Stocks Hit Records After Fed Decision… And Investors Get Ready For Reddit 3/20/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Monday. Here's what's on tap tonight. A triple record day. The Nasdaq down S &P all climbing to all-time highs as the Fed signals three rate cuts are still in the plan this year. So is this the green light investors have been waiting for? Are there more risks just around the corner? Plus, ready for Reddit. We're counting down to the first trades with the biggest IPO so far this year. Will the platform's biggest users help the shares soar or will they be a bigger burden than boost? Longtime venture investor Rick Heitzman will join us with some answers.

0:33And Paramount peaks and reports of a lofty takeover bid. The CBO weighs in on the cost of weight loss drugs in a burrito blowout at Chipotle as shares hit a whopping$3 ,000 on news of its split. I'm Melissa Lee. Coming to you live from Studio B at the Nasdaq, on the desk tonight, Tim Seymour, Dan Nathan, Guy Dami, and Michael Cantopoulos, Director of Fixed Income at Richard Bernstein Advisors. Who's that? Did you hear that? You heard that, right? Yeah, yeah, yeah. What was that? That was the sound of record. Oh, wow. That was the beginning of a Billy Joel song. No, we did that perfectly, though.

1:07That actually really... No, we didn't know. The Nasdaq surging more than a percent, the Dow getting within 500 points of the 40 ,000 mark, and the S &P closing above 5 ,200 for the first time ever. The move's coming after the Fed's decision to leave rates unchanged and maintain its projection for three quarter-point cuts this year. The central bank, though, did caution that it needs to see more evidence that inflation is easing before it makes a move. Shorter-term yields did pull back in the news, But the 30-year was up. Steve Leisman is in Washington and joined us now. Steve. Hey, Melissa. Yeah, Fed Chair Powell and the Fed's Open Market Committee stuck to a modestly dovish outlook at the rate-setting meeting today, despite two months of disappointing inflation numbers.

1:46Powell's saying it's still appropriate to cut rates later this year. The Fed, the committee on average, stuck to their three-cut forecast, despite those itself having higher inflation and growth forecasts. And then Fed also saying it expects a slow quantitative tightening, quote, fairly soon. Fed Chair Powell downplayed the impact of the January and February inflation numbers. I take the two of them together, and I think they haven't really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road toward 2 percent. I don't think that story has changed.

2:24At the same time, the committee as a whole said it's still not confident enough to cut rates and the dot plot or the individual Fed members rate forecast skewed just a bit hawkish. Instead of five officials below the 4.6 percent median, there's now just one. Nine are now at the median and nine are above it. So a little bit more shift to the right there. You can see Chris Deguha from Evercore ISI saying this is a Fed that wants to cut rates, not before it is responsible to do so, but as soon as it is responsible to do so. But it's a close This call, the three rate cuts survived by virtue of one vote and one cut on average was taken away from the average official forecast.

3:02Another bad inflation month in the market might be forced to rethink its bet on a June cut with more with two more to follow, Melissa. So I wouldn't get too carried away on just how dovish the Fed was today. How do you think about the idea that rates in 25 and 26 will be higher than in 24? I'm sorry. What do you mean by that? that well i think he indicated that he thought it was going to be a shallower exit from from uh you know at least the rate there yeah and their rate cuts i mean ultimately they're down in 25 three nine from four six so they are seen coming down just not as much as had previously been forecast that three nine had been three six in the prior forecast so they did take one away they also raised the neutral rate by one-tenth.

3:51Not a big deal. I am not all that concerned with what the Fed thinks is going to happen next year, because I barely think they can figure out what's going to happen this year. Yeah, I think the markets are on the same page as you on that one, Steve. Real quick, Steve, unexpected weakness in the labor market warrant a response. Okay, now that's the labor market in that vacuum. What do you think, what's your interpretation of what that means. 4.3 percent unemployment, four and a half percent. Just I'm curious as to your thoughts about that, because that sort of stuck out to me. I think you're in the neighborhood.

4:23I don't think it's going to be like an automatic if we hit X, then we'll do Y. I think it'll be the totality of what's happening in the job market, how much payrolls have sunk, how much unemployment is going up. But it is interesting, guys. I thought one one takeaway from today's meeting was there isn't anything I can point to. And maybe you all around the table there can figure it out. To say to Powell, look, you're missing this clear and present danger and threat to the economy by not cutting immediately. It is not obvious to me where that weakness is. Some guy might say delinquencies. Well, guess what?

4:59That delinquency data has been stable for a while. You can say the commercial real estate of the office market. Well, guess what? Fed says they're on top of that. Every banker and their brother and their sister know that they better be on top of that right now. You can talk maybe about there's still regional bank issues out there with interest rates. Well, they've had a year and change to get their act together on that. Maybe I'm missing something, but it's unclear now and hard to say to Powell. Look, you're making a big mistake by not cutting right now. Yes, Steve, I actually agree with you. I mean, most of those measures that you just indicated hit their lows last year and are actually getting better now.

5:34But look at five year break evens. I mean, I think we're at a one year high in five year break evens. What do you think Powell has to you know? What do you think Powell thinks about that? So that's a more interesting question from a different standpoint. It was sort of the question I asked him, which is, what am I supposed to make of your commitment to fighting inflation if you're going to be keeping to those three cuts at the same time that you're raising your growth forecast and raising your inflation forecast? What it tells me is he's going to be patient with all this. He still appears to believe in the dynamic underneath the economy that has been pulling inflation down and does not believe that dynamic is especially tied to the growth dynamic.

6:14This is new, both for the Fed and really for the whole idea of most Wall Street economists who thought, hey, we've got to have weaker growth in order to bring down inflation. So I do think he missed an opportunity today to be a little hawkish and maybe get some currency out of that. But he doesn't seem like he really wants to rattle where everybody's at. I would say I would not be over my skis before we have a sense of what's happening with that March inflation number. I think you do three lousy numbers in a row and we're going to have a different conversation come March. Right. Steve, thank you.

6:49Steve Leisman in Washington for us. So why are the records record upon record upon record? And this confirms it in terms of the price action in the markets. Well, is it about real rates? I mean, like at the end of the day, if you think about it, we're coming off this ZERP, you know, into the, you know, this period where we are right now, where inflation now they want it down to two percent prior to the pandemic. They wanted it up to 2%. We were dealing with a 0 % interest rate. Now we have at the upper end of the band of Fed funds at 5.5%. And we have inflation that basically stopped going down.

7:17And I think that's the message that I take away from what the Fed had to say today. And what they have been saying, but for whatever reason, stock market investors don't care. Because they still have this growth trajectory that is well above what people have thought over the last two years. And think about this. In 2022, we've talked about it again and again. We had a bear market predicated on this recession that was going to happen in 2023. And now it's being pushed out to I don't even know when. So at the end of the day, you tell me and maybe Michael, are we restrictive with a five and a half Fed funds and inflation done going down where it is?

7:49Maybe we are. I don't know. But it's not doing a whole heck of a lot to the economy right now. No, we're not. We're not restrictive. I mean, to me, it's clear as day. Look at leading economic indicators. They've bottomed. Look at PMIs. They've bottomed. Look at the stock market. You're near all time highs or at all time highs. Right. You're at Bitcoin. There's tons of liquidity in the system. We're not restrictive. You know, home prices are going back up. That's going to be a headwind to inflation later this year. And so I think this idea, just because we're at 2 % real rates, that's some magical number that's restrictive.

8:19You know, that's completely debunked at this point. Yeah, and I would argue that the most important part of today's meeting was where he threw some dovish fuel on the fire, which was talking about the balance sheet runoff. He kind of said, look, you know what, we don't have to move as fast. And by the way, some of that will take care of itself. But if every Fed meeting in the Q &A is kind of like an art show, you know, you kind of like you read every word, you parse through it, you kind of I mean, this was in pardon the Goldilocks expression. But I thought I thought he Goldilocks this one in terms of an art show.

8:48In other words, he talked about his dual mandate. He talked about how, hey, we're we're we're hitting on the labor market. But actually, you know, we could actually see the labor market weaken on the headline unemployment. But the participation rate could go up and it could be a great story. And meanwhile, we're very concerned about price stability, but we're concerned about job growth. I mean, he said it all. I heard an economy and the statement upgraded the economy. We all know what the stock market's doing. We all know what the stock market's priced in. This was a dovish, dovish afternoon because, again, the balance sheet is not getting a whole lot smaller anytime soon.

9:19As Mike pointed out, financial conditions are so loose right now. And another great reason to have Mike on the desk right now is because, like, if you look at high yield option adjusted spreads, We haven't been this tight since June of 2007, and we all know what happened after that. I'm not saying it's about to happen, but the credit world is telling you no one is concerned about risk. I understand capital markets aren't as open as they were and whatnot, but credit spreads, stock markets, financial conditions tell you it's risk on, and the Fed did nothing to slow that down today. It's interesting.

9:49You know, in the fall, the market began to rally on the thoughts there'd be six rate cuts. Six. Right. This year. Now we're down to half of that. Then we took it down to three. The market sold off a little bit. He reemphasized or reiterated three in the markets. So the markets clearly just wants to rally regardless. But, you know, there are. Listen, you can say what you want about the guy in terms of the stock market. He's done a masterful job without question. And quite frankly, I mean, it's hard to argue in terms of the economy. Nothing's broken yet. Unemployment still below four percent. But there are things are on the surface, in my opinion, especially in the real acceleration of inflation.

10:24and the green light that will give inflation assets to move higher today. Well, I thought, you know, for Fed Chair Powell to sort of just be so dovish today, he really gave it away in some sense. He even addressed the fact that he thinks that he's comfortable with the idea that we've hit peak rates already. So even if things worsen and things get hot, I don't know, they sort of box themselves into a corner a little bit. Well, I mean, we've seen the Fed, you know, change their stance meaningfully over the years, right? I mean, they weren't going to hike. And then all of a sudden, 500 plus hikes later.

10:56But they've always left the door open. I felt like today they closed the door a little bit more. They'll be data dependent. Like Steve said, if you get hot inflation prints over the next couple of months, I think the Fed's tune is going to change. And when is the Fed or the market actually priced things correctly? Almost never. I'll wager to say that the market will start pricing in a hike at some point within the next 12 months. Nice. Wow. Well, we're down to 20 bips for June. So, I mean, this was a slam dunk a little while ago. That's interesting. Because what you're saying about conditions and what we're saying about credit spreads tells you that, if anything, they need to reel it in more.

11:30You may get a cut before that hike, too. Yeah. Right. Well, I think at one point earlier this year, there was a 7 percent chance of a hike at some point this year. I understand exactly what Michael's saying. And quite frankly, if that were the case, you could say it's because inflation is out of the box or because the economy is doing well enough where. So, I mean, again, it's depending on how you look at it. I'm more the inflation. The last couple inflation numbers have been hot in a word. That PPI number was twice what the street was looking for. Market cared for a day. Doesn't seem to care.

12:01And you're seeing it in yields. Ten-year yields really went down three basis points today. I mean, so I think the bond market is looking at this a little bit differently. This all makes sense. But let's say Michael's right. Twelve months is a long time for the markets to still drift higher because of this notion that the economy is still good. And corporations are still making money and consumers have the ability to spend. Right. So then you want to look for things that haven't benefited from this inflationary environment. One of them, and I know we're going to probably talk about Intel a little later, they just got eight and a half billion dollars from the U.S.

12:28government for free and then 11 billion dollars of low cost loans to build out something that will be inflationary here in the U.S. If you just think about the whole nature of reshoring and what that means for wages and the like here. So, again, there's lots of ways to probably benefit from this. You know, like things are going crazy right now in the markets, like a whole host of different risk assets are doing that. And there's plenty of stuff that haven't participated yet. One of those areas is the Russell 2000, which obviously outperformed, you know, the major indices, too. That thing's been range bound.

12:55It's still well below those all time highs made in 2021. You've got to say to yourself, why is that not? And I get it. I know what's in there and I know that some of the areas that have kind of underperformed. But like that would be an area. Well, I know why buy the Russell? And I hear what you're saying. I totally agree with that. But I mean, when you've got GM, you know, moving 50 percent, when you've got a whole bunch of industrial companies, industrials make new highs every day. All you need to know about the stock market's interpretation of the Fed was from 2 o 'clock or 201 or 221, wherever you think the market really took the impact, you saw, first of all, gold rallied 120 bips from that point to the end of the day.

13:27That tells you all you need to know about how aggressive not the Fed is going to be. KRE up 3.8 percent from the Fed announcement to the end of the close. KRE, regional banks, you know, it tells you what you want. Bitcoin was up 4.8 percent. And then as you got into high multiple tech land, like DraftKings tells you a lot about consumer spending, was up four and a half, five percent. But this is all early cycle stuff, which makes sense, right? Whether it's regional banks, whether it's industrials, whether it's small caps, the junkiest stuff rallying is because economic growth is strong. And earnings growth is accelerating in those areas as well.

13:58Look at the home builders as an example. Right. Speaking of home builders, we got an earnings alert on KB Home. The home builders slightly higher in extended trading after reporting a beat in the top and the bottom lines. The company's call kicking off at the top of the hour. CNBC's Diana Olek has got the details. Diana. Well, Melissa, KB reported a strong beat with revenues up six percent and net new orders up 55 percent. CEO Jeff Metzger said fiscal 2024 is off to a strong start, knowing noting Q1 results were either at or above guidance and they did raise guidance slightly as well. He added that market conditions have improved since the end of our 2023 fiscal year.

14:32This positive momentum in demand has continued in our 2024 second quarter to date. Not surprising, given we've seen builder sentiment rise into positive territory this month. And we also saw February single-family housing starts surge much higher than expected. Now, KB's average selling price did drop to$480 ,100 from$494 ,500 the year before. Builders are also offering incentives, especially buying down the mortgage rates. But KB's gross profit margin came in at 21.5%, which was the same as a year ago. Backlog did drop pretty sharply, likely due to the big rise in interest rates last fall. Melissa?

15:10Diana, thank you. Diana Olick. And speaking of big moves, homebuilders, new highs in today's session. You know, amazing. Absolutely. Again, if things are as good as it appears, I mean, these things are going to continue to sort of levitate. My one concern for homebuilders, I've said it before, it has not been justified. If the unemployment rate starts moving in a meaningful way, that's when I think you put the stop sign up for these. But again, we talked about this a couple of weeks ago. The high end homebuilders, their prices are going higher. their average selling price. The mid to lower end, the prices are going lower.

15:41And it's the same thing we saw. We talked about this with some of these retailers. It's the same sort of barbell thing. We're seeing the high-end consumer on one side in Williams-Sonoma and the flip side with like a Dollar Tree. Can you imagine if rates go down? What's going to happen to home prices and the builders? It can be frenzy. Absolutely. I mean, listen, this is just typical behavior when you're early and mid-cycle. The home builders do very, very well regardless of rates. The small caps are the same sort of way. So, I mean, listen, this is all telling the same story. And by the way, it all feeds into inflation as well.

16:13You know, the big expectation was that inflation was going to come down because of rents coming down. Well, if home prices go up, rents go up as well. I think you're right, Michael, or at least it's interesting. And I think at the table you've got the most credence in bringing this up to the table. I mean, calling this early cycle is crazy to me. I mean, think about where we've come from. So what happened at the end of the cycle? In other words, we never. So it's really extraordinary to think about, you know, essentially the war economy we had with no war. And I realize covid was hardship, but we pumped up the economy.

16:44We pumped up the balance sheet. We pumped up a whole lot. And it was we were already late cycle at that point. And now we kind of missed the whole thing. So remember, we were in an earnings recession in 2022 and small caps earnings just bottomed in Q4. All right. We've got a news alert on Reddit's IPO pricing. We've got it now. I understand. Leslie Pickers got the details. Leslie. Hi, Melissa. Yes, speaking with sources familiar with the matter, Reddit has decided that IPO price for its debut. High end of the range here,$34 per share. Same number of shares offered, about$22 million there. That implies an offering size of$748 million.

17:2070 % of that is going to be sold by the company or primary. The rest is going to be sold by selling shareholders. Those are largely employees and so forth. That also implies a fully diluted valuation of about$6.4 billion on a fully diluted basis. So you can see there, Reddit pricing its IPO high into the range,$34 per share. That one's set to debut tomorrow morning. Melissa. All right. Leslie, thank you. We'll have much more on Reddit's IPO with Rick Heitzman later on this hour. Meantime, coming up, more after-hours action in the chip space. Micron jumping after reporting results and details out of the quarter next.

17:54And sticking with the semi-space, Intel landing billions in the Chips Act. how they're planning to use the money and what the CEO had to say about the company's next steps. Don't go anywhere. Fast Money, you're right back. This is Fast Money with Melissa Lee, right here on CNBC.

18:19Welcome back to Fast Money. We've got an earnings alert on Micron. Shares are popping after posting a beat on revenues and a surprise profit for the quarter. Christina Parts Nevelis has got all the details. Christina. Well, a return to profitability after five quarters of losses and use the word surprise. I use the word surprise because the results were higher than every analyst estimate on Wall Street. They also provided a much stronger than expected outlook in the stock. Like you said, is climbing almost 14 percent right now. The CEO is on the call. He's still chatting. He's attributing the improvement to improved conditions or improved conditions to strong AI demand, healthier demand in most end markets.

18:53Remember, that was an issue. Cyclicality was a concern going into this print, but Micron pointed to improvements across the board from PCs to auto. The CEO also says AI memory, which is high bandwidth memory 3E, HBM 3E, it's already sold out for 2024 and mostly allocated for 2025. According to the CEO, they got NVIDIA as one of their customers. It only took them about eight minutes in the call to name drop NVIDIA. They did warn of supply reductions across other memory products like DRAM. So that's memory that can only be stored with power. And then NAND memory, which saves without power. Memory prices, though, are climbing so quickly that management now predicts positive cash flow in the second half of this year and record revenue for fiscal 2025.

19:36So very bullish right now. Christina, thank you. Christina Parks Nevelis. You know, a lot of analysts were very bullish going into this report, just saying that the CEO has been so optimistic when talking about demand for HBMs, the high bandwidth microchips. Yeah, listen, this is a company in fiscal year 2023 had negative gross margins. So when you think about booms and busts, and so I think it's interesting when you talk about the demand for these HBMs, okay, so these are the things going to allow AI to operate on devices here, and they're going to be sold out, but they're also going to lower, like they said, supply, and that might be a manufacturing thing for some areas that have less demand.

20:09I mean, this is the story of Micron, but I'll say another thing. If you look at the historical chart of this thing on a log basis, we might have looked at it the other day. It just made a new all-time high, and we spent a lot of time over the last couple weeks talking about some other names like Dell, you know, who have gotten back to their bubble highs from 25 years ago. This thing just broke out in a meaningful way from a technical standpoint. So when you get momentum going like this, you have a quarter like this where you're expected a loss and you go to a big profit, that sort of thing. It's probably not a one quarter event.

20:37All right. Meantime, the White House awarding Intel eight and a half billion dollars in Chips Act grants with the possibility of another 11 billion on top of that. the large sum will go toward the company's efforts to increase U.S. semiconductor manufacturing. John Ford spoke with Intel CEO Pat Gelsinger. Here's what he had to say about the company's new chip factories. They are some of the largest construction projects ever done on Earth, building the smallest things ever been built. You know, these are truly marvels of manufacturing, R &D, research and technology. And every one of those AI chips, they need this stuff going into the future.

21:13So I'd say this is part of our unique role that Intel has for the industry today and into the future. Shares of Intel having a rough year so far as a laggard in the semispace. Could this grant be the catalyst that returns a company to maybe some of its former glory? I mean, already they had delayed one of these plants that's going to benefit from this grant in Ohio. They delayed that one. And they did cite a slowdown because the government money was so slow in coming, but also challenging market conditions, which I don't know if they've gone away. Well, and there's been some some I'd say I would maybe slightly embarrassing, but whatever you want to call, you know, Taiwan semi finishing a plant in Japan faster than they're doing stuff over here, reallocating to other places in the world.

21:52I think it's also going to be easier to work than it is in the United States. It tells, oh, look, it's been a massive disappointment for the last couple of years. It gets back to where do you think, first of all, from the stocks perspective, I think it's under owned. I don't think there's any question to me for all the reasons that we've just talked about. But I look to the future and I look at the dynamics, the CapEx spend of the communication service providers, the hyperscalers. They are going to be double-digit CapEx growth for the next three or four or five years. And at some point, Intel is going to grow into this.