Stocks Drop After Strong Jobs Report… And Next Move In The Weight Loss Drug Space 1/10/25

0:02Live from the Nasdaq market site in the heart of New York City's Times Square this is fast Here's what's on tap tonight. A post-job sell-off. Stocks sinking, yields spiking, and volatility hitting three-week highs as concerns grow about where the Fed is heading. We break down all the moves and how next week's CPI print could factor in. And the year of the obesity pill. Pharma companies seem to have a singular focus this year where the top players stand in the race and the stocks that could see the biggest gains. Plus, Delta shares take off as earnings season gets underway. Constellation Energy hits new highs on a blockbuster power deal.

0:33and its deal with tapestry may be done, but Capri may have another idea in mind. The luxury details coming up. I'm Melissa Lecombe, live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Courtney Garcia, Steve Grasso, and Julie Beal. We start off with a major sell-off on Wall Street. All three indices tumbling more than 1.5 % after this morning's stronger-than-expected jobs report. Payrolls growing by more than 250 ,000 in December, while the unemployment rate fell to 4.1%. Today's market dropped, nearly erasing the entire post-election rally. Just one week to go until President-elect Donald Trump's inauguration.

1:08The Dow is now below where it was on Election Day. The S &P 500 basically flat since then. The Nasdaq still holding on to a less than 4 % gain. And while equity sold off, the dollar and treasuries, they ticked higher. Ten-year closing in on 4.8%, its highest level yield-wise since November of 2023. The 30-year hitting 5 % at one point. the dollar at its highest level in more than two years. All this action ahead of two key inflation reports coming next week, both producer and consumer prices expected to accelerate from November level. So do all these moves set the stage for even more volatility to come?

1:44Tim? They do, but volatility doesn't necessarily have to be bad and doesn't necessarily have to derail what's been one of the greatest two-year bull markets of all time. You know, my view is that this week was all about central banks. It was all about yields blowing out around the world. I mean, look what happened in the gilt market. I know most people don't. So I'll just say, if you look at Japanese yields, they've moved even faster than U.S. yields, and they are breaking to significantly higher levels, at least relative to themselves. What we learned this week in Fed Minutes was that the Fed, in their last meeting, was very much on hold.

2:16What we heard from the St. Louis Fed is that effectively since September, his view is the world has changed. This is a new voting member of the FOMC, and that it's very clear within the Fed that is so data dependent that, look, if anything, we're now out to March at best on a cut. And yes, that's what the market is digesting. It's been like it's been a lose-lose market for equities and bonds over the last five weeks. We haven't done this since back to 2023. But it feels a lot like it feels a lot like, you know, the early stages of when the Fed was telegraphing that they were hiking. We're not getting anything close to that.

2:51Of course, that was historic in terms of what they did in the end of 21 into 22 and 23. But, you know, markets came into all of this with cash levels for professionals at lowest levels we've seen in a long time. Complacency, Bitcoin going through the moon. I mean, we came into this period of rising rates set up for volatility. Volatility, not comfortable, not always bad. So an excuse to lighten up positions or is the pace of this rise in rates, is that actually scary? Does that actually factor into a revised outlook for stocks for you? Well, I think the bigger problem would be interest rates rising, which you bring up.

3:28And I think we're far away from that, so I don't think that's anything to consider. But you're starting to see more inklings and kind of the rumors of people starting to talk about that. So when you're looking at no rate cuts happening this year, that went from a 13 % odds to 25 % odds when we look at today. So I don't think rates staying this higher for longer is necessarily a bad thing for the markets. They need to digest that, which is what's happening today. But if they stay there, I think markets can likely continue. But we just don't want to see them going higher. I don't think we're there yet, so I wouldn't really price that in.

3:54I think we pulled a lot forward, but the way you opened up the show with that litany of data points, the fact that we're so close to all-time highs, isn't that something to take away? I think Tim touched on a lot of the good news in the marketplace. So if you went through that litany, the game that you always play, if you would have known the entry, where would the market be? And you could make the case that the market could be substantially lower than it is. the odds of Donald Trump becoming president again were probably pretty low. And as we got closer, it was still a flip of the coin. When he was elected, huge pro-growth, huge CapEx.

4:37So there were a lot of things that were really in the bull's corner. So I think the market is just adjusting, if you will. OK, there could also be a little bit of Julie Beal. Well, you know, upon the election, there are all sorts of assumptions about all these pro-growth sort of policies. And as we get closer to Inauguration Day, there is this reality setting in that, you know what, day one, there could be tariffs. We don't know the extent of the tariffs. There are all these potentially inflationary policies coming down the pike. And we're at, you know, 4.74 and change. Yeah, I think that's exactly it.

5:09I think there was a recognition in the markets that we could have a higher level of inflation. But I think what people weren't necessarily expecting was that, you know, other pockets of the economy would be as strong as they are. And I think this labor report really points to an underlying very healthy economy. And so I think taken together, it's getting very, very difficult for the Fed to be in any kind of position to be able to cut rates. For sure, I think they're going to have to stand still. I think the discussions that people that are starting to have about raising rates, I mean, I can't even imagine that discussion, you know, four weeks ago.

5:43and suddenly I'm hearing it more and more. I think that's just a level of indication of how wide the cone of outcomes has become. And that happens anytime you start to really ramp up the level of uncertainty. And I think with this administration, that's just a reflection of the fact that the cone of outcomes is wider. We're going to have more volatility because we can't really predict outcomes. And I think it's really the time for investors to focus more on the fundamentals because come earnings, that's when things are going to get trued up in the right way. Bank of America previously expected two rate cuts this year, now expects none.

6:17The economists there are saying the conversation should move to hikes if inflation drifts higher. So it's in print from a major bank, from a major economist. And it's not all that provocative anymore, as we've all just talked about. But I think if you go back to the number today and the unemployment rate of 4.1, and you look at where at least major focus in policy is around immigration. and that's all types of immigration and whether that was legal, whether it was illegal. And there's a lot of strong opinions on it. But there's no denying that the immigration into the country over the last three years was three times what it had been in the previous, on average, per year over the previous 15 years.

6:56And that was significantly important to a labor market and significantly important to an economy that actually relished that. I mean, again, I will stay away from the immigration issues that are very topical everywhere else. But as it related to the job market and where it made the Fed's job easier or where, in fact, at least it took some of the pressure off of a labor market that is largely normalized. I just bring that up because today was really as much about the unemployment rate, which we often say is more symbolic. It can move around. But I think the inflation dynamics that are at least out there today are certainly to be reckoned with.

7:29I think a stronger dollar is certainly a nice offset. And we'll hear that, though. But I mean, hey, we've got earnings season coming up. It's not that, you know, we started as we head into next week, we start to look straight into the barrel of earnings season. The banks are going to tell you first they're going to talk about a steeper yield curve. But a lot of these multinational industrials and 28 percent of the S &P revenues, people know these numbers are coming internationally. So some of that is good. Some of that is bad. Companies don't. I mean, if you're a company and you're going to report earnings, there are many companies out there about to do exactly that.

8:01Would you go out on a limb and be bullish given the volatility to come? Is it in their interest to be bullish about their forecast, even for the next, you know, six months? What do you think? It depends. I think, judging on the election outcome, I think that you have a lot more horizon to see or distance that you could see that tax policy, taxes aren't going up. CapEx is probably going up. So there's a lot of things that you can invest around with a clearer tax policy. you can become bullish, but a CEO is never rewarded for being overly bullish. They're always rewarded for kitchen sinking and for lowering the bar and expectations.

8:44So and analysts, by the way, are rewarded for the same type of thing. But I think Tim talked about the dollar. You know, you talked about a lot of these things. They seem very overextended to me, as we talk about on a regular basis. So I think inflation, CPI, 30 percent of CPI is housing. Could there be another outlier print? Yes. I think everything is overextended. Well, I think CEOs are going to comment industry specific. And let's face it. I mean, there are industries that are going to benefit from a higher rate environment, a stronger labor market, et cetera, et cetera. I think it's going to get back to fundamentals.

9:20I think we have to look for the markets at 10 and a half percent EPS growth in 2025 at 22 times forward and say, is this the market? Is this where we should be? And that's really the question. The question is also going to come right back to those seven stocks who have priced a lot of great news in, but whose businesses, if you look at the internet space, and I was listening to Mark Mahaney today on a webinar with Evercore, I mean, he says they come into 25 in much better shape than they did into 24. So, you know, in terms of the true demand of what's going on, the ad business, the ad component of it, but obviously everything from data center and certainly the consumer strength that's driving a lot of this.

9:56So it's going to get back to these big stocks again. And I think these big stocks are going to be somewhat defensive in a higher rate environment. A stronger economy. A winner in any environment. Still the MAG 7. The magnificent 7. Still magnificent. I see what you did. No, you did it to yourself. I'm just repeating your words back at you. Are they defensive? I mean, they can be. But I think what we've talked about is they are still getting expensive. And so I still think we want to own those. I don't want to get out of them. I just still think there's a lot of other areas that you can add your money to right now.

10:28And I think when we're looking at what's going on right now with the jobs numbers, it's showing we have a strong economy. And I think this is where likely equity markets can get past this if we have these higher for longer, but the economy is still strong and consumers keep spending. I think the issue is, does inflation get to a point that the consumer is weakened? And I think that's something that I always like to hear when the banks report earnings, because they have a really good grasp on is the consumer still spending. I think that's what you want to listen to next week. All right. For more on the markets and the economy, let's bring in CNBC contributor Peter Buchvar.

10:56He's a Bleakley Financial Group chief investment officer. Peter, always great to have you. You think 10-year yields are going to hit 5 percent? What happens to stocks in that scenario? Well, just to add some what Tim was saying is it helps to self-actualize. Do you want to be paying 22 times forward earnings in that rising rate environment? When rates are low, investors can be very valuation agnostic. When investors believe that the Fed is going to cut short-term interest rates and save us, investors can be valuation agnostic. But when you hit the reality that interest rates have actually risen across the curve in the face of those rate cuts, and now the Fed may not even cut again, well, valuations may all of a sudden matter.

11:38And instead of 22 or 23 times, maybe 20 times is more appropriate, maybe 17 or 18. Well, if that's the case, then it's going to be tough for the market to drive much higher. Now, the market can say, OK, we're comfortable 22, and we can sort of not have much of a return this year if we've already priced in a lot of the gains. But this P multiple now all of a sudden becomes an attention focus if these rise in rates continues, which I think it will. And yes, 5 percent, I do think, will be touched again that we saw last summer. So markets go down in your view, Peter. I mean, that's the bottom line.

12:13And is the bar for a Fed rate hike much lower in your view? Or is that still off the table? I don't think that's not where the Fed's head is. And I look at the payroll number today, and it just doesn't square with anything else I'm seeing. To me, job growth is probably more around the$150 level, because while we celebrated the$256, which does include about 30 ,000-plus of government, you know, ADP on Wednesday said private sector was just$122. I think the truth lies somewhere in the middle, and it's probably about$150. And that's a slowing rate of job growth relative to 2023. So I don't think the Fed's head is there.

12:55Now, of course, the inflation data next week is going to be big. If there's one thing that can sort of take the heat off interest rates, it could be a benign CPI number, which I think the services component can deliver that. But there's also more that's going on here. It's the global rise in interest rates. I mean, you essentially have the global bond police that's driving through all the different neighborhoods around the world and calling up governments that have excessive debts and deficits and wondering whether they're going to be able to sell that at the price these borrowers want to sell at.

13:27Whether it's Japan, whether it's the U.K., France. And it's now becoming wider spread. It's falling into Germany, which is economies in a recession and with higher interest rates. And Australia and Canada. And also one last thing with rates that's not really being discussed around markets is the Bank of Japan is probably going to raise rates this year. I'm sorry, this month. And they continue to reduce the pace of their QE. Through the first quarter of 2026, they will have cut QE in half. That is a major liquidity spigot that's being turned off that I think is behind the scenes impacting global interest rates, just as it did last summer when they eliminated yield curve control and the U.S.

14:0810-year yield within days started its ascent to 5%. Peter, when you look at the revisions that we've seen last year in the jobs numbers, we saw the biggest revision since 2009. Do you think that could be a little wonky in the differential that you talked about? And secondly, when you take out MAG-7, you're concerned with valuation. When you take out MAG7 and you look at forward versus forward without MAG7, it's a couple of percentage points different. When you look at current, it's about 10 handles different. Agreed. You can drive a truck between the P multiples of the growth stocks and the multiples of the value stocks.

14:51I think this is the ideal situation where value finally catches up to the growth trade and that the stocks most vulnerable are those growthy high PE multiples. Those that are less vulnerable are the cheap value stuff. Now, with respect to the revisions, when you think about here we are just a week after December ended and the government is supposed to come up with an accurate jobs number, it's just physically impossible. And that's why we get a revision next month, a revision the following month, a revision a year from now. And that final number is going to be very different than what we heard today.

15:21And it's also just because there are less businesses that are responding to these surveys and so on and so on. So that's why I think when you analyze the jobs data, you've got to look at it all together with a lot of different data points. Peter, always great to speak with you. Thank you. Thanks. Have a good weekend. Peter Bookfar of Weekly. So it sounds like Peter says there are a lot of global factors that will sort of fuel the rate rise further. Julie Beal, in your world, your corner of the market has been absolutely crushed because of rising yields. And so, you know, for you who focus on quality names, those names get crushed too?

15:58I mean, we've demonstrated that they tend not to, right? A lot of the names that we own, we really try to focus on names that have cash positions rather than any kind of leverage. And so weirdly, a lot of the companies that I own have actually benefited from higher interest rates. And That's not really a fundamental issue here or there. But the most important thing is that these companies have, they are really the masters of their own destiny. And I think that's actually what's critical when you have this level of uncertainty is that you have companies that have the financial flexibility to be able to respond to changes in markets.

16:30And that's something that typically small cap companies struggle to do. And so I think if you can be really selective and choose those kinds of higher quality businesses that have a lot of earnings persistence, you end up doing well through a cycle like this. All right, let's get to what's happening out west. Southern California continuing to battle massive wildfires. The blazes killing at least 10 and forcing the evacuation of over 180 ,000 residents. Thousands of streets completely destroyed. AccuWeather estimates on economic losses and damages have tripled to$150 billion, with insured losses pegged at$20 billion by insurance analysts.

17:08CNBC's Contessa Burr joins us now to break down the current impact on insurance. And we were chatting in the green room. This is really a crisis in this industry. It is at an inflection point where several CEO insurance executives have said to me today, look, this has the real potential of becoming an insurance desert. And it depends on how the insurance commissioner in California, how the state legislature responds to this crisis, whether they can come out of that. But$20 billion in insured losses would make this the costliest wildfire event for insurers in global history, anywhere. And really, this is a homeowners event.

17:48It's far more exposed in homeowners than commercial property or, say, agriculture. The California insurance commissioner issued a moratorium on the cancellation or the non-renewal of residential properties. My sources tell me commercial insurers are already putting a halt on new policies and instituting across the board non-renewals for policies that come due while the wildfires are burning. That's how insurers reduce their exposure if they think the risks are too high for the prices they can get. And the fair plan, which is California's last resort insurer, has hundreds of millions in total billions, hundreds of billions in total exposure, with only hundreds of millions in reserves.

18:31And we know$6 billion in exposure in the Pacific Palisades alone. There is no way my sources say that they're getting$6 billion in premiums. 85 % growth in the number of policies there between 2023 and 2024. So that may not account for all the cancellations that we know State Farm handed out in that area. If the fair plan runs out of money to pay these claims, and by all accounts, it probably will, every insurer that has operated in this state for the last two years will have to pay in proportion to its market share. So that means State Farm, which has somewhere in the neighborhood of 19 percent market share in the state and which canceled about 1 ,600 policies in the Pacific Palisades last year, will now have to pay out on claims for which it never collected premiums.

19:21Not only that, what's going to happen? I got a big warning on this today, Melissa. What people thought they were insuring. Say you had a$4 million house in the Palisades and you went to your insurer and you said, OK, I'm going to get this coverage. Your insurer may now say because of the inflation of materials, wait a minute, it's going to cost$5 million or$6 million to replace that house. And you only have a policy for$4 million. So there may be a lot of people who are way underinsured. And then that sparks the kind of lawsuits that have been a consistent headwind for this industry. The litigation that happens gets passed on to every policyholder everywhere, not just in California.

20:05So you live in New York, New Jersey. You're not anywhere close to the wildfires, but you will see your premiums go higher, most likely. Because the way insurance works is that it's a risk pool. If you have a lot of people paying into the same pool, then you don't have to take all of the risk when a tornado hits in the Midwest. But yes, if it goes up, if we see California, if we see Florida, the other states that are heading toward this direction, New York, New Jersey, Illinois, if we see them follow this path, what this means is everyone in the nation is going to see their home insurance premiums go up beyond what they've already seen.

20:43I was going to say, it's already been a rough couple of years. Yes, that's right. It's hard to believe that, but that's right. And how much of this is a function also of just how loosely regulated some of these other states are? There was an article in the Journal about that today, and that's part of where it can go. I mean, the fingers have been pointed at this particular administration in California that the commissioner gets requests to hike the rates and sits on them and sits on them and sits on them. Doesn't say no, just lets it lapse. And then finally, when Allstate goes through and finally gets almost a 30 percent hike for property insurance and the homeowners are shocked by this, instead of seeing incremental.

21:21Right. Then what you say is, is that enough? No, no, that is not enough. Contessa, thank you. Contessa Brewer. Coming up, Delta takes the flight. The numbers that have CEO Ed Bastian saying 2025 could be the airline's best year ever. Plus, the clock is ticking on TikTok. The Supreme Court could soon decide on whether to ban the popular social media app. Could that be a big win for names like Meta and Snap? We'll get some answers next.

21:57Welcome back to Fast Money. Shares of Delta topping the tape today after beating earnings estimates and posting strong guidance. The company is saying it expects to generate more than$4 billion in free cash flow this year. That's 18 % more than 2024. Shares seeing their best day in more than three years. CEO Ed Bastian on Squawk Box this morning saying 2025 could be its best year ever. We're looking in the first quarter. close to double digits in terms of top-line revenue growth. We're looking at doubling our EPS in the first quarter. We're looking at next year being the top financial performance in our history.

22:33You've got corporates up double digits. You've got the international up close to double digits. You've got our AmeriExpress loyalty, remuneration and spending at double-digit levels. So every aspect that we're putting out, again, many of these in premium categories, are really, really healthy. All right. So can Delta keep going higher? We were just talking about CEO guidance and how it's not in their best interest to be really bullish, unless they're really sure that it's going to pan out, Tim. Well, what's interesting is Delta's really provided a halo effect for the entire industry. It's not that they're not also doing a better job.

23:08I mean, the whole industry is run differently. And the question for investors here, when Delta's trading probably 30 % north on multiple and a forward multiple to its five-year average, and even more so on a 10-year, And again, it tells you those averages bake in how poorly run airlines were in the past and how we expected them. Anytime there was an opportunity to actually take advantage of good news, they overbuilt out capacity. They became very inefficient. What they're doing now is totally different. And what they talked about today in those four Q numbers were that their revenue per available seat miles, otherwise known as RASM, was was up 160 basis points and that they expected to go even higher.

23:43So I think you stay in what used to be the greatest trading stocks in the world into now what are investable stocks. And I think it's been a huge run. You have to chase it today. There's a lot more Fast Monday to come. Here's what's coming up next. The clock is ticking on TikTok. It's fate hanging in the balance as the Supreme Court hears arguments over banning the social media giant, what it means for the industry and its top competitors. Next. Plus, is 2025 the year of the obesity pill? The skinny on that and the biggest topics from J.P. Morgan's healthcare conference. From Alzheimer's to AI and beyond.