Stocks Close Out a Volatile Week, and a Generational Pairs Trade Pits Boomers Against Millennials 10/27/23

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. A Friday fade. Stocks slumping into the weekend after a rough week. Next up, a Fed meeting and more mega cap results. Will the pain trade roll on or is a November rebound in the cards? We'll debate that. Plus, unhealthy returns. Shares of Sanofi crushed after an earnings miss and a profit warning. The rest of the sector hit hard today, too. Will pharma continue to be a tough pill to swallow? We'll ask the traders. And later, battle of the generations. Boomers versus millennials.

0:31Why one Wall Street bank says there's a clear winner here. Will it be OK Boomer or Oh Yay Boomer? I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Karen Feinemann, Carter Worth and Steve Grasso. We start off with a rough end to a very volatile week. The Dow Industrial is plunging 366 points to mark its lowest close since March. The midday sell-off coming as Israel increased its air attacks in Gaza and expanded the activity of the ground forces there. The NASDAQ, meantime, did manage to hold on to a gain for the day, helped by post earnings POPs and Amazon and Intel.

1:04Still, all three indices were well in the red for the week. The action coming as we head into another big week for markets, headlined by a Fed decision on Wednesday, Apple earnings a day later. So will all this uncertainty looming over the markets, what should the roadmap be for the week ahead? Tim, what do you think? Well, the uncertainty looming over the markets has been the roadmap of the past week and of the past two weeks. And the question is, to what extent as we go into a really great seasonal time, have you priced a lot of risk in? The VIX is telling you some of that. Carter's probably got some views in that area, too.

1:33And I think we've also, from an earnings perspective, we've spent some time evaluating where numbers that were seemingly not bad on a relative basis to expectations really weren't that great. If you if you consider the cycle, I think it was a week where think of some of the data we had, both in terms of GDP, in terms of some of the jobless numbers. In other words, a lot of strength and suddenly kind of in your face juxtaposed against a lot of these risks. And that's where I think it's actually kind of an interesting time. Equities recognize that third quarter might be as good as it got in terms of the economy and in terms of jobs.

2:08And I think we priced a lot of that. And it was another week where rates went higher. The good news is that I think we've seen some bottoming in things like staples, some bottoming. And Karen's talked about this, too, some bottoming in things like utilities. I think you still are going to continue to see some strength. And on some level, as an investor, I get kind of excited. We're going to talk about some health care, some pharma that's getting beat up. And I think that creates great opportunities here. So I realize there's a lot of fear out there. The last two weeks have been all about fear.

2:34We've got what's going on geopolitically, the horrors of the Middle East. It's no wonder equities have traded the way they have. And yes, Apple is going to move the markets. There's no question. Yeah. Karen, Apple or the Fed? Which one are you most excited about at this point? Excited. Well, I'm not so bullish on Apple, and I kind of think the Fed just has to pause. And I don't even know if the rhetoric will be quite as hawkish, maybe. I mean, some of this data that Tim just talked about was fairly hot, right? So that isn't great. But, you know, I'm always, always long. And so a week like this is just, you know, terrible.

3:08But it's also interesting to me. I'd rather be – I didn't self – I did just self-rather. It's okay. That's for you. Okay. She gets away with it because she's always so well behaved here. The ladies typically. So, I mean, I like when things are just kind of, you know, the VIX is going much higher. Things are kind of gapping down. It's painful, but I think it creates opportunities. And so I'm going to be looking to buy things next week, not sell. Or is this all a trap, Carter? Yes, yes. I think there's still more risk. I mean, here's the thing. The setup for this condition we have now is something that's seen so many times in March.

3:47It's bifurcation, where you have great extended winners while everything else is not working. And the thought often is that bifurcation is resolved because the winners are telling the truth. Homebuilders are right, and Apple is right, and the losers will come to life. But bifurcation has never been resolved that way, and yet again, here's how it gets resolved. The weak get even weaker, which is what's happening. Russell 2000 making new lows and all the extended have all succumbed, meaning Apple rolled over, homebuilders rolled over. So the bifurcation, which was the setup for this three month sell-off, is now in the process of being resolved.

4:19But I don't think it is finished. Is that how you see it, Grasso? Do you think that everything comes down, it converges to the downside at this point? Yeah. So if you look at rates, everyone was concerned with the 10 year popping to 5%. That's backed off. I think to Karen's point, I believe Karen said the Fed has to stop. They can't raise rates. I believe that. I think that's bullish for the market. Tim touched on geopolitical. Geopolitical to me is probably the biggest, I was going to say outlier, but the biggest threat to the markets moving higher. You see corporate spend pull back. The consumer hasn't pulled back.

5:01So if you look at the consumer, so the bears probably got Christmas early this year, Melissa. But the argument that the bears have is that the consumer is weak. Then the inflation data comes out hot. So the consumer still is spending. So you can't have it both ways. I think inflation is coming down and the consumer is spending money. That's probably a sweet spot for the economy. But we had the U.S. bomb Syria last night. So not only is there a ground invasion. So I think this has the potential to escalate further. I guess pull back. So, God. Well, I was going to say, Steve, I think ultimately the question is, as we weigh, you framed it.

5:45You know, we weigh what's going on geopolitically with what we've had with the Fed. The Fed's on hold. I agree. And I also look at kind of the move we've seen in things like gold and things that are that are they're telling you that the market is really unnerved. And I guess, you know, either the question back to you or to the group is ultimately, where are we in terms of in terms of some of some of the risk factors that tell us with a VIX at 22 and gold now over 2000? And and the BOJ looming is maybe the biggest risk in terms of rates. These are the things that I think are are telling us that the market's not ready to work this through.

6:19And to be clear, I feel like the last two weeks, you know, I come out of this week feeling like markets, Carter's used the term broken. I won't use a charts term. I feel like marks are really searching here. And I think all of these things are selling. And you need 100 handles. Just to put a button, just to put a bow on it, you need 100 handles lower. Probably that big, fat, round number of 4 ,000 in the S &P probably gets people excited. Where do rates go in the meantime? We had rates back off in the market still. Well, that's it. Rates close on the low for the week, right? So the real sort of sinister outcome, prospectively, is that you start actually getting lower stocks and lower yields.

6:58And what's happened, the peak was the 27th of July, and here we are the 27th of October. It's exactly three months, S &P down 10.5%. That's garden variety. I mean, what is so bad? You'd think that something had, that world had ended. There's so much prospectively more to go. With the dropping and gapping you see in big names, I mean, like Ford. Yeah, that's big moves in the last few days. Big moves in Whirlpool. And we've seen it last week in what is not Moody's. It was one of the credit agencies. It was TransUnion dropping, right? And this kind of thing. That kind of price action, it's just as if you were a tape reader.

7:34That kind of dropping and gapping doesn't happen when it's, oh, we're near the bottom. That's when it's starting to get panicky. And the panic is likely to get worse, I think. I just one other thing we got to look at on the calendar is the quarterly quarterly funding announcement. Right. On Monday. And then how are they going to do it? What's going to be the cadence of the debt they issue? I mean, that sort of sparked that this last big rally down. We'll see if there's more bad news. That to me is more important than what the Fed says. Or if that's just simply an offset to the bid for bonds that we're seeing because of the bid for safe havens in general, given the you know, what's happening in the Middle East at this point.

8:10But this bid for the flight to quality would be short term, right? Yeah. If you don't want to take duration risk, you just want to have quality short. And they're paying you five, two, three, whatever it is. That's the only other thing I'll say. In terms of the pain that's out there, there's been no place to hide. A lot of people, and I think because rates historically, at least in the last 15 years for a lot of folks, especially in the advisory community, anytime you saw rates move higher, it was an opportunity to get investors into some higher yield environments. There were alternatives, yield incomes.

8:37I think the destruction that there's been in moving people out the duration curve has been incredible, especially even in relatively conservative parts of both the Treasury curve. And you look at AAA corporates and munis and whatnot. I just think that's what has the investor community so on nerve. A lot of people also kind of relatively new to at least making fixed income allocations. And this hasn't been an easy time to do that. Turning now to today's PCE data and what to expect from next week's Fed meeting, The conference board's chief economist, Dana Peterson, joins us here on set. Dana, welcome to the show.

9:08Great to see you. Thanks. So are you expecting a pause? What sort of commentary do you think we'll hear from Fed Chair Powell afterwards? We are expecting a pause next week. Indeed, Fed Chair Powell and a number of other governors and presidents have indicated that they've seen enough in terms of slower inflation. And they're also concerned about the run up in bond yields and how that's in, well, intensified financial conditions. So are you expecting that this to be a pause? In other words, there could be another hike in the offing, in the coming, or that this is probably the pause that ends this cycle?

9:43Well, there could very well be another hike. Certainly we're looking at December. And if we continue to see data come in as strong as it has been, we saw third quarter GDP come in very strong. What's the tracking for the fourth quarter? But also inflation and labor markets. We're going to get two more inflation reports and labor markets next week. If those are still very strong, the Fed might consider another hike. So a lot of times we see, you know, they might have, let's say they pause. Do you think the rhetoric will be hawkish or dovish? What do you think they're going to say? I think the rhetoric has to be hawkish because the moment they go even a little bit dovish, you'll see mortgage rates come off, housing market come roaring back, financial conditions loosening, and markets really expecting that rate cuts will be right around the corner.

10:29So the Fed needs to keep the heat on. Dana, first of all, thanks for joining us. Do you think that the Fed is concerned about the move, the aggressive move in the long end of the bond market? Because, again, by any measure, this backup in rates has been something that has had technical components to it. There's maybe even some truly some fundamental dynamics. There's some inflationary dynamics. But the Fed, as we all talk about, orderly moves in the bond market are fine, disorderly. And how do you feel about this move? How do they feel about this move? But I'd love to hear your view, too. I think they may be a little bit disturbed by it, just given the fact that it's happened so quickly.

11:05But I think it's also fundamental. Certainly, we are seeing some cracks in the facade of the labor market. Consumers are becoming more indebted. They're falling behind in their credit card payments. And certainly the banking sector, I don't think it's out of the woods in terms of future risks, especially with regards to consumers as well as CRE. So with all of that, I think markets are expecting, yes, the Fed means higher for longer. But I think that realization just came way too quickly and certainly was disruptive for markets. When do you think the consumer cracks? When? Well, we still have a recession call for the first half of next year.

11:43And that's really when we're going to see negative consumer spending, probably zero payroll gains, and even businesses pulling back not only on investment, but maybe letting a few people go. The key thing is that many businesses think that this is going to be a short and shallow recession, so they're not really letting people go. But you really do need the labor market to soften in order for this to really work. So is there a rate you're thinking that we're going to hit? In terms of the unemployment rate? Yes. We're thinking 4.2 percent. That's notably higher than 3.5 percent, and it's roughly 700 ,000 job losses.

12:17Wow. What has surprised you about the trajectory of the economy this year? because I feel like everybody has gotten it wrong. And I'm just wondering, when you look back on it, what did you get wrong? So what is sort of the unknown that you're thinking, that's the asterisk in my forecast? Well, certainly we did get—we, I think, underestimated the power of consumer spending. Consumers still had quite a bit of excess savings, and consumers weren't shy about pulling out their credit cards. So we still had a lot of spending. But I think some of that's going to cool off. And again, you have student loan debt coming online that's going to affect consumers who are 35 and 50.

12:54Those are your peak spending years. And certainly we're starting to see many consumers, especially at the lower end of the income spectrum, complain, still complain about inflation, but also higher interest rates. Dana, thanks so much for stopping by. Appreciate it. Thank you. Dana Peterson. Steve Grasso, what do you think? I mean, if the consumer starts cracking early next year, what does the stock market do? Yeah, I mean, it's obvious that if the consumer cracks, that that's the linchpin that's holding this market together. But if you think the problem that we're having with the market is the monetary policy and fiscal policy are butting heads right now.

13:31We're in an election year cycle. What's going to happen? The administration can't let the consumer fall apart. it. So there's got to be something thrown at the consumer, which means more spending, higher inflation. So QT is the biggest problem that I see that no matter if it doesn't matter if the Fed stops raising rates right now, QT is really tightening the market behind the scenes in a much more active way. And they say it's passive. It's not passive. So if the consumer cracks, the market cracks. If unemployment spikes, the market goes lower. Is this what we're factoring in already, though? Well, I don't know.

14:11I was going to ask Steve about about QT. I mean, do you do you saying that as if you think they're going to stop QT? And the GDP number was really good. So it's not it's not like they put a noose around the economy's neck yet. Yeah, the consumer and the GDP number consumer was hot and corporate spend, business spend was not. it. And QT, they're going to keep that on their foot on the gas until 2025 at the very least. If you remember what the Fed's balance sheet pre-pandemic, it was about$4 trillion, Karen. It worked its way up to$9 trillion. Now we're at about$8.2. They want to see that crack.

14:50So they can't stop QT. And that, if you look at the 10-year, I've said this before, the 10-year spiked by 100 bps as soon as QT doubled up on their monthly rate. So QT is tightening more than anything else. They're going to continue that. And to Melissa's original question, to Dana's point, if the consumer cracks, which none of us have seen yet, and I don't think they're going to crack, but if they do, the market falls. Carter, do you think if you take a look at retail charts, consumer discretionary charts that we're going to see a bottom before that consumer cracks sometime in the first half?

15:28So if you look at the XRT, right, which is a beautiful index, it's equal weight and it's about 130 stocks. And it's got everything from Walmart to Amazon to things like Gap that are very small and Foot Locker. It is making 52-week lows as we speak, right? It was a huge outperformer relative to the consumer discretionary sector during COVID, after the lows, and it's been a massive underperformer. This is what a classic breakdown setup is. We've just seen the breakdown in Ford. We've seen the breakdown in Whirlpool. This whole index ultimately is likely to break down. Coming up, Pharmaflop. Sanofi shares sinking after the company issued a dire profit warning before the bell.

16:03We'll dig into the headwinds facing the name of the broader industry next. Plus, Jamie's cashing out, well, just a little bit. JPMorgan shares dropping more than 3 % after the CEO dumped a million shares in the market, or plans to next year, we should say. Why, that could be an ominous sign for the financials. much more Fast Money right after this.

16:31Welcome back to Fast Money. A major buzzkill for Sanofi, the French pharma company dropping nearly 20 percent after warning that heightened research and development spending is expected to weigh down profits next year. Fellow pharma stock AbbVie also getting hit. Today, it announced a$2.1 billion charge related to government price negotiations for its cancer drug, Imbruvia. Karen, you flagged AbbVie in particular. These are big moves, though, for pharma. Big, giant pharma. Santa Fe's north of the$100 billion company. I mean, these are not small companies. These are massive moves. Yeah, and AbbVie had their Botox and Juvederm miss, which is a big revenue miss.

17:09And I've got to imagine the margins there are very good. So, you know, it was a giant line item. But also a horrible day, a horrible day to own many stocks, but particularly the kind of emergency room of big cap pharma or now smaller cap pharma was terrible across the board. Yeah. And it's been so weak all along. Bayer's been making 52-week lows, and so has Bristol-Myers. Bristol-Myers. And so has Pfizer. And J &J is a 52-week. I mean, it's really a bifurcant. There it's Lilly and a few others, and then the rest of it's just like the market. Yeah, I think it's setting up for great opportunities, but I have exposure to Merck.

17:47I have exposure to Pfizer. I have some exposure to AbbVie. And I think, you know, in BMY's case, this is a company that continues to disappoint. This stock's been going down, and they gave guidance that said they're going to need an extra year to hit a lot of their pipeline targets. So this is what we're hearing from these companies. There's certainly an investor community that believes these companies have to spend more. Those companies that have had exclusives on pipelines are the ones that are being exposed here because they're now coming due. The Sanofi move, a lot of strategic updates. They've got a big investor date coming up.

18:18I think this sets up for an opportunity, but I don't think you touch a name like this this quickly after this kind of a move today. The AbbVie move also underscores the notion of the unknown associated with Medicare Part D and the impact on revenues from these drugs that are identified on this list, Ross. and we're coming up into an election year, you've got to wonder if there's going to be a lot of just noise around the sector as well. Yeah, that's always the poster child for election years, to your point. And when we had the pandemic, it was all of the vaccine-related drugs that spiked higher.

18:53Pandemic ended. They all spiked lower. GLP-1 inhibitors. And that's still a very expensive drug. There's not going to be a lot of circulation for that class of drugs. But I still think you have to go with that theme because that's sucking up all the oxygen in the room. And for all of us to try to see how we can navigate Medicare or Medicaid and the political arm of it, too complex. Stick with the ones that have worked. But an Eli Lilly has already worked. I would go with an Amgen whose GLP-1 inhibitor hasn't really had a tailwind yet. I would stick with that one. All right. There's a lot more Fast Money to come.

19:32Here's what's coming up next. Okay, Boomer. Bank of America says youth is overrated. We'll dive into a generational pairs trade that could put the baby boom back in your portfolio. Plus, the diamond dump. J.P. Morgan's CEO is doing something he's never done, waving goodbye to a million shares of the company. How much should we read into the sale? We'll get some answers next. You're watching Fast Money, live from the Nasdaq market site in Times Square. We're back right after this.

20:15Welcome back to Fast Money. Shares of J.P. Morgan taking a hit today. CEO Jamie Dimon planning to sell one million shares of the bank's stock starting next year, according to a regulatory filing. It'll be his first sale since becoming J.P. Morgan's head honcho in 2005. The stock is up nearly 250 percent since then. But the news comes just days after Diamond's guarded comments on the global economy. At the Future Investment Initiative this week, he said central banks were 100 percent dead wrong 18 months ago and that he would be quite cautious going into next year. So there's a couple of things at work here.

20:47He's been a good buyer of the stock in the past. So is he also a good seller, even if it's for many different reasons, planning purposes, estate planning, et cetera, et cetera? and or is he planning to leave the bank, Karen? So he is not planning to leave the bank. So but to think about, you know, I would much rather he'd not be selling stock. However, you know, there's a lot of reasons people sell stock, right? Diversification and that that would be the main one here. But also, you know, he could have begun selling stock already. Right. And just filed a form for like most people do. I think him saying, you know, in 2024, this is my plan.

21:28I'm going to do this. He's probably he's going to do it regardless of price, just in a, you know, 10B5 or whatever it's called. So I don't love to see it. I mean, the stock is down five bucks today. I hate that. Although the market for bank stocks also terrible today. So I think it was, you know, on the worst side, but not the worst. So I think that I wouldn't read that much into it. One more thing to note, though. He still has a fortune in stock, plus he has PSU's performance stock units that could make him nearly hold to this sale. So he has a ton of money on the table. Well, a couple of things.

22:07I mean, obviously, it's been the place that everyone has been hiding. If you look at the relative performance of J.P. Morgan to the BKX, it was making all-time relative highs. It's going back to 1992, just in the past two weeks. But two, is it, and this is your world of fundamentals, not mine, but is it cheap at 1.3 times book when every other bank is trading? It's not 1.3 times book. It's more than that. That's not tangible. No, not tangible. I'm just talking about book, right? But I mean, at 1.35 versus every other bank below one, if you look at its average price to book over the last 20 years, it's more like 1.15, 1.2.

22:37It's higher than maybe it still belongs at a lower level. I just, here's the question. Do you buy in when a stock is just dropped and gapped if you didn't know the news. Forget the news. Forget the news on Santa Fe. Forget the news on J.B. Warren. The stock dropped in gap. No one could say yes, but we know it was because there was news that Jamie Dimon sold. But if you just look at the chart, good technique is never to buy when a stock drops in gaps. Did you just refer to them as funnymentals? That's what I thought I heard. The chart guy talking about what we did. No, no. Carter's right to point out that sometimes technicals tell a story that doesn't matter how you could have crafted the fundamental story.

23:17The relative outperformance of J.P. Morgan, I think, is critical. And I think it's important. And I think it is a case of fundamentals. I think it's not only a balance sheet dynamic. It's the businesses that they're in and the strength that they have and the pricing power that they have. And frankly, they haven't had to price quite as aggressively for deposits. They don't need to. It's a really interesting time because I think banks are not an exciting place to be. This is a day, by the way, where it's a very small bank. Doesn't mean much at all in terms of size, but you have this Republic First Bank that we now, in the last couple of days, learned it's another bank that's getting bailed out.