Stock Rebound Falls Short… And Tesla’s Major Job Cuts 4/15/24

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. Stocks sink. Yields spike. Major markets closing near the lows of the day. The Dow down more than 2 ,000 points from its all-time high. Less than 50 points from going negative for the year. Meantime, the 10-year surging once again, climbing to five-month highs above the 4.6 percent mark. Is the sell-off all from rising tensions in the Middle East? Is there more downside to come? Bus, Tesla, tanks. Shares of the automaker closing at their lowest level since last May. As the EV maker slashes jobs and faces some real competition in the green car space, what is next for Elon Musk's company, and can the stock get revved back up?

0:42And later, Goldman glistens after big earnings and a revenue beat. Software stocks glitch as investors seem wary of a potential Salesforce deal. And not so godlike, the once unstoppable UnitedHealth has seen its shares drop 15 % this year. Will earnings tomorrow help turn things around? We'll debate all of that. I'm Melissa Lee. We come to you live from the studio. Be at the Nasdaq. On the desk tonight, Tim Seymour, Karen Feynman, Dan Nathan, and Rebecca Patterson, former chief strategist at Bridgewater Associates. Welcome, Rebecca. And we start off with the steep market reversal that sends stocks to their lows of the day.

1:14The Dow up 400 points early in the session, closing the day down nearly 250. That was its biggest single day about face in 13 months. The Nasdaq tumbling almost 2 percent, and the S &P 500 fell more than a percent. Meantime, the 10-year Treasury yield hitting its highest level since mid-November. The volatility index climbing back above 19 and the dollar jumping to its own five-month high. All this as investors eye the potential of Israel retaliating against Iran's weekend strikes. So how vulnerable are stocks for more downside here? Tim, what do you say? Well, what's interesting to me is we came in this morning and equity futures last night.

1:48I'm sure most people are glued to their screens after the weekend's events. And we are seeing a rally. And we are seeing a rally also with possibly a move higher in rates. And that was really how we started out this morning. And I recognize that markets price in a lot. We priced a lot in Friday afternoon going into this weekend on the expectation of, unfortunately, what happened happening. Having said that, it was a week where we sold off on the back of yields. I mean, it was a week where we sold off on the back of a handful of things. But when when you started to see the day play through and there was no flight to quality in bonds, which should have meant Treasury should have been rallying.

2:21The dollar should have been rallying. The dollar actually at one point was actually off small. But the fact that some of the trades that I would have expected to have seen this morning hadn't taken place, I just found is weird, even though I know we were in a place where Friday afternoon risk was significantly high. Look, the VIX has closed well through the levels on Friday. I think we are in a kind of a new range here. The S &P closed effectively on the lows after 120 point reversal intraday to close through the 50 to the downside. And it hasn't made a move to the downside through the 50 since September of 23.

2:51So I think we're in an environment where not only have we had a 4 percent move already in the S &P from peak to trough, but I think, unfortunately, we've crossed a Rubicon over the weekend. We haven't been here before with Iran, Israel. I think there are all kinds of implications, and I think some of them are even going to—we're going to kind of contemplate that tonight. Meaning Iran has never attacked Israel before, directly, as opposed to through surrogates. And that's the Rubicon that we have crossed over the weekend. That's the Rubicon we've crossed. And I think there's left-tail—left-side-tail risks.

3:21galore. Yeah. And I would just add to that. And I agree with you. I mean, we have geopolitical risks in multiple places around the world. And you would think that that would lead to a flight to quality, which would pull yields lower. But we have other forces going on right now. The retail sales report, very, very strong, stronger growth, risks of higher oil prices from the Middle East, creating inflation expectation risks that could keep short term rates higher for long. All of that's feeding into the long end of the curve. I think the big deal, though, today is the speed of the move. You know, if you have a very slow rise in yields and it's backed by stronger growth, you can see higher yields and higher stocks at the same time.

3:57When you have a fast rise in yields, it's unsettling. You have greater uncertainty, greater vol, and it's not necessarily coming just from better growth. I think that's when that tips the balance, the correlation the other way. So all of that I totally agree with, but I also think this market was on such a tear that at some point you need an excuse to start selling things off. So we're just sort of at the beginning of earnings season, I think if things calm down, that's a giant if, and we get back to focusing on earnings, that could be good for the market. But it wouldn't surprise me to just continue to see down for a while.

4:32This move in rates is really quite something. I don't know how much to attribute to the retail number, which was super strong. Also, the revisions to the prior months are huge. They're seen as more important, too. Yeah. And why are they so off? I don't quite get that. So that's kind of, you know, as you were saying, you could have rising rates and the economy doing OK and the market sort of doing OK there. But this retail number seemed to actually be a negative, right, just for what it did to rates. It decelerated a lot. I mean, I'll just say this. You just said, Karen, you know, you want to focus on earnings.

5:05And again, I go back to Friday and JP Morgan down six and a half percent. I can't remember the last time I've seen that stock down more than five percent in a non-crisis sort of period. So what does that say? It's a very crowded trade. We've been talking about a lot of very crowded trades. They became very big market cap stocks. So this was a half a trillion dollar market cap that was down 6 percent on a technical basis. Trends. And let me tell you something. There's a lot of stocks, a lot of sectors, a lot of indices that are breaking these really very nice 45 degree uptrends that have been in place since October.

5:33So some of the technicals are starting to break down. And I just feel like once we get into earnings, I think expectations for so many stocks were only down 4 percent. And the S &P, from those all-time highs, just made two weeks ago, I think expectations are high. What the geopolitics situation does to me, it muddies the outlook, right? And so if J.P. Morgan sold off because the CEO, the best CEO on the planet, right, was giving this sort of guidance that investors were not going to feel great about, and he was already telegraphing that earlier in the week with his investor letter, then I think there's more big downdrafts for some single names that are very crowded to come.

6:05And again, they could have put up a really good Q1, but it really might be about just the lack of visibility they have in the future. And then if you just think about this, OK, we have high expectations for earnings growth for the S &P 500, 11, 12 percent. If you have the dollar where it is, you have rates where they are, you have commodities where there are. I mean, this is going to start to put some pressure on margins. Right. And that's going to put downward pressure on earnings. You know, so I think we're going to have downward earnings revisions and they're going to come out of this. And so, again, the S &P just seems a bit mispriced, you know, in and around 5 ,100 or so.

6:38The last time we were 4.6 in the 10-year, the S &P was 4 ,600. Would I make a leap if I were to say that you're thinking of stagflation at this point? Yeah, I mean, like, that's it. We've been talking about that for a while. You could have said it a year ago and sounded really smart, and you just weren't really smart. You know what I mean? But now I think a lot of these price increases seem to be at least wages and some of these supply chain issues and restoring. They're going to be embedded in the economy right here. And one of the reasons why I thought the Fed should figure out how to raise that inflation target, it's going to give them a bit more leeway what they can do with monetary policy.

7:08And you had a bank, UBS, out there saying that, look, their base case has gone from five to two cuts this year. But they said you could be at six and a half Fed funds next year if a resilient economy, so not stagflation, but actually the retail sales number. I think, Eric, I think Rebecca's dead on in terms of the impact of that retail sales number was very, very important, coincident with everything else this morning. And so whether we've now already explored that concept of what would rate hikes look like, they would they would look like a 10 to 15 percent correction in equities, I think, almost no matter what you did, based upon where where we have been.

7:44But again, the fallout from the weekend's events are that oil, which was already undersupplied, I think it's higher for longer, which short term is very inflationary, even though that's medium term actually deflationary because I think it actually will impact oil and oil demand. But in the short run, you know, headline CPI every$10 barrel. There's a lot of these metrics out there that say it's about a 40 basis point move on headline CPI and about four bips on core. I think the argument in terms of equities, there was an argument with higher yields and kind of where we were. We had we had Goldilocks, right?

8:18We had an economy that was doing what it was doing. Goldilocks is dead. Goldilocks is dead. Good thing guys not here. At least in a coma. Goldilocks is in a coma. But that was great for banks. That was great for energy. Like those are environments where those sectors were the ones you wanted to own. Now you can make an argument. It's tough. In terms of flight to safety, though, if you were to position for a flight to safety, what would that be? I mean, if Treasuries, as you mentioned, a basket of factors there, including issuance, that's going to be a huge pressure. I mean, gold obviously is rallying.

8:47It's having a great year. I think there's probably more upside. And what I like about gold right now is it's not just the flight to safety. There's also support coming from China, from the central bank continuing to add to reserves and Chinese consumers who are not knowing anywhere else to put their money. And I just saw over the weekend that Costco is now selling one ounce gold bars and they're selling out like that, which is interesting. But I like it because even if peace breaks out, which would be amazing, there's this underlying support that's going to help your downside. So I was surprised that we didn't see the flight to quality also, which would be more likely in the shorter end of the curve.

9:23Right. Not wanting to take an interest rate bet, but just a quality bet. So we didn't really see that. That was sort of interesting to me. I think that, you know, this sort of rhetoric back and forth is terrible. Right. And if you're uncertain, you just seem like, all right, I'd rather just take risk off the table. I don't do that. I'm long, always long. So, you know, Friday, today, it wasn't delightful. But I think that the longer the message is away from earnings and how actual companies are doing, the worse it is. Yeah. I'll just say this. You guys mentioned the retail sales. I mean, you know, over the last couple of months, we've heard from McDonald's, we heard from Starbucks.

10:01They were blaming weak sales because of the Middle East thing. So if you think about the retail sales here in the U.S., you better hope the U.S. consumer, you know, holds up here. Because if the S &P finally does have, let's say, a 10 percent downdraft, that is the sort of thing that weighs on consumer confidence here. If the geopolitics stuff, if we really have two hot situations right now, think about those two regions are going to be impacted. And then you have U.S. multinationals that are dealing with higher costs of, you know, supply chain stuff, dollar, all that sort of stuff. It's just we can find ourselves really quickly and finally in a little bit of a correction.

10:33I know that sounds like, you know, I'm speaking Greek to you people here, but it just seems like it's going to happen sooner or later. But to the point, it's been very orderly right now. I mean, you're down 4 percent in the S &P 500. There is no reason, I mean, to be panicked about it. I think the thing to watch on your point is the higher end consumer. The lower end consumer is already really struggling. What's supporting the retail consumer broadly is the people who own lots of stocks and who own homes. And that tends to be the top 20 percent of the economy. So they've had the most wealth creation.

11:03They're allowed to keep spending. The savings rate, by the way, continues to tick down. We're now at 3.6 percent. We were at 4.3, I think, last summer. So that excess savings we all used to talk about is largely gone. And we're getting a bigger cohort at the bottom of the income spectrum that's really not able to spend very much. So it could tip pretty easily. If stocks fall, that confidence on the higher end is gone. And consumers are carrying credit card debt. They're carrying balances now. And what are rates on credit cards? They're at highs. And with every tick higher, they go higher. They adjust higher.

11:35I think there's a trade here in a lot of those consumer finance companies that were great trades last summer into the fall when rates peaked. And so even some of the mortgage servicers, Dunlop, Walker, Synchrony, and some of the consumer credits, Rocket Mortgage. I mean, there's a lot of names. Do your work. But I think these were trades that were very popular when yields were moving aggressively. And we were making a call on the consumer that we've all been a little bit early on, but we're starting to push that. Well, here's one. I mean, American Express reports on Friday morning. So we talk about some of the crosscurrents that we've heard on the higher end here.

12:07And to your point about the stock market, which is making a lot of people feel pretty good, baby boomers. I was talking to our good friend Peter Buchbar today. You know, they got money at 5 percent there. They got their houses at all-time highs. They got all this sort of stuff. Let's see what American Express has to say. It doubled the performance of the S &P 500 off the October lows. It was up 60 percent from its lows to its highs, and the S &P was up just 30 or so percent. So that one, to me, is going to be on my radar Friday morning. Let's turn now to the escalating tensions in the Middle East.

12:35Israel's defense minister saying today his nation has no choice but to retaliate after this weekend's drone and missile attacks by Iran. Our next guest predicts Israel will respond, but with missiles only aimed at Iranian military infrastructure. Here now is Brookings Institution Senior Fellow Michael O 'Hanlon. Michael, great to have you with us. Thank you. Nice to be with you, although it's always dangerous to make predictions. So I'll try to soften that. I'll try to soften that specifically. Yes. But in terms of Israel striking back at this point, will that end it or will this just be a continuous sort of tit for tat at this point?

13:07Yeah, that's the question. I think that Israel, the reason why I think Israel will do something specific, prompt, but also limited, is that I think Israel feels it has to now reciprocate, because Iran has attacked Israel's own soil from Iranian soil for the first time. And Israel doesn't like to be on the soft or short end of that kind of a stick. It believes strongly in the concept of re-establishing deterrence, meaning showing you're the tough guy, and intimidating people into hopefully not attacking you again. Now, that logic would suggest that Israel might actually escalate dramatically like they did in Gaza.

13:43But I think it's more likely in this case, having intercepted and had the U.S. and other help in intercepting the Iranian attack, they'll feel it's adequate to do something that is firm, but also de-escalatory and hope that therefore Iran will not itself feel the need to then go one more time afterwards. So that's my prediction that, you know, probably missiles because there's no manned aircraft involved, no potential for shoot down, probably fixed infrastructure that missiles are good at hitting, and probably relatively isolated infrastructure to minimize fatalities, maybe at night, and probably nothing too major, probably not the nuclear installations, for example, or any major ports or airfields.

14:25But we'll see. Let's say a strike back by Israel concludes this particular chapter of the conflict, Michael. What have we learned, though? I mean, we've learned that Iran has missiles that can reach Israel at this point. So in terms of what we called crossing the Rubicon earlier, the first attack by Iran directly on Israel, what does this sort of open the door to in the future in your mind? Well, I think in technological terms, if I could take that angle, the simplest thing it proves is that medium range air and missile defense is quite good today. And the United States and Israel and others have really perfected or at least dramatically improved a lot of the technology.

15:02However, long-range missile defense is still hard. That's not particularly relevant here, but it could be if China or North Korea attacked us. And short-range defense against saturation attacks with just huge numbers of drones or short-range missiles or artillery is also very hard. And really, therefore, the Lebanon-Hezbollah threat to Israel remains very potent. So there's nothing that anybody should be doing now about rejoicing that somehow defense has established dominance comprehensively. I don't think that's the case. I think Israel knows better than to think that it's somehow now impervious to Hezbollah attack from Lebanon.

15:37There are so many short-range threats that remain because they can get through just by sheer force of numbers, if nothing else. Hey, Michael, it's Tim. Thanks for joining us. You could make an argument that Vladimir Putin is looking all this with a big smile on his face. And I guess my question to you is not predictions on the rest of the world, but also the impact of what's going on in the Middle East and how that's skewing political policy, political response, budgeting, financing different parts of the world, but again, where this can spread or impacts to other parts of the world that we are also very concerned about right now?

16:10Yeah, it's a good question, Tim. You know, there's a lot of ways this could play, but you may be right that Putin's smiling for various reasons. I could also see a case, however, that this may be what is needed to shake Congress up into action on both Ukraine and Israel aid, because Israel is now going to have had, you know, have fewer air defense capabilities still in its toolkit or in its quiver, having used up a fair number. I guess they got a lot of help from us. So maybe they didn't use quite as many anti-ballistic missile interceptors as they might have. But that's still a pretty scarce resource.

16:43Iran used more than 100 ballistic missiles. So the Aero 3 interceptor, various interceptors that we used against that kind of capability, you know, those are easily exhausted. And so there is a case here that now Congress really should act more quickly on Israel. And maybe if it does so, it will also focus on Taiwan and Ukraine as it should. But, you know, hoping for good behavior by Congress is obviously not always the best bet. Some have made the case, Michael, that Iran won't, you know, make any moves that will embroil it into a longer conflict with Israel simply because they don't have the finances to do so, and that it would really backfire in terms of control of their own populace.

17:25And I'm wondering how much we should count on that as a sort of self-deterring factor in this. Not that much, but it's not a zero effect because we know that Iran did the nuclear deal in 2013 and then it kicked in in 2015 after we had squeezed them so hard that most of their trade was impaired in some way and more than$100 billion in their assets was inaccessible to them. So therefore, they decided to do a deal that is probably 51-49 in terms of favorability for us. I was not an enthusiastic supporter of that, although I thought we should have stayed in it once we had it. But Iran didn't give us the best possible terms.

18:03They insisted on some limitations expiring in 2023 and 2025 on their nuclear activity, which is part of why so many Republicans were against it. Also, of course, it didn't limit their other activities in the region. So Iran has proven by its past behavior that it does feel economic pain, but not so much as to just turn over and cry uncle. They still negotiated quite hard and got a pretty good deal for themselves back in that experience of a decade ago so that they care somewhat about their economy and their own people, but not that much. Michael, great to have you. Thank you so much for your time.

18:36Thank you. Michael Hanlon of Brookings. How should we assess where we are at this point versus where we were on Friday, Rebecca? Rebecca? We're mired in uncertainty. I don't think that's changed at all. And I hope he's right, that whatever happens next is small and targeted, and that's the end of this, and there's no more tit for tat. But I mean, he would admit if he were sitting with us, he doesn't know for sure. No one does. So you have to, I think you have to assume that we have just moved up a little bit in level of uncertainty that we're dealing with. And so that flows through to what do you want to own?

19:10how high a conviction do you have and what you have? How concentrated do you want to be? Yeah. What do you want to own? Well, I tell you, you know, back to energy and some of the things like financials. The one thing that's also clear is that Europe suffers here more than anybody. This was an economy that was starting to actually get their sea legs back. The energy prices have come down dramatically. This is bad news for Europe. Interesting day back to the broader market is that you had Nasdaq 100, you had triple Q's underperform. Typically, we think they'd be pretty defensive here. At least they've shown that.

19:41Although in a market that's seen disproportionate move by the mega cap techs, if it's just a pullback and people dialing back risk. So I think we have to watch those moves because, again, the leadership of this market, we know where it's come from. We also know what's proven to be defensive at other times. I'm not running from energy here. That's for sure. One thing I'd quickly add to that is it's important to remember that the U.S. is now a net energy exporter, right, since 2019. And so even though this is bad for us and we saw that today, to your point, it's worse for a lot of other countries.

20:11Like Japan. Right. And we are seeing the dollar higher. And probably Japan's doing better than it would have otherwise simply because dollar yen is now at its highest level since 1990. The yen weakness helps the exporters there. But I think the dollar staying strong, all else equal, is going to be something that's with us for a bit. Coming up, earnings, layoffs and more earnings. Goldman getting a boost. after a beat before the bell, Tesla laying off a big chunk of its workforce. And a look into UNH as we gear up for health care results, all that ahead on Fast. But first, Apple's iPhone shipments getting sliced in the first quarter, how Chinese challengers are putting pressure on the tech titan.

20:47That's next on Go Anywhere. More Fast Money in two.

20:53This is Fast Money with Melissa Lee, right here on CNBC.

21:06Welcome back to Fast Money. Apple shares slumping after new IDC data showed first quarter iPhone sales dropping nearly 10 % globally from last year's levels. The drop in sales means Samsung regained its place at the top of the global smartphone market after losing its crown to Apple last year. Among the biggest gainers in market share are China's Transient and Xiaomi, gaining a whopping 85 % and 34 % respectively. I feel like we've been talking about this sort of version of the story of Apple losing market share, particularly in China, for a very long time. And these numbers confirm it, Dan. Yeah, I mean, it doesn't help that they just don't have the sorts of products that are on the tip of a lot of consumers' tongues.