Stocks Drop, Yields Rise… And Retail Picks Ahead Of Results 5/15/26

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1:06Here's what's on tap tonight. We're going to take a look at NVIDIA earnings and what to expect out of the chipmaker. But first, we're going to look at global yields. The 10-year cracking 4.5 % for the first time this year. Yields around the world also rising. What does this mean for the markets? Meantime, a big week for retail earnings. Will Walmart, Home Depot, and Target give us the pulse of the consumer? What will we hear from the companies about consumer spending? Plus, metals meltdown as the resource trade stalls. Microsoft catches a bid thanks to a nod from one hedge fund. And Meta employees bracing for layoffs next week.

1:41What to expect? What's next for the MAG-7 laggard? I'm Melissa Lee, home to you, Loudoun Studio, be at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Steve Grasso, and Michael Coe. So we start with a rate reckoning that rippled through the market today. Treasury is weaker across the curve. The 10 - and the 30-year yields each touching their highest levels in almost a year, while shorter-dated notes sold off the yield on the five-year at 13-month highs, while the two-year hit levels not seen since 2025, March of 2025. All those moves putting pressure on stocks, the S &P falling 1 percent, the Dow shedding more than 500 points, while the tech-heavy Nasdaq led the declines off by a percent and a half.

2:16The world's biggest company, NVIDIA, seeing a big pullback after its record rally, ending a seven-day winning streak. It is more than 4 % decline. That was the biggest drag on the Nasdaq and the S &P 500 today. And it took wind out of the sails of the broader semi-trade, too. The SMH down nearly 4 % with Arm. And recently, red-hot Micron and Intel leading the losses. Even Cerebris, which rose 68 % in its market debut yesterday, gave back 10%. So is the surge in rates now casting a shadow over the long-term, unstoppable AI trade? Is it casting a shadow over the entire markets? Tim, what do you say?

2:49Well, it felt like the Ides of May. You know, and it felt like a day like these things had been lurking and suddenly they popped out. Now, there was a terrible PPI number in Japan and we've been watching Japan the whole time. You've heard those numbers. I mean, highest rates ever in Japan. We issued above five percent in the U.S. for the first time since 2007. Gilt's are at 28 year highs. It's a dynamic where can rising equity valuations, can equity values rise as borrowing costs rise? And I think the equity market has taken a pause today after a heroic run. But I think the driver was Japan on a week when we had a terrible PPI.

3:21Did it feel like it was just like rates were an excuse to lighten up? Yes, but rates themselves also are problematic, right? So, you know, we've got the AI trade is built upon a lot of leverage among chips and leverage, right? So the higher rates go, I think you'll start to see rate of spreads on Triple B's, for example. Evertrade set up for that. But I was a little spooked by the action today. Not the ones that have gone up, you know, several hundred percent. For them to come down a lot in one day doesn't really mean anything. It's the rates thing that, you know, around the world, things just felt very unsettled, even though you had oil move, you know, a little bit, not a ton.

4:07But so I'm always long, but I did put on additional hedges at the end of the day today. Yeah. I mean, in the U.K., long bond yields were at, what, 30-year highs, 28-year highs. JGB is 30-year highs. I mean, there's a pressure that exists outside of what's going on here around the world to pull rates higher. Can I just say one other thing? Yeah. So, you know, I heard some commentary about, well, you know, rates are higher because of the expectation of growth in the economy. I'm not – I don't think that's what this is. This seems to me to be something else. We've got plenty of proof for the last two weeks from PPI and CPI.

4:39Yes. So inflation is out there. Right. Yeah. But what the cause of it, I don't see is more immediate. And this bond thing is speaking to me. And I think if you look at the different markets, the U.S. market is quite different than the European market. And if you look at the markets, the U.S. market is up year to date. China is up year to date. Japan's up year to date. So look at the performance from the Iran war. And that's how I'm gauging the marketplace right there. So the market has gone up. Rates have gone up, so I'm not worried about it yet. Karen said she has a bunch of little trigger trades or big trigger trades to go off.

5:18I think if the 10-year broaches five, that's going to be a problem. Even higher than the four and a half that normally is the problem. So I think we're not near that yet. We've got some breaking news out of the Fed. Let's get to Steve Leisman for that. Steve. Hey, Melissa. So, yeah, a procedural thing by the Fed was naming Jerome Powell, whose term ended today, as Fed chair, naming Jerome Powell as Fed chair pro tem. And that is a designation that will remain until Kevin Walsh is sworn in as the new chair. He was confirmed by the Senate on Wednesday, but there's a lot of other stuff that has to happen.

5:55The president has to sign a commission. Now, what's interesting about this, among other things, is that Governors Bowman and Myron dissented from this. They didn't want an indefinite naming of Powell as chairman pro tem. They say they would have supported it for a week. They would have supported it for a month. But if it goes on longer than a month, they would want either another vote by the board or a presidential appointment to be chair. So they dissented, but ostensibly enough five members. I don't know if Powell himself actually voted on this. But in any event, it would have been four to two or five to two.

6:30But Powell will be the chair pro tem until Walsh is sworn in. A bit of trivia, which is it has taken nine days for a person who is not at the Fed to be confirmed and sworn in from the time of the nomination on average. That is, Melissa. From the nomination, not from the confirmation. No, I'm sorry, from the confirmation. From the confirmation. I was going to say, we're way over that. That's remarkably bad. Fed trivia. Yeah. It's always great. A font of trivia. Steve, great to hear from you. Steve Leisman with that. Speaking, I mean, this is Powell's last day. The picture for Kevin Warsh is much more complicated now, Mike Coe, I would think.

7:11Well, I mean, some of the inflation data that we've been getting is outside of the Fed's control. We have basically the geopolitical events, which are driving up energy costs. Energy costs will bleed through to higher prices in a lot of areas due to logistics and everything else. It So there is some question about how much the Fed can do as a policy response to sort of solve that problem. I don't think there's a whole lot that they can do. But as rates go higher, it creates other problems, too. We haven't mentioned it yet. Obviously, it increases capital costs for business. It increases interest costs for governments.

7:46And ours runs a pretty big deficit. And there's a lot of refi that has to go on as they're essentially dealing with a lot of short-term debt. That's been a problem for the last two years. So, you know, that we'd really like to see get mitigated somewhat because it's going to be problematic and it bleeds through across so many areas. I mean, Mike says it's out of the Fed's control. Some of it's out of the Fed's control. It's all out of the Fed's control. I mean, unless you think the Fed should be hiking and have felt it all along and that they're behind the curve in terms of kind of latent core inflation.

8:18I mean, this is all out of their control. And what we're seeing through from the PPI numbers, which is that higher oil prices are feeding through to core prices. We've had that evidence. And even when you strip out food and energy. So and I would go back to this week to something Karen said just about how she was implying that the hyperscalers are no longer a free cash flow story anymore. And this was an epic week for Google, who borrowed it was now borrowed almost 20 billion in various currencies around the world. Amazon on Tuesday, another three point six in Switzerland. Meta beat them all to 25 billion.

8:48They're all trying to issue as long as possible. By the way, these are the railroads of 100 years ago. They're issuing long. They're putting in infrastructure. They're raising debt. And it's not it's not a coincidence that this is all interrelated this week for the market. Also, coming back from a Trump she summit where there was no progress on Iran and people kind of felt like U.S. and Russia get together on Iran. It's solved. It's that simple. And we don't have anything that says the straits are really going to be open. So this is prolonging. This is where you now start to hear from every strategist that says, hey, if by July 4th weekend or really.

9:24So it's not Memorial Day, the start of driving season. But if by July 4th, we don't have oil prices back down, we've got something that will emerge even higher. And I just think this is a debt story. I don't think it's about the Fed. I think Kevin Warsh is walking into a horribly difficult thing. And and yeah, I mean, does Myron have any credibility that, you know, I just have to throw that out. Sorry. We'll let that remain out there. But I'm glad you used the word rushing because it did feel like a rush for all of these hyperscalers to go out this particular week. And in the recent weeks to raise money around the world, not just here, because of the, you know, if they couldn't possibly issue it just in the United States in dollars.

10:04I mean, there's just there's be too much out there. We are the biggest, most liquid. Right. So, I mean, it's a very great place to start, which they have. I'm concerned about your analogy to the railroads because I believe they all went bankrupt. And so that would be really. What are these guys doing? They're laying down infrastructure for the future. What do you think railroads were doing? They were laying down tracks all over the country. Cash flow to fund it. Yeah. So I hope it's different in that way. My point is that this is a time where these are the biggest companies in the world as the industrial railroads were 100 years ago.

10:36On the worst thing, I wonder if actually this environment that he's inheriting, it'll be easy to say I'm independent because it's really hard to cut right now, I think. And nobody's expecting it. Nobody's demanding it. There is no expectation. Well, the swap spreads have already got you with a hike by next March. So I'm independent. I'm not cutting. But they're not going to hike. I don't care what swap. The market's already hiked around it. If inflation is where. This is supply shock. This is not a demand shock. The reason why you hike is to crush it. Rates have risen. That's actually killing demand right now.

11:10The supply shock. Let's just play this out. What if the straightforward remains closed for a very long time? A very long time. I'm going to I'm going to start where Tim started. What what would raising rates do in this environment? Nothing. They have no control. I agree with you kind of that. Right. I mean, demand will be squashed and I think rates will come down anyway because prices be, you know. So you're only here for high prices, high prices. And I kind of agree as well. But I'll say this. I mean, look at where risk assets are. Look at where liquidity is. You can't tell me reeling in some of this isn't going to help at the margin.

11:46You can't tell me. But by the way, the most the lower income. I'm not I'm not sure. I think the market, by the way, who hurts the high income people more than anybody. I mean, the market, look, the wealth effect around the market is is the top end of the K shape. The wealth effect in terms of spending in the economy is definitely going to hurt people. And there have been times when the Federal Reserve haven't they haven't been they've implied they haven't been explicit that they're targeting the market, that they're they're trying to get the froth out of things. So I think liquidity conditions right now, and that includes credit, but we'll wait and see how long, have been wildly, wildly aggressive.

12:23And I think there's a lot of people this week is all about Momo and FOMO. And, you know, so. All right. For more about rising yields could mean for the markets, let's bring in Tim Urbanowicz. He is a chief investment strategist at Innovator from Goldman Sachs Asset Management. Great to have you, Tim. So how do you see what's going on in global yields? What is the message to equity markets, do you think? Well, Melissa, I think we just crossed a pretty crucial threshold. I mean, the move that we saw today was pretty violent, 13, 14 basis points higher on the 10-year yield. That's a lot of volatility.

12:57And what we've seen really over the last couple of years is the higher rates go, and particularly crossing that 4.5 % level, the more sensitivity you see to equities moves higher. So as we've crossed that 4.5 % level, you're going to start to see bond yields and equities moving in the same directions, which we want to be very careful of in our portfolios. And I think you have to go back to the 2022 playbook and look at some of those trades that did work. And particularly, we're having a lot of conversations right now with advisors on how do you disconnect the need for risk management in your portfolio and relying on interest rates having to come down or not rise further to be able to protect your portfolios.

13:38So that's really important right now. That 4.5 percent level is key, and we've ran right through it. So what is the hedge then to this environment? Is the hedge to this environment energy? Well, I think energy is a great play, especially as we really haven't seen much any progress on the straight-off-form moves at all. And investors continue to have what we consider to be pretty unrealistic expectations. But we're also seeing a lot of advisors turn to derivative-based strategies. That has been a huge trend in the ETF market here over the last couple of years. strategies with built-in risk management, buffered ETFs, dual directional ETFs, other income plays that really disconnect the interest rate and the equity component and put structured risk management with options in place.

14:21So that's been one of the biggest trends that we've seen over the last couple of years in the ETF market. And I think a lot of that, Melissa, has been driven by what we saw in 2022, where that traditional risk management playbook, whether it be low-vol equities, interest rate plays, bonds did not work. And we're seeing that play out again this year. It's Karen. Thanks for being on, Tim. So emerging markets has been a very successful play until pretty recently. What's your take on that? Well, we're very bullish here. And you look at this, we view emerging markets as really the next place for potential outsized returns with the AI infrastructure trade.

15:02If you look at the move this year, it's a very strong move higher in emerging markets this year. Even with that move, we are still seeing one of the widest valuation gaps from EM in the U.S. that we've seen over the last couple of decades. And if you take a step back and you look at the exposure that you're getting when you're buying emerging markets, almost half of the MSCI emerging market index is Taiwan and South Korea, both very big players in the AI space, Taiwan, manufacturing backbone. You look at South Korea, memory, very, very big ambitions longer term. So we think this is a way to get access to that high growth narrative, that AI infrastructure story, but in a place where you really haven't seen the same moves that we have seen here in the US.

15:48And what I think is interesting is when we're looking at advisors' portfolios right now, we're seeing pretty big underweights still to emerging markets, portfolios that are very heavily overweight U.S., which have done really well. But we want to make sure that we're truing those up and really getting that exposure right now. Tim, when you look at the slack, you'd said four and a half was the rate to be concerned with. But when you look at what we just had in earnings season with 27 percent earnings growth with MAG7 names, 20 percent blended, and then roughly around 12 percent for the other 493.

16:21Does that make you think we can get closer to 5 %? Well, I think there's going to be some bifurcation in the markets here in a pretty big way. I mean, earnings have been nothing short of phenomenal. Even if you look at the revisions, I mean, they've been fantastic. And I think a lot of that has to do with the macro growth story that we have seen here. But we had this rotation trade that was happening end of last year, early this year, whether that be small caps, equal weight S &P 500. And that's really slowed in a big way. I think a lot of those other sectors outside of tech are going to be able to stomach higher rates a lot less.

16:59So we think it really puts the brakes on that trade. We do still think the runway looks very nice for those pockets when the Iran conflict resolves. But in the short term, as rates are moving higher, you're going to see more sensitivity there. You know, take small caps, for example, up until the start of this week, when the market was going down, on days when the market was selling off, you really saw very slight underperformance from IWM, from small caps, relative to large caps. And then on the way up, when the market was going up, you saw more significant outperformance. So that was a nice dynamic.

17:36You look at a move like today, and that really broke down. And I think the big reason that we saw that breakdown is because of the sensitivity to rates, and they're going to have a much higher impact on small caps and other pockets of the market that that rotation trade was playing out in. Tim, thanks for joining us. Great to be with you. Tim Rabanowitz, what's your take on EM? I only ask because, first of all, you're an emerging market specialist. And second of all, you know, you might be getting much, much more exposure, actually, to the AI trade by layering in EM on top of your U.S. exposure.

18:12One Tim said in front of another Tim that the weighting, when you look at Taiwan Semi, it's about 7 % of the MSCI EM. You add in Samsung and Hynex and you add in basically Korea and Taiwan. That's right. You're getting an enormous exposure to that part of the trade. I mean, what a lot of investors have said historically, the crowding out of the MAG-7 for international stocks overall, not just EM, was, hey, I'm not getting exposure to big, exciting tech stories. Well, you are. and most investors are really underweight international. And I believe that. And I run an international ETF. I think it's fascinating for me to maybe be on the other side of someone that's singing the praises of EM during a time when rates are rising.

18:52Because I'll tell you, as someone that's been in EM for 25 years, I do think that rising rates will hurt EM a lot. Not as much as they used to. There's been fiscal adjustments. There's currencies that are free floating aren't hurt as much. There's not a debt load like there used to be. It's not dollar debt. They have their own local debt. But having said that, higher rates, higher risk, I think emerging is going to underperform, at least in the short run, even though structurally, fundamentally, it is cheap. And you can get all those trades you want here in emerging and in the MSCI, all world ex-US.

19:23And in this context, Mike, I'm wondering what your opinion is in terms of, you know, will the AI trade here be more defensive in a rising rate environment? Well, I think the problem is that the AI trade has become, and we can see that with all of the essentially debt issuance, what we're seeing is that big companies that were throwing off massive amounts of free cash flow are essentially making investments now in exchange for the potential for growth in the future. What is that? That means that they're extending the duration. That means that they're extending and increasing their sensitivity to rates.

19:59And it's also a more speculative trade than it was to buy Alphabet now than it was to buy it three years ago when they were pumping out cash and weren't making these kinds of investments. I will offer the following. And obviously, we do see this. And I think this is what Tim's alluding to. You know, the Russell 2000, typically more rate sensitive than large caps are. And for the exact same reason, that would obviously be the same reason why you would see more sensitivity in emerging markets. But I think as a barbell, one might think about getting some old economy names in the U.S., which are trading much more cheaply, frankly, than the S &P is, and a little bit of that emerging markets as well, because that's also trading at a very cheap multiple.

20:37You know, the emerging market index, which Tim is more familiar with than I am, is probably trading at around 12 times forward. So I think that provides a bit of insulation. Meantime, precious metals losing their luster today. Silver having its worst day since the end of January, down more than 10 percent. Platinum, gold, palladium also under pressure today. And the gold miners sliding to the GDX ETF down 7 percent with big losses in Anglo gold, Harmony and Hecla mining. Steve, what do you make of this pullback? So when you look at rates rising, that's your competition because gold has no yield to it.

21:08So usually gold will rebound when the Fed decides to take care of rates that are rising out of control. So it's usually when they start cutting rates that you see money flow into gold. This is not the proper environment for gold right now. That's why you see people taking it off the table. Yeah, look, best week for the dollar since March. And gold's not going to perform here. By the way, for the guy that's supposed to be the expert, I need to correct myself. Taiwan Semi's 14 % of the EEM. And then you added Samsung and Hinex. That's 25%. Just those three stocks are 25 % of the EEM. But I stand corrected.

21:40Coming up, Microsoft, a notable winner in today's sell-off, the long-lagging tech giant notching back-to-back gains. What is behind the move and what does it mean for the software space? plus a new timeline for when SpaceX shares could start trading the latest details in the Blockbuster IPO and why some major investors are pushing back. Don't go anywhere. Fast Money is back in two.

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