Stocks Jump After Fed Pause, and Is Now the Time to Buy China? 11/1/23

0:01Live from the Nasdaq market side in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. Did the Fed just give the all clear for stocks? Markets closing near the highs of the day after the central bank paused for the second meeting in a row. But with Jerome Powell keeping the possibility of another hike on the table, are investors getting too far ahead of themselves? Plus, by China, it's been a rough ride for stocks in Shanghai this year, and plenty of companies are raising the red flags over growth in that region. So what better time to get into those markets?

0:29Someone on this set was getting overweight these names. We'll find out why. And big after hours moves in SolarEdge, Zillow, Roku and more. We're digging in on all the earnings headlines after hours, bringing you all those trades. I'm Melissa Lee coming to you live from Studio B at the Nasdaq. On the desk tonight, Tim Seymour, Karen Feinerman, Steve Grasso and Michael Cantopoulos, director of fixed income at Richard Bernstein Advisors. But first, the post Fed market rally. The central bank keeping rates unchanged for the second time in a row and upgrading its assessment of economic growth. Stocks closing near their highs of the day.

1:00The biggest winner, the tech-heavy Nasdaq, up almost 2 percent, the Dow jumping 221 points, the S &P 500 also gaining. For all the details from today's decision, let's bring in CNBC's senior economics reporter, Steve Leisman. Steve, it's funny because I think most people walked away from the press conference believing that the Fed still left the door open to another hike, and yet the markets are running away as if that's not a possibility at all. Yeah, I'm going to walk through, Melissa, and you can tell me if you think I'm crazy at the end of That's why there was something of a dovish tilt to this thing.

1:31Let me go through this. They left rates unchanged for the second meeting in a row. That range of five and a quarter, five and a half. That was as expected. But Fed Chair Jay Powell, I think he provided a modestly dovish outlook that suggested at least that that additional rate hike may not occur. And I say may not advisedly. While he affirmed that the takeaway from the statement is that, yes, policymakers are leaning towards that hike, as Melissa just said. That is, by the way, in most committees, members forecast. Powell said it was unclear if that hike would occur. That's because risks between doing too much and doing too little were now becoming more balanced.

2:06It's fair to say that's the question we're asking is should we hike more? It's not, you know, and that is the question. And you're right that in September we wrote down one additional rate hike. But, you know, we'll write down another forecast, as you know, in December. Powell said the rise in yields was among the reasons that the Fed could hold, at least at its current level, with sharply higher rates doing the work for the Fed and restraining economic growth. But he said those gains have to be persistent in order to hold the Fed at bay. So let's look at what happened. Today, the yields fell sharply and meaningfully with the Treasury announcing a slightly more upbeat refunding plan for the growing U.S.

2:44debt and with the announcement from the Fed. Okay, so the Fed's statement upgraded the economy and jobs, but noted that tighter financial and credit conditions would likely weigh on the economy. The result of all this, the Fed remains on temporary hold until the economy slows and makes clear inflation continues to decline. Powell says that was more likely, but he would not go so far as to say it was a certainty, Melissa. So we're back into this conundrum, Stephen. That is, it's dovish. The markets like it. They rally. Yields come down. Conditions are less tight. And here we go again. Now it is a Fed back in play.

3:19I mean, you know, I wonder if there's a line in the sand here for the Fed in terms of, you know, if markets rip in response, then they step in. I don't think that's the first order of what would bring the Fed back in, Melissa. I think the first order is the data. If this economy does not slow, and I will point out there's only a little bit of data yet, but the Atlanta Fed GDP now was cut in half for the fourth quarter. It's only at 1.2 percent. I really think they want to see a number like that. I think they want to see a calmer number on Friday in the payroll report. And then most of all, they want to see inflation getting back on track to coming down.

3:56If those things come into place, then the market rally will be justified to the extent to which it's not rallying because it's afraid of the Fed. I also think that you want to watch the 10-year yield. And if that comes down and sort of goes back to where it was, I don't think that's going to happen. And I will point out, Jeff Gundlach with Scott Wapner said, hey, maybe at least temporarily we're in the middle of a bond rally here, which is pretty interesting because if it goes too far, it's going to be a problem. But within a certain range here, I think it's going to be still continuing to restrain the economy.

4:29Steve, Tim, congrats on the market psychology or the excuse me, the psychology and the wordsmithing I thought you did with the chair Powell. I don't think he falls for these things, but you basically asked him, isn't there still a hiking bias? And he said, that's the question I'm asking, which almost meant this is where you get your dovish takeaway. If not for these higher rates, wouldn't this have been the dynamic? And wouldn't you say that they would have had to have been leaning higher? Because I believe you when you were asking that question that you believe that. Yeah. So here's the thing, Tim.

5:02I think it's important to realize that my question was hearkening back to the old days. It shows how old I am and maybe how old you are, Tim, but you don't look it. Thank you. And the deal is this, that these are the things, Tim. Greenspan used to give us a bias to policy. He says, we're here now, but our next move looks like it's likely to be this. I was trying to tease that out of Powell. That was what I was trying to figure out was, is that bias? Am I right in reading the statement as having that bias? He said, we don't do that anymore. But then he kind of conceded that, yes, there is that bias in there.

5:34And I do think that he said we have that bias, but he kept coming back to this idea of risk being more balanced. Remember, that was in the SEP, the extra hike this year. But he kind of dissed that a little bit, saying, you know what, we're going to do a new one in December. And he later said that as the SEP ages, that is the summary of economic projections, it becomes less useful or less accurate for the feelings of the committee. All right. Steve, great to get your analysis. Thank you. Steve Lisman, our senior economics reporter. Mike, I'll go to you first because the market reaction was fascinating, especially when you saw volatility just collapse during that Fed press conference.

6:13What was your takeaway from this? You know, I think Powell got a little bit lucky in the PMI data this morning, quite honestly. Had he been on the dovish side and you had a strong PMI print, I think you would have seen a very different reaction from rates today. You know, at the end of the day, you want the Fed to be somewhat hawkish because by being hawkish, the Fed is saying we're going to control long-term growth and inflation expectations. So if you're a buyer of 10 or 20 or 30-year paper, you actually want the Fed to tighten monetary policy. So he got a bit lucky today in the weak economic data.

6:46What I'm fearful for is what happens if the economy starts to reaccelerate. And we started to see that, right? I mean, 4.9 % GDP in Q3. And then the market says, oh, wow, you know, to Steve's point, Powell was somewhat dovish, but growth is heating up. Then you get a big bear steepening of the yield curve again. Rates go higher. That could be bad for risk. But Pala did see the market heating up going into this. So he already knew that. So I think this was almost Goldilocks. But this is a question for you. Has the Fed ever continued QT while they're cutting rates? They haven't. They haven't had to.

7:21No, absolutely not. But this time around, they said that they're going to. They're going to continue with balance sheet runoff even while cutting rates. But we also think, no, that cutting rates isn't for quite some time. Yeah, I thought that was an important point. And I think the bond market reacted like just another little leg, stronger yields, lower, when he definitively took that QT, early exit of QT off the table. That was interesting to me because I wouldn't know how much was priced in there already. Maybe some because the reaction was kind of just another leg. Yeah, I think the Fed wants to really normalize the balance sheet.

7:56And I don't think this is a 2024 type story. I think this is going to be for the next 10 years. You had a decade of quantitative easing and easy monetary policy, and you're probably going to have a decade of balance sheet normalization, meaning quantitative tightening. Well, and it's not just our Federal Reserve. It's central banks around the world. And so I'm going to say that the most important thing that happened today was not the Fed. It was the refunding announcement, and it was where they were refunding. So bill heavy, note and bond lighter than expected. Still heavy because we've got a huge deficit to finance.

8:24That was the 20 basis point, almost intraday move from the highs in the open to the lows in the 10 year and the two years. So the entire curve felt it, even though we know that the Fed is and the excuse me, the government essentially is going to go out there and have to finance a big budget deficit. That, to me, is what this is all about. And that, to me, is where Fed Powell is just kind of like sitting back on the sidelines. And on some level, some of this is out of the Fed's control. And on some level, it's good. But agree with Michael. I mean, we want this Fed to stay the course. And the thing is, for equities right now, we're not so sure.

8:56I think equities over the last three weeks, especially with the backup and yields, we're starting to wonder about that Fed put. And that's really what equities do still need to grapple with, because we want the Fed to stay the course. And equities still, I think, think the Fed's going to give in. I'm not sure. They did like it, but equities like the move in rates. So I'm not saying that the equities today doubted the Fed and actually or believe in the Fed to cut. But today was all about refunding because, you know, how much of the last 100 basis points was that announcement versus the last August refunding announcement?

9:27I mean, you can make an argument that a lot of this was all technical. I agree. It was all about refunding. Do we want the Fed to keep course, say course? They only control the front end anyway. What are they doing to the back end anyway? Yeah, listen, I mean, the only way they're going to control the back end is by slowing growth, right? Because the back end price is growth and inflation, to your point, Steve. But the way you control growth and inflation is by slowing. If you agree that this was you have to agree, agree that it was supply or demand issue shocks to the economy, whether it was pandemic, whether it was printing all the money that they printed.

10:03Monetary policy, fiscal policy are colliding. Well, I mean, I don't think anybody can say right now that monetary policy is too tight. Right. We wouldn't have had five percent GDP if monetary policy was too tight. You wouldn't be printing, you know, hundreds of thousands of jobs if monetary policy was too tight. But in terms of the message, the context of this market right now for equities, Karen, is this bullish going to your end? Right. Because everything that we've seen keeps a lid on the 10-year yield, which is good for equities. Right. And we're sort of getting the all clear, at least for now, that there aren't any hikes on the table till next year.

10:37I felt that too as well. It's just math, right? If we have a lower 10-year, 20-year, whatever you want to use to do your models and discount your cash flow, it's better. I mean, we saw the higher flyers, you know, the IGV kind of names, the Magnificent Seven. The high PEs do better for just that reason. But just one other thing, though, about the Fed, it's, you know, he's fighting this with one arm tied behind his back because of fiscal policy. It's just kind of ridiculous. He's out there on his little raft and they're just a tsunami of, you know, so. So suddenly, first of all, the reaction to today's market, there's always to me there's this Fed cha cha cha, you know, from two o 'clock or two twenty.

11:17What happens at the end of the day? You judge it by 30 minute intervals. We went up 25 handles. We went down 25 handles. We went up 40 handles on the S &P. That was interesting. We're now three and a half percent off the intraday lows on Friday in the best month of the year for equities, with maybe the Fed having at least put a lid on things or the refunding announcement having put a lid on things. That, to me, is what equities want. We're going to talk about Apple. We've got a big kind of symbolic name and a big weighted name tomorrow with a lot of problems relative to China. But I do think this is very equity friendly.

11:50Our next guest says that the Treasury refunding plan has opened the floodgates to buy all assets. Let's bring in Dam Spring Advisor CEO Andy Constance. And so you've been listening to our conversation where we just said this market environment now seems to be a green light for both bonds as well as equities. And that's exactly what you did, Andy, in your portfolio. When did you do that? And how long do you think does this trade last? Yeah, so, Melissa, the first thing I did today was look at the quarterly refunding announcement at 830 and found that the bonds issuance for today, for this quarter, was being kept the same.

12:22And it's all about bonds, long duration assets that the private sector has to buy. But importantly, next quarter, they're only increasing the bond supply by 10 billion. Three months ago, when you had me on, they increased bond supply for this quarter by 160 billion. And that caused the S &P to fall 8 percent. Ten-year yields rise 100 basis points. And so today, the supply is still heavy. But the rate of change has gone from 160 billion to only 10 billion. And asset prices have cheapened dramatically. And so given that combination of less, there's still plenty of supply, but less supply and very cheap asset prices, I think assets are cheap now.

13:16And assets can rally in maybe a false dawn through year end. But, you know, that's sort of what I the way I put together the supply issue. So in terms of your long stocks, in terms of being long bonds, is it time to go long duration at this point? Or do you see value? Do you see, you know, a move higher in all parts of the curve? Yeah. So actually, the thing I find most interesting is the rally in the two year. That's the one that didn't make sense to me. But in terms of long duration, I was short 30 year bonds. I covered them right on the open. And then they've rallied 16, 15 basis points or so.

13:57And I think they have another 15 to 20 basis points to go. So I do think the 30-year is interesting. The two-year rallying doesn't make a lot of sense to me for many of the reasons you all mentioned, which is if bonds and stock, long-term bonds and stocks both rally, the Fed's going to have to hike more. And that's going to hit the two-year. So I think the two-year rallying is the most odd bit of this day today. Powell was hawkish. The QRA relieved some of the pressure on long-term assets. And yet the two-year rallied such that there's about 95 basis points of cuts priced into 2024. And the Fed only expects 50.

14:41Why did you think Powell was hawkish? We just had Steve Leisman on who, you know, endured the whole press conference live and in person. And he walked away with a dovish message. Yeah, I mean, I think basically the bottom line is I think he was right down the middle of exactly where he has normally been, which is focusing on inflation, not convincing the market that there could be one more hike. But we're going to pause for a long time. And I didn't get anything new. You know, Steve's the expert, so I defer to him. Andy, it's Karen. Thanks for being on today. Nice job getting out in the morning of your shorts.

15:19What do you think is more attractive now, the equity markets or the bond markets? Well, I think they both can rally 2 % to 3%, maybe from here, maybe to 4 ,400 on the S &P. So maybe you get 4%. But we still have the same problems in that we do have$720 billion of quantitative of tightening to deal with each year. We do have, it's likely that the Treasury is going to have to increase issuance again. So I don't think we're going to run away on the upside. And, you know, there's lots of problems. But at the same time, at this stage, the duration overhang has been lifted. And that should lift assets, you know, call it three to five percent.

16:06Andy, great to see you. Thank you. Sure. Andy Constant, Damp Spring. You agree, Michael? I agree with some of what Andy had to say. I think there's a couple things I would note. One is on the equity side. You know, I think what today did is it just removes an overhang and allows the market to start focusing on earnings. We are in the middle of Q3 earnings season here, and, you know, I think that's going to be the more important driver now. The second thing I just wanted to say with regards to Andy is, listen, we've been in an upward trend on yields, not just since the Treasury announced larger issuance.

16:36We've been in an upward trend well before that, dating back to July. What else happened in July? Well, the Fed cut back on the pace of their hikes. They skipped meetings just as when economic growth and inflation started to bubble up again. So there's certainly a component of this move higher in yields that have been more technical related, whether it be Japanese yield curve control expectations or refunding, you know, bill issuance, etc. But there's also a big part that's quite frankly economic growth. It sounds like people got too negative on equities, too negative on bonds. and now with the issuance coming maybe back in line or backing off to what we thought it was going to be, and you have a seasonality bullish time of year, you probably have a – I was about to say all clear, and then you're going to come down to me and then ask him if the market is all clear.

17:22I think you have an all clear towards year end. Tim, do you think Steve's all clear is accurate? Well, Mel, I think the dollar is another ingredient here. And again, it's a perception. The dollar will sniff out whether the Fed was or was not today. When you have the BOJ dynamics and you have what's going on, I think the dollar is going to help. All right. Coming up, a wage wipeout in the payroll sector. Shares of Paycom posting their worst day on record and bringing the whole space down along with it. What the weak outlook could mean ahead of Friday's big jobs report. But first, after hours action in SolarEdge and Qualcomm.

17:53SolarEdge tumbling, Qualcomm jumping. The numbers from those quarters next don't go anywhere. More Fast Money in two.

18:08Welcome back to Fast Money. It's a big night of earnings movers. Check out just some of the stocks making monster moves after the bell. We're going to get into all these names, but we start off with SolarEdge. Shares getting slammed after the company missed on the top and bottom lines. Posted very weak Q4 guidance. Let's get to Pippa Stevens, who's got more. Pippa. Hey, Melissa. Well, shares are dropping 23 percent after the company disappointed against already lowered expectations. Less than two weeks ago, they released preliminary results pointing to a slowdown, and they still disappointed. The call kicking off a bit ago and the CEO addressing it right off the top, saying they are going through, quote, challenging times in terms of general market dynamics and specific inventory trends related to their products.

18:48Now, Europe especially is an issue. Last year, demand skyrocketed on the back of Russia's invasion of Ukraine. And as the company said, they thought that demand would continue in 2023. But it hasn't, which means distributors are working through excess inventory and not buying as much. And there's no clear turnaround in sight. And for the current quarter, SolarEdge expects its gross margin to be between 5 % and 8%. That's down from more than 30 % just two quarters ago. Melissa? Pippa, thanks. Pippa Stevens. I mean, I don't know what even to say about this if they warned. And they moved a lot on the back of that warning two weeks ago.

19:25And here they are yet again. That, I don't know what's wrong there, because if you make an announcement like they pre-announced less than two weeks, maybe two weeks ago, put everything in there, the entire kitchen sink, anything you can find, put it in there and do it once, because then you have some credibility left. And unfortunately, when this happens now, or things are deteriorating so rapidly that they couldn't even see that coming. Neither of those two are good. No, but each bit of news from each company takes the next one down and phase. And we've heard all about what's been going on in Europe.

20:01And now even those manufacturers of U.S. modules are coming under pressure. So I don't know what's interesting is the analyst community hasn't even been able to catch their breath on this. I mean, you've been seeing these gap down reassessments and EPS downgrades. And I think there's I think there's more coming. At some point, solar always overshoots. The problem is you're going to need both some secular and some macro changes to get people excited again. There's a little bit of differentiation. We had First Solar out, which is much more the utility side of the business. Their numbers were okay.

20:30They did okay during the session. But we have Sunrun coming out after hours, which is the residential side of the business, and they're down 5%. This group, to Tim's point about analysts, it's very hard to predict when you have – they're reliant on subsidies at this point, still in the phase, that all these companies are. So you can't you can't look and project out models when you're basing it on government funding and subsidies. There's too many variables. Impossible. When you look at the stock down 73 percent year to date. It's impossible to see where the next catalyst is going to come from.

21:05And it's impossible to see what the next political party is going to give in subsidies. We're in an election year cycle. There's too many moving parts for me to take a bet here. All right. Let's move on to Qualcomm here. The chip company beating on the top and the bottom lines, issuing strong first quarter outlook. Let's get to Christina Parts Nevelis for more on this. Christina. This strong outlook and beat coming despite a global slowdown in smartphone shipments in Q3. You had management saying on the earnings call right now they are seeing, quote, early signs of stabilization and demand for global 3G, 4G and 5G smartphones, with strength actually coming from greater China as well, which could bode well for Apple's earnings.

21:41Keep in mind, in early September, Qualcomm did announce that they would continue to supply Apple with phone chips for the next three years. That Apple deal helping their handset revenue beat is also pretty much a testament to Qualcomm's chips. Even Apple can't recreate them. If we're speaking about auto, the auto segment actually beat despite weakness from other chip makers like OnSemi and Lattice semiconductors and also contributed more to total revenue, so it's growing. Qualcomm recently announced an X-Elite PC chip based on ARM technology. CEO Aman saying on the call that their CPU chip exceeds the performance of x86 chips, which is really just an instruction set used by AMD and Intel.

22:21So that means that maybe they could steal market share. This new CPU chip, though, is only going to be available in mid-2024, but has a lot of support from Microsoft. Qualcomm shares up about 3 % higher now. All right, Christina. Thank you, Christina Parts Nevelis. Tim, good news for smartphones? It's OK news for smartphones. It may be OK news for Qualcomm. I mean, this is a case where, again, the exposure they have to Samsung, they're going to be a primary customer on the Galaxy S24. They also point out here, I'm just reading, they expect that Huawei's reentry into the smartphone market is going to, it's not really going to impact their relationship with other players.

23:00And that's good because I think there's some sense that Huawei is going to be a thorny kind of a relationship for suppliers. We've talked about this. This is their ability to kind of sidestep a lot of the U.S. sanctions. Chinese OEMs are growing about 35 percent in terms of their sequential growth. And that's good news. It almost seems like they're coming back to life a little bit. How much of an indicator or semiconductors for you? You know, they're a pretty good indicator. I mean, it's a big cyclical area of the economy. And, you know, we have to focus on that around this time of year. is see what's going on with cyclicality, what's going on with economic growth and likely earnings growth.