Stocks Drop After Weak Jobs Report… And Oil Notches Worst Week In More Than A Year 9/6/24

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. A growth scare on Wall Street. Stocks sinking as a weak jobs report raises concerns about the economy. The Nasdaq closing out its worst week in over two years. Have we ruled out hopes for a soft landing? And the countdown is on to Apple's next big iPhone reveal. What to expect from Monday's event and how it could impact the stock. Plus, crude gets crushed. Prices hitting their lowest level since June of last year. Out of the ether, money flowing out of the crypto's ETFs and streaming key to the NFL's 2024 season.

0:34We dive into the league strategy and who could come out the MVP. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Carter Worth, Dan Nathan, and Steve Grasso. But we start off with that major sell-off on Wall Street. The S &P closing out its worst week in more than a year with nearly a 2 % drop today. The Dow falling more than 400 points. The tech-heavy NASDAQ leading the losses down 2.5%, notching its worst week since January 2022. The sell-off coming after a disappointing jobs report, August jobs report, raising fears over economic growth. Payrolls rising by 142 ,000.

1:07That's well below expectations for a gain of 161 ,000. Prior months' growth was revised lower as well. While the unemployment rate ticked lower, as expected, the real unemployment rate, which includes discouraged workers and those holding part-time jobs, edged up to 7.9 percent. That was its highest rating in nearly three years. All this ahead of next week's big CPI print. But was a market reaction to this morning's numbers justified? Tim, what do you think? I think it was. Now, I said last night I actually thought we were going to get a surprise. I thought we were going to get better numbers than we got.

1:40So I'm at least trying to hedge my comments because I think we've all felt at least bad news is not just bad news, but it's really bad news based upon what we saw on August 2nd and that last July payroll number print that we got in August. So the question is, this number at 142 doesn't scream recession. What it does do is it actually puts the balance of risk to the soft landing scenario, I think, to the downside. And I think that's part of what you got here. I mean, I think you had a whole lot of dynamics in this. And where we're getting now, the underperformance in this market, I think, kind of speaks to where I think people should be most concerned about where you had the most exaggerated kind of moves.

2:17And, again, I would just say what we've seen from the bond market is really fascinating. because, again, equities, credit, don't tell you that they're worried about recession or anything close to it, whereas commodities and absolutely the bond market and that move in the two-year and what we've seen, and we've talked about this disinflation of the yield curve, suddenly that CPI number next week, I know this sounds like a new concept, but get used to it. We don't want that to be too weak. Actually, a little inflation. Deflation is obviously the devil for markets, and that's something that you see after bubbles of all kinds.

2:51So, I mean, it would be kind of weird to say, let's pull for some inflation. But I don't want to see an overly soft inflation number. Yeah, it's interesting, though, because expectations were not that high, if you think about it, heading into the print. And if they had come out with a number that was sub 100 ,000, which is what last month was revised to, I think it was the number was what, 89 ,000 or something like that. That would have been really bad. And I would have said what might have justified this sort of move. But what's really curious to me, last night we were sitting on the desk, we were talking about the CME FedWatch tool that was pricing in only a 40 % probability of a 50 basis point cut.

3:24Well, that actually went down today, right? And so I just think that's really interesting. So if markets were trying to bully the Fed into a 50 basis cut, they didn't get it today. So I didn't think the news was that bad. And you tell me if the CPI isn't as bad as people expect, then you have a situation where it's probably 25. And maybe maybe investors are disappointed on September 18th because of that. But at the end of the day, I think yields, I think crude, I think the dollar and I think maybe rates have kind of run ahead of what the you know, what the Fed might do. I think the September effect is probably equally as important to all of this.

4:05Just seasonality. Just seasonality. I think it's cause and effect in what's reality, what's perception. So everyone perceives this to be the worst month of the year. It becomes the worst month of the year. The Fed's probably going to cut 25 basis points. I don't think there's a reason to cut 50. Everything else is sorted in line. It's the worst month for the Sox and the market and the entirety of Wall Street, right? So if everyone comes back from vacation, look at the desk. We're crowded now. No one's remote on a Friday. Everyone's back. So what do people do when they're back at their seats? They sell stocks.

4:40They sit in front of their computer all day long. If they have liquidity, they use the liquidity to lighten up and rebalance. I don't want to make a big deal about it. I think it's more seasoned out. I mean, at the end of the day, you mentioned key asset classes. They all peaked a year ago. The U.S. dollar peaked exactly a year ago. Crude oil peaked exactly a year ago. All in September, October. Rates peaked a year ago. And the stock market's been the odd man out. And now the stock market is showing that it's going to join the party, right? We know this, that on the year, the S &P is up 13.5%, but 48 % of all stocks in the index are down on the year.

5:17And one-third of the index is down more than 10%. It's not a particularly constructive market. And the fear that you're seeing by people moving into these, I mean, Colgate-Pamal, Philip Morris, the steep, uncrepting moves, that's almost hyper-defensive. That's not a bullish thing. It's a bearish thing. Well, it's funny you bring that up because I was looking at some charts and, you know, AT &T, NextEra Energy. We've talked about Altria. Not only do they look like tech stocks, they look like NVIDIA. I mean, you know, I mean, these are charts that are up like this. AT &T, folks, the biggest dog, you know, in the market, so to speak, for at least 10 years.

5:56So that is a tell. What's defensive is working and what really has been working only is a handful of stocks. And the key to that, just to make a point, no institutional manager says, I should allocate to tobacco and AT &T because I think I'll win the race the next 36 months. It's because they cannot hold cash if they're selling, and they are selling some of their high flyers like Microsoft and NVIDIA. Well, they're just rotating in. But already that trade is full. Those stocks are up 40, 50 percent from the year ago. And AT &T, that was over a 5 percent yield. So we don't buy stocks for yield because they could get wiped out in one day.

6:29But if you're trying to replace, if you think rates are coming in, we talked about two nights ago, the ETFs that do the best are going to be your staples, health care and utilities for the month of September. So to Tim's point and Carter's point, you could have a sell the event in those three things. But I think they're going to be a safety bet for the next couple of days or weeks. I don't want to say a sideshow, but an excuse to sell in what would have normally been a seasonally weak month, a period where the stock market has been the odd man out, so why not take some profits off the table? And so you know what?

7:07The jobs that I think I'll— The seasonally weak thing is kind of dumb, right? If you're looking at a VIX that's north of 20, okay, that's implying a 2 % move on either direction. So seasonally weak on average when it's down is 1%. Okay, who cares? Okay, so that's just a narrative that I think is pretty— It's been the weakest month, though, even on a relative basis for the last hundred years. And we were in a raging bull market for two years as of two weeks ago. So when I think about what Carter just said, I think it's really important. When you see folks piling into staples and utilities and health care and they go up like this uncorrected, I agree.

7:39That's bearish. Let me tell you what is also bearish. NVIDIA has had three$1 trillion moves in the last three months. Just think about that. Right. So if you're putting if you're coming out of NVIDIA and you're putting it back into these other things because you think there's going to be a rotation. Well, that's not you know, I just think that's a recipe for disaster, in my opinion. So. So S &P, how does it look right now? The charts don't look good. Yeah, they don't. We might have some charts here, but if not, we can certainly we can create some. We can create some. And so the question is, have we broken trend?

8:11We have. Here is a chart. I think we got three that has no trend lines. Let's put some in. And so this is a well-defined, you'll see in the same channel. I mean, that's a mathematically perfect 45 degree angle. We have broken, and then we rallied back to the underside of the channel, and then we hit our head. And then finally, of course, we have the notion of a double top. It's not a great setup, but it's not really about the S &P, and that's important. It's about the parts that compose the whole, right? And so when a stock goes up 40%, 50%, and it's not a growth stock like Philip Morris, it's now full.

8:45And AT &T is full. So the money is rotated, but it's not going to keep doing that because at some point the mandate says this is too expensive. But the ones that are starting to roll, the Microsofts and Googles, they can roll a lot more. It's a bad setup. Yeah, so that's fair. And I do think, though, it's very much about the economy. I think it's very much about a Fed that's had to address something that they were very late to the party on. And maybe they're late to the party on the way out. I mean, I'm preferring to see and I know the R word is a terrible word for stocks, but it's not necessarily that bad for in terms of clean, clearing out certain parts of things that just weren't working.

9:21So cyclically, you have to have recessions at some point. I know stocks don't like it. But but, you know, I do think that 142 and the markets reaction and last month that market reaction was absolutely economically based. And so I know there are different dynamics. There are technical forces at work here. But I mean, the real question is a lot of people thought we were going to be in a recession by now two years ago. So I'm not sure. You know, was that wrong? Obviously, it was wrong. Doesn't mean that the premise of an economy that was goosed to the nines by fiscal policy during covid and a dynamic around monetary policy, which gooses to the nines.

9:59I mean, at some point, this is a sugar high. Our first guest says he sees the jobs market softening but not collapsing, and that points to gradual Fed easing. Let's bring in EY chief economist Gregory Daco. Gregory, great to have you with us. So, Waller's comments about front-loading, you don't buy that. You think 25 still? I still think 25. I think now the question is how fast they will go after September. I think policymakers in general are on board for a gradual onset to the easing cycle. They continue to talk about a methodical approach. And this jobs report, which our eyes were on this morning, does not indicate any form of collapse in the labor market.

10:35We had an encouraging jobs print after the July miss last month. We had a rebound in hours worked and we had a slight downtick in the unemployment rate. Yet I think the most important gauge, in my opinion, is a three month moving average of payroll growth, which is at 116 ,000 jobs only, well below trend, which indicates that the labor market is visibly slowing. So while I don't think Fed policymakers will proceed with a large 50 base point rate cut, I think they should accelerate the pace of policy recalibration because monetary policy is too restrictive right now. What do you think the risk of recession is at this point?

11:12Or are you still expecting as a base case scenario a soft landing? I think we've been in a soft landing camp for the better part of the last year, really. We've seen inflation come down quite easily. That was the main aim of the Fed's restrictive monetary policy stance. As we look forward, we're seeing an environment where disposable income growth has slowed quite a bit, only 1 % year-over-year growth as of July. That is the key pillar to consumer spending activity. So consumers are still spending as of mid-year, but the underlying drivers of consumer spending are weaker. That's really the key element to pay attention to.

11:49I don't think we're headed into a recession right now. What we are seeing is more prudence on the part of consumers that have lower income momentum and on the part of businesses that are being a little bit cautious, given the still high interest rate environment and the uncertainty on the political front. So, Greg, walk us through when you look at inflation and everyone talks about CPI or what that level of inflation is. Walk us through that calculation you do with wage growth that is not consistent with a 2 percent or an above 2 percent inflation rate. Yeah, I mean, the main point of discussion last year and the year before that was whether wage growth was inflationary.

12:28And the notion is that wage growth is inflationary when it's above three and a half percent. And that's a simple calculation. It's two percent inflation, which is the Fed's target, and one and a half percent productivity growth. But right now what we're seeing, and this is perhaps the most encouraging element of the U.S. economy, is that productivity growth is very strong. you're looking at productivity growth around 2.7 % year over year as of the second quarter of this year. Add 2.7 % productivity growth to the 2 % inflation target, that puts you at 4.7%, which would be wage growth that is consistent with the 2 % target.

13:02We're currently running around 3.8 % as of the latest payrolls report. So we're under the pace of wage growth that would be consistent with inflation. So we're not seeing any inflationary momentum, in short, coming from the labor market today. Greg, thank you. Great to see you. Greg Daco. So what did the market reaction tell us? Greg was saying 25 basis points. You're saying Fed Funds Futures, like that contract was telling us very low probability. Yeah. I mean, everything that I read leading up today was like traders are bracing for it, like bad news that'll lead them to a 50 basis point cut.

13:34You know what I mean? So was a sell off today fear that there would be a 50 basis point cut? I think it's it goes back to August 5th. I think that like oddly, this is like almost the same sort of thing playing out. And for a lot of the same reasons, too, I think what's different month over month is what's happening to the Mag 7. When you think about the underperformance that we're seeing out of this group, you know, Tesla's been down all year long. Google just blasted through its August 5th low. OK, Microsoft looks like it's about to do that, too. Obviously, NVIDIA is a bit away, but they're just in those stocks.

14:06There was not an uptick all day long. When you see that sort of price action that leads you to believe that there's lower lows coming. Now, is it a great press on an afternoon like this and those sorts of names? Probably not. You're likely to get a little up opening and then, you know, you probably have an opportunity to resell them at some point. Well, it's an interesting press and it's an interesting closing on the lows on a Friday when it was down every day this week. And there's a lot of stats out there. We're going to read them all this over the weekend. But it's the first time since 2012 that we've had consecutive one and a half or greater percent losses on a payroll day.

14:36So this month and last month. And that does tell you the fear that this is changing rapidly. So again, back to a market that it's always some relative change. Carter speaks about this all the time, relative performance. If the Fed and our last economist friend just referenced this dynamic with the Fed, they start slowly, but then they may pick up the pace. So if Greg is saying the end of, and I brought this term last night, Fed gradualism. So Fed gradualism is over. And I think we're getting there. That's a big change for this market. If we get to a place where U.S. exceptionalism, and these are like terms that strategists and economists use, but the U.S.

15:14has stood out for so long and been such a safe haven that these asset flows that have been dollar supportive and also more importantly to the MAG-7, today doesn't do that. I'm not saying that. I'm just saying that these are things that the market needs to ponder, and these are major, major changes from what we've seen. What is the message of those charts that you showed us to short the S &P? Well, for starters, very few people short. So let's discuss. The first thing is there's nothing to be lost by postponing all new buy. Right? Just stand aside. For those who do short, for sure. I think the great irony here is not once did the 10-year yield close above 5%.

15:51Higher for longer, higher for longer, higher. It sounds like a cocktail. When you go to the cocktail, oh, I'll have one of those. It never was short. That doesn't sound like a cocktail. That sounds like a different kind of assumption. But you know those when they give you the specialty ones with the fancy names? I mean, instead of just picking the gin and tonic or whatever, or the beer, higher floor. I'll have that. It never happened. It was all a myth. And here we are. We're not talking about it because that's all gone. Poof. Rates down, oil down, dollar down. Here comes the stock market. All right.

16:17Meantime, tech investors awaiting Apple's big annual iPhone event on Monday. The tech giant calling this event glow time, a nod to some expected new Siri features. Apple also expected to debut four new iPhones and focus on the rollout of its Apple intelligence AI platform. The stock has held up well amid the volatility over the past month. It's up more than 6 percent, outperforming the S &P over that time. You made that point, Tim. So then that means that there's a lot riding on Monday. There's a lot riding, but I'm not so sure. I think Apple's getting a bit of a pass here in terms of nobody expected this to be extraordinary.

16:48So part of that breakout from 185, which was a level that took us two years to get through while all of its peers really went a lot higher. I think that's something that can still allow it to be defensive. We're talking about the balance sheet, talking about the free cash flow generation. We're talking about that the iPhone business alone, I think, is the 12th largest company in the world. That dynamic doesn't really change. I think there are higher expectations. But at some point, we know people need to refresh. The news is, I mean, look, next week's very important. But the defensive nature of Apple, I think it can stay defensive.

17:18Well, let's just tie it back to all the things we were talking about. If the consumer is weakening, if the economy is weakening, who the heck is going to go out and buy a$1 ,300, an increased price of an iPhone based on some features that we don't even know if they work? How many people who own iPhones rely on Siri for anything? You think they're going to nail this right out of the gate? Well, right. If you do, you're not here right now. And they've already pushed out a bunch of the features that they showcased at WWDC. So what does that do? It pushes out the upgrade cycle. And I'm just not convinced that what they showed us in June is going to be the sort of thing that causes this super cycle.

17:53Mel, how many times on this desk for 15 years have we heard about the super upgrade cycles? This time, though, there might be a natural built-in reason, a catalyst for a cycle. Give it a year. More than 300 million phones have not been upgraded for four years. It's everything before the iPhone 15. And most people will upgrade because of the camera. Like, that's the reason. In the camera, there's significant changes and improvements. So I think you have the ability. Is it going to be a super cycle? Maybe not. But is it going to be a significant cycle upgrade? I think it will be. And we also all know that the day of the event, the stock usually sells off after the event.

18:33I think, by the way, on the camera, I think the camera's too good. Like, it takes better pictures than it should. Like, better than, like, real life? Yeah, exactly. I'm in an environment where suddenly it's dark and the settings aren't very good. I'm getting like these crazy good pictures. It looks like gone. I actually think that they're. Where are you in the dark taking pictures still? Well, that's another story. Another show. The truth is people don't upgrade for the cameras. If you wanted a better camera, you'd get a Samsung. They do it for the battery. You have to for the battery. The battery is made to die.

19:00But no one goes out of the ecosystem. That's why nobody invests in better battery research and development. They haven't had anything innovative. They've always copied Samsung. And people, if you're caught up in that Apple ecosystem, you want to stay there. And this gives the people that are in that a better chance of upgrading. I mean, one interesting milestone, of course, we're coming up on the two-year anniversary of Apple's relative peak to the sector, right? That was the 27th of September 2022. Here we are, September of 2024. The real question is, in the event of further general selling, does Apple – we should do one of those.

19:31What's that game? Would you rather? Does Apple do better or worse than the market? That's the question. Meaning, is it a defensive asset because of its size and its cash and all those things? Or is it just another tech? I'll play this game. Okay. I'm looking to see Mel get really bothered. It's Friday. In the event that the market goes down another 10%, does Apple go down more than that or less than that? The next 10%, Apple goes down less. I'd agree. I would agree, too. There we go. I disagree, and I'll tell you why. If investors are starting to focus more on valuation, we haven't even talked about that yet.

20:04They do that when you have a broad market sell-up, when correlations go higher. Here's a company that's expected to grow earnings and sales single digits, okay, for the next couple years or so without any real incremental margin improvement. And so that is obviously something that I believe a year from now, two years from now, if AI really works for them on this device, then it's going to get, they're going to have services associated. Okay, let's say you're a money manager. You can't be in cash. Are you going to buy Apple or are you going to buy Altria? Are you going to buy Apple or are you going to buy Procter & Gamble?

20:34I think those are going to be choices. Too bad choices. That's the worst would-you-rather I've ever heard on my life. In terms of defensive choices, there aren't that many. I don't get it. Balance sheet, free cash flow. This is a big discretionary item. It's a utility. Apple's like a utility. That's the stock base. I know it feels like Apple broke out, but what are we talking about? Apple has been trouble getting above 185. As Connor said, this stock's done nothing for two and a half years. I don't think you're really chasing much. You know where it went right back to on August 5th? To 190. It was the level that it broke out from.

21:05And so if it gets back there for any reason and it's associated with this launch, it doesn't go as well. It's going to sell off after the launch and then it'll rally into the release date. Got to go. Coming up, what's wrong with NVIDIA? The AI pay setter is headed for its worst week in two years. As a broader chip space stumbles, we will turn to the chart master for the technical take next. Plus, some very surprising data out of the crypto ETF space as Bitcoin tumbles below$54 ,000. The numbers and what they mean for the trade right after this.

21:37Welcome back to Fast Money. Today's sell-off hitting the chipmakers hard with the SMH semiconductor ETF plunging 4 % today, down 11 % for the holiday shortened trading week. NVIDIA alone down nearly 14 % of that time. It's worst week in two years. Is there more trouble ahead for the semis? Let's turn to the chart master for the technical take. What do you think, Carter? Yeah, this is a tough one, I must say, but let's try to figure it out together. Let's go right to the charts. The first is a relative strength chart, a ratio chart. It depicts the semiconductor index, the SOX, relative to the S &P.

22:11And what we know there, and you can see it very clearly, is you have that dot-com peak, and only this year, 24 years later, did the SOX recoup all of its relative losses. Only, however, to inch above that line and now pull back. That is the prospects of a big double top. Moving on. Look at the SMH, a well-defined uptrend. Another 3%, 4 % from here would leave us right on that line to the penny. I think we're headed there. So that's not a whole lot, but that is lower. But let's look at the big one. Let's look at NVIDIA, two charts of NVIDIA. The first, well-defined trend lines. And you can see the arrows to the penny, to the penny, to the penny.