

18:27So it's not like it's been a big outperformance yet. You know, I look at my portfolio and it's taken a long time. He was right to point out that certain parts are going up after two years. I mean, I look at GM. I look at Citibank. I look at Delta Airlines. I mean, these things are rallying. The problem with the EPS outlook is that between communications and IT, most of that EPS is all coming right there. And the NASDAQ, Carter said this, is basically flat to the S &P. You can go back to 21 and kind of look at that relative index, even though I'd certainly like to point out that until that really starts to break down, I think we're OK.

19:01All right. Meantime, a busy port in Baltimore remains closed after a shipping tanker struck a bridge and caused it to collapse overnight. Search and rescue operations continue for six missing people, and federal authorities are examining the impacts on international trade. Eamon Javers is live in Baltimore with the very latest. Eamon. Melissa, the city of Baltimore and the state of Maryland are settling in for what is expected now to be a very long recovery effort here at the port to Baltimore. We heard from Transportation Secretary Pete Buttigieg just a short time ago. He talked about the economic impact of this bridge and this port and a little bit of a sense of what's ahead.

19:39Take a listen. This is no ordinary bridge. This is one of the cathedrals of American infrastructure. It has been part of the skyline of this region for longer than many of us have been alive. So the path to normalcy will not be easy. It will not be quick. It will not be inexpensive. But we will rebuild together. And Melissa, to give you a sense of just how much they're settling in here, take a live look at the bridge site here. They've been bringing in these trailers all afternoon. This looks like they're settling in for some workspace and a really robust effort here on scene for some period of time to come.

20:22There's heavy infrastructure being brought in now for the rescue workers and the folks on scene. As you see behind those trailers, those shipping containers, that is the ship itself, which is now wedged under where that bridge would be with the wreckage of the bridge on its bow. The shipping containers there toward the stern, and there you see the bridge itself jutting up into open air, where the bridge obviously would have continued on across the river here. You can see there an aerial shot of the ship as it's just frozen in place, has been there all day. We have seen some smoke coming from the smokestack, which would indicate perhaps that the engines are on on that ship.

21:01But as of right now, no movement throughout the day here and no indication of when things might get back to normal here at the Port of Baltimore. Melissa, back over to you. Eamon, thank you. Eamon Javers. Coming up, a heavyweight hitter in the biotech space shares a Viking therapeutic surging after some promising data on a different type of weight loss drug. How the alternative had investors licking their lips next. Plus, a day one pop for Donald Trump's new media stock, what the surge could mean for his net worth and how much control he'll hang on to going forward. The details when Fast Money returns.

21:34This is Fast Money with Melissa Lee, right here on CNBC.

21:44Welcome back. Viking Therapeutics soared as much as 28 % today after reporting encouraging phase one results of its new weight loss pill. Trial participants lost up to 5.3 % of their weight after taking the oral tablet for 28 days. Based on these phase one results, Viking is planning to initiate phase two later on this year. And remember, Viking really sold off hard when Novo Nordisk at their Investor Day released their data for their oral pill. And now it's being viewed that perhaps this pill has a better profile than Novos. When did we do? I think we brought this up maybe three or four weeks ago, if I'm not mistaken, after the first huge run up.

22:20We talked about, obviously, it's going to be a volatile name. However, if you get a couple of binary things right, this stock is going to be north of$85,$90. I think Oppenheimer put$128 price target on it earlier today. So if you can withstand the volatility, which will be here in spades, I mean, this is one where I think you buy, put it away and you hope you get a triple or quadruple out of this thing. You have a little bit of Viking. I have a little bit of that. And I guess my view is also this this was part of that conversation we had three weeks ago. I think it was February 26th, 27th. And the analyst community, including the one we had on that night, pretty much said, I think you're going to get better data, more impressive data on the oral side.

23:02And boom, here it is. Stock didn't take out those levels. But speaking of takeouts, that's kind of the conversation we've been exploring, that can Viking really do this and come to market on their own? Having said that, I'm sure they believe they can. They did it. They did a raise at that point. And I remember Karen pointing out that this is a company that looks like they want to go at it themselves. They want to give the appearance at least. I ultimately think they can't. But I don't know who. I mean, you could see an antitrust review, maybe, if either Lilly or Novo. But there are plenty of other.

23:34We talked about Pfizer. Tim and my Pfizer. Including the guys that gave away Biohaven. But they bought CGen. Yeah. Can they do another deal on top of CGen? I mean, they're not the only, as you said, they're not the only one. Plenty of people would love to get into this business. I think ultimately they need a heavy hitter if they're in that lucky spot. To bring it to market, to market it, to manufacture it. Here's a question. So a few weeks ago on CNBC, I saw this really great documentary called Big Shot. It was on this whole GLP sector. So if we have all these companies, and we've had a lot of great CEOs, we've had a lot of analysts, we've had a lot of talk about what this TAM is, it seems like it's stuck at$150 billion, right?