Stocks kick off the shortened holiday week in the green, but can they continue momentum into 2024? 12/26/23

0:01Live from the NASDAQ market site right here in the heart of New York City's Times Square. This is fast money. So here's what's on tap tonight. Grinding higher. Stocks climb on the first trading day after Christmas. But can December strong gains carry into the new year? We will, of course, debate that. Plus, in the chip sector, Intel announcing plans to build a new$25 billion chip facility in Israel. That stock is now up nearly 50 % in just the last three months alone. So is it too late to bet on the semis after this year's already big surge? And then later on, going to pot. Investors in weed this year have felt like you were lighting your cash on fire.

0:40Is there any reason to believe that 2024 will be any better than this past year? We'll ask the executive chairman of Curaleaf coming up on the show. I'm Dominic Hsu, in for Melissa Lee tonight, coming to you live from Studio B at the NASDAQ Market site in Times Square. On the desk tonight, Tim Seymour, Carter Worth, Bono and Eisen, and Julie Beal. But first, we start with another winning day on Wall Street. The Dow jumping just about 159 points. the Nasdaq and the S &P 500, also finishing the day higher. The S &P 500 now within striking distance of its all-time high hit back in January of 2022, or just about a percent or so away from there.

1:16And then take a look at the Nasdaq 100, locking in on an all-time high and record close. It's now on the cusp of its best year since 1999. Yeah, the dot-com era. That's all the way back to when Bill Clinton was still president. This year, it's up 54 percent. With three trading days left in 2023, can the market's winning streak carry straight into the new year? We'll start tonight's discussion with you, Tim, about the momentum. A lot of folks think it can keep going. Well, first of all, welcome. Merry Christmas. Merry Christmas. Thanks for coming here. And crazy Times Square, folks, by the way, if you haven't been around here, it's crazier after Christmas than it is before Christmas.

1:54And you can make an argument this market's as crazy as it was back in 2002, because and this is really the setup. And it's great to have Carter here tonight, too, because I think the charts, you know, we did something very similar in terms of the price action in the fall or, you know, going into the Santa Claus rally, which I guess technically we're in it now. But you had 13 percent on the S &P from mid-October of 2021 into those markets that peaked on January 4th. I think the Nasdaq did about 18 percent. I think Semis did about 24 percent. And look, you know, the same kinds of moves, even that much more accentuated.

2:25the difference being we don't have a Fed that's about to embark upon a major cycle. We have a Fed that, if anything, that's an easing cycle. We spent a lot of time talking about whether that's foreboding for stocks because Fed's not cutting for good reasons typically. In this case, maybe it is. Back to what you said, the leadership is intact, the leadership that is those six or seven stocks. There's some arguments out there that actually their earnings growth is making those stocks cheaper. Listening to John Stoltz's in a couple minutes, John's got some great views on the market. I think this leadership, at least for now, has taken us higher.

2:58And again, semis are leading the way today, which will lead the Qs tomorrow. The charts, Carter, have been interesting only because we've seen what some say is a broadening out of the markets overall. It hasn't just been that magnificent seven. We've seen other stocks participate to the upside. We've seen equal weight indices do a little bit better and outperform. Does that bode well technically? Well, since the October 27th low, the equal weighted S &P has outperformed the actual S &P, to your point. So the breadth has improved. But the key word you use is momentum, to start off. Momentum is a powerful thing, and it goes in both directions, right?

3:33When something's in a free fall, that momentum continues often much further than the imagination will allow. And same here, too, on the upside. To think on the October low, the Dow was down for the year, meaning this recent strength has saved the market and has saved the Dow and many other industries. The question is, to the end of the year, this is seasonally a very strong period. Everyone knows that the last week of the year, on average, is about a 50 basis point gain versus all weeks. The average gain since the beginning of the S &P is about 14 basis points. So you're talking about a period that not only has a seasonal bias, but this final week is particularly strong.

4:06And we're seeing it now. The real question also, which you asked, is does it follow through into January? I suppose there's a little bit of that. I think the new high is wanted, so to speak. The Dow has made the new high, the S &P not. But the real question is, do we really put on a big Q1? I don't think so. OK, Julie, let's go over to you, because the Q1 catalyst that everyone's going to talk about the most is this idea of a Fed possible. I should say hypothetical rate cut. A lot of folks say that it's been a little bit too perhaps telegraphed in the market. A lot of folks thinking that maybe it shouldn't even happen the way that the inflation picture is shaping up.

4:46Is the Fed the really big catalyst? Is it the only catalyst that we're watching in Q1? I don't think it's the only catalyst. It's the easiest catalyst. And I think that's kind of been what's been moving markets is everyone can kind of attach themselves to that idea. But now valuations are looking a little bit more full. And so what we need is we need earnings growth. And I think that actually becomes much more critical as the year goes on in 2024. My concern continues to be just the level of excess spending that we are having where people are just not saving. They're going down into their savings.

5:21And at some point that that gives. And in an economy that's really driven by the consumer, what we really need is for the labor market to really hang in there. It needs to stay robust or we are in trouble. That's it. Bono, when the labor story has been intact for the most part, you can talk about nitpicking a little bit, but unemployment is still very good on a long term basis. Jobless claims are still relatively good in terms of the way that they're showing the unemployment picture. The macro narrative is, at least for now, relatively supportive. Is that taking away any of the fuel that the Fed might have to even think about cutting rates?

6:04I don't think it's taking away. Listen, I think the economic resilience is testament to the balancing act that they've been able to make. It really does bring in a question. What then is the real incentive for for cutting rates? I mean, we understood that the higher for longer, the inflationary story. We now see resilient economic growth, although it's moderating, but still, I would say relatively resilient. And we're starting to see a disinflation story. I think that is, if anything, is what gives the Fed power to continue to move to cut rates. I do think a lot of that is priced in. And that's really why the carry forward story is a bit more challenging.

6:40I think, as we've all said, it's hard to argue against the rally into the last week of the year and perhaps the first half of January. But thereafter, you start to get bank earnings. You do start to see some of the fundamental analysis that's going to that's going to come into play when looking on deploying capital going forward. And so I think that there is still some murkiness there. And there has been quite a significant pull forward in terms of expectations of the Fed to pivot and cut, as you as you mentioned earlier. Bono, and one of the things that we want to keep a close eye on is the leadership, as Tim spoke about this notion that we could see the continued momentum of some of those certain stocks.

7:16Do you believe that it still really is just dependent on large cap technology, communication services and consumer discretionary? It's going to be dependent, but not not solely dependent. We have seen some brightening out, particularly we've seen some resilience or some resilience in the small caps. We've seen some rallies now in terms of the regional banks, some of the more suppressed markets or submarkets within the broader market confines. So I do think you are seeing some more economically cyclical pockets of the market catch a bit. And I do think that that is good. And the economic resilience that I mentioned before does speak to that.

7:56Again, as Julie mentioned, it really comes down to the consumer. There was such a pull forward in terms of savings and that they've continued to spin down. It's not as if we have a new glut of savings to tap into. So that's really the overhanging thing that gives me some pause and concern going forward. Tim, the consumer discretionary story is so fascinating. There's so many different levels of this. By the way, I just want to say fundamentally, anecdotally, this idea that Walmart is going to offer Affirm buy now, pay later at self-checkout kiosks is probably a sign of the times. When that news shot Affirm to the moon, I said, this is your opportunity to throw that one back out there.

8:33I don't love this. I don't like discretionary. I'm short a couple names. I actually have a small short in Lulu. It doesn't mean it's not a great company, but I think the discretionary part of the story for next year is one that's going to have challenges. But I would argue that the whole story for the market is not top down. Bono is pointing out macro. That's that's difficult, although we got house prices today that, again, hit all time highs. But this is a bottom up story. This is where the street is. This is where we're about to hear from from Oppenheimer. But the earnings growth story. Look, we had a earnings recession.

9:02We had three quarters of a pullback in EPS. The argument for the street right now is that this is a bottom-up story, that you're actually growing earnings. Nobody's saying the world's going to be great in 24 in terms of the top-down. They're saying that the bottom-up is better, that these companies, the productivity has gotten a lot better. And depending on who you're asking, but, I mean, Goldman upgraded. Even Morgan Stanley has their barbell where they say you can get some late cyclicals and some defensives and you can be okay here. So that's – let's not – I don't know if anyone's confusing, but I just want to make it clear.

9:29This is a bottom-up market story, not a top-down. No. Speaking of barbells, Julie, let's let's wander into your room a little bit here. It's the mega caps we've been speaking so much about, but it's also about some of that small cap outperformance that we've been seeing. Do you feel as though there's any sign in that small cap market right now that says, listen, this could keep going? And is there any stock or industry group within small caps, whether it's biotech or financials or elsewhere, that has a real chance to outperform? Yeah, absolutely. I think for sure, we haven't quite seen the valuation uplift in small caps that we have in larger caps.

10:06So they're relatively attractively priced. And if we get some version of a soft landing, they should do pretty well. They're pretty economically sensitive. I think the real trick is we don't know, right? There's still enough concerns about the level of consumer debt. There's still enough concerns about the weaker PMIs. So you really, if you're going to be in small cap, it's just not a sector that you want to be using ETFs for. You really want to focus on fundamental analysis where you're focused on quality and you can really pick out the gems that are here. It's really hard and you need to be very, very discerning in terms of what you're choosing.

10:44So a big part of that small cap or large cap story is going to lie with interest rates because the 10-year yield has dropped more than 20 percent, If you want to look at it in percentage terms, a lot of pros do not. But it's a full percentage point, plus below where it was at cycle highs. On October 19th, it topped over 5%. So, Carter, you think that we've actually hit a, quote, mature intermediate decline, and there could be a bump up in yields. That sounds fancy for it's going to bottom out and head higher. Choose your words. That works for me. But I think the point is, what's moved the most is the rate sense.

11:18Look at the regional bank, KRE, which is small cap. Of course, that is almost double that of the BKX or homebuilders, right? Up 40 percent from their October low, much more than market. That's simply a rates thing. But at this point, the move from above 5 percent to now 383, it's nine weeks in the making. And sequencing would suggest you get some sort of bounce. And remember, whenever you start to hear a moniker higher for longer, guess what happens? The exact opposite, right? So it was very popular. Now we're hearing rates are going to go lower. They'll cut 55 times. It's all going to go down.

11:48I think you want to traffic in the other direction here. And we can see it on the screen. Just playing for a slight bump up. We were 3.83 last week in July. We hit over 5. Now we're here back at 3.83. I'm going to play for a bump up in yields back towards 4 and change. All right. So that's 17 BIP, 17 basis points from where we are at the cycle, at least this cycle low right now, as you're seeing on the chart here. Tim, does that feel right to you? I think he's right. I mean, you know, we had a three standard deviation move in terms of the intensity and the velocity move higher. We've pulled back almost as quickly.

12:21Note also the dollars move with the pullback in rates. The dollar's down almost five and a half percent from that Dixie level, which peaked around November 1st. It's actually at least on this cycle. That's also been great for stocks. And the question is, the dollar typically sniffs out Fed policy. And if you've been investing internationally, if you've been investing in resources, I think the dollar is going to be your friend. But it's kind of what Carter's saying. You've had such a big move in the dollar if the U.S. economy is not falling apart. And some of it is central bank differentials. I look at Europe and I think, you know, I think their economy is worse than ours.

12:51So let's talk about the trade besides the dollar and the rate side. Specifically, we'll bring in Wall Street's biggest bull for now. Based on the latest CNBC market strategist survey, John Stolfitz is the chief investment strategist at Oppenheimer Asset Management. It is for right now the most bullish target on Wall Street. Give us the number and take us through the fundamental reason why. Well, it's only 5 ,200 from where we are right now. I put it in, what was it? It was at the bottom. In October, you downgraded it. Because we came in this year with a 4 ,400 target. At the end of July, we raised it to 4 ,900, and then we ran into that three-month downdraft.

13:35We thought the Bears were really serious about this. They were going to imitate a 2018. We didn't take it as a fundamental change. We just thought the negative pitch book was out on the desk, and that's what they were rolling with. And so we reduced it to 4 ,400 again. Now I'm sitting here going, well, you know, we're only—we missed that 49. It would have been nice to have because it's probably an opportunity to see it. I'm not changing my target. I'm sticking with 44 with 50, 200 for next year. That's only about 8%, 9 % up from where we are right now. The economy, as you all said, is doing remarkably well.

14:12The Fed has been remarkable. Once it got away from being behind the curve, the Fed caught up. The Fed moved ahead. It cut inflation by about half. And, in fact, some of the latest numbers, the big figure, they were under three on a couple of the key indexes, index numbers that they look at. So when you look at it, the consumer is in remarkably good shape based on other cycles. You know, I've been doing this. I've been in this business since 1983. So I came in when Paul Volcker was in his second term. So the Ben Bernanke legacy Fed is amazing in that it is highly sensitive as to how it applies its mandate of a good economy and full employment, somewhere between 3 % and 4 % unemployment.

14:58And it has been very sensitive. The only time it got really intense was that 475 bps hike last year. And since then, if you look at the whole cycle, it's been about 11 hikes and four pauses or skips, as they call it. So we can't help but think that 5 ,200 makes sense. We're looking for earnings around 240, about 9 percent up from where this year is likely to come in at around 230. Our expectations are that it'll still be our call has remained cyclicals over defensives. We think technology is in good shape in the sense that it is not showing signs of being at a plateau. So even when it becomes richly valued, the next thing you know, you've got another development on hand that offers prospects for higher earnings.

15:48I mean, the rate story matters because it features into models. Risk-free rates do. I wonder from your perspective, when you set that price target, how much of this, it's a mix between earnings growth, absolute, how much the money the S &P is going to make, and then the multiple that you attach to it. So how much is earnings growth per se, and then how much is the multiple expansion aspect? Well, the multiple expansion certainly does play a role in here. We're looking for around 21.7 times forward based on our earnings projection and our target. But consider the fact that the market is really, you know, it's many different types of players from all different parts of the world.

16:27But essentially, it's divided between traders and intermediate to longer term investors. The intermediate to longer term investors in the near term here, any weakness that they see are likely, if not buying the dips, which we wouldn't suggest, by the babies that get thrown out with the bathwater, the good stuff that gets knocked down. because and their goals and objectives are very different. They're about preparing for a retirement, funding a retirement to not reduce one's standard of living. If one lives longer than one would expect kids, education, all this serious stuff. And it's not that the short term stuff isn't serious.

17:06It most certainly is. It keeps liquidity in the market. But we think that it's opportunity for further widening, broadening of this rally. When I last looked, I think the Russell's up from October 17th. It's up, I think it's up 20, 25 percent. The smalls are up 24, and they were in the toilet before. Yeah, no, and so it sounds like you're making the argument that this is liquidity driven, because when I hear 21.7 times when rates are 400 basis points higher than they were pre-COVID when we were trading at 18, it's hard for me to reconcile this in a world where, and I, look, I get where we are with the leadership of the market.

17:45I think it's very difficult to argue with that. But it's also very difficult for me to reconcile where we are on a forward multiple of almost 22 times. You're good with that. Yeah. I mean, the price target on Wall Street right now is the exact same it was two years ago. Two years ago, the Christmas week of 2021, Wall Street's projections for earnings were$230. And here we are projecting for$24. It's$230. And the price target was around$49. And here we are looking at$5 ,000. I think part of the convention of Wall Street is to predict something that's arbitrary. The real value add is like saying what you're saying is cyclicals versus defensive.

18:20Because that's where alpha is generated. It's not throwing darts at a 12-month price target, right? In essence, what we see here is you're in an environment where we're right about where we should be in terms of uncertainty. the fact that the yield on the 10-year pulled way back, you know, off from 5, or we were at 389 or something like today, something like that, last I looked. My point is, I think that interest rates could probably go, you could see the 10-year market price, the yield is at 4, 4.25, and I think that's livable. It's the end of free money. It's a good thing. It means bond issuers pay for the privilege of borrowing money.

18:58Bond buyers get something in return. Diversification is back as a methodology for building portfolios. And this is not an easy spot to get through, but it would look to me to be highly navigable. Now, John, we could go on forever. We've got to go. But. And you know I could. I know. I know you could. One or two words. Your favorite sector for 2024. Favorite sector. It has to be split between tech and consumer discretionary. Fair enough. All right. John Stolfis over at Oppenheimer. Thank you very much. Happy holidays, sir. All right. Thank you very much. If you want more on that bullish and least bullish strategist call on Wall Street, you can actually go find that full story on CNBC's market strategist survey.

19:42You can see it on the screen right there. Just go over to CNBC.com. We've got full results from all the analysts and strategists that we poll. Now, let's trade what John just talked about here. Bono, and I'll throw this one to you first. Cyclicals over defensives, tech and consumer discretionary over some of the more defensives out there. What's your play? Listen, I think you continue to lean into some of the strength of tech. He's also under right utilities, which I can get behind a little bit of a pushback on the forward multiple, particularly given where we are in the rate story and where we are with with tightening altogether.

20:15All right. There's the trade. Thank you very much, Bono. When coming up on the show, M &A is heating up in biotechnology. Bristol Myers striking another big deal in just three days as AstraZeneca scoops up a Chinese player in biotech. biotech. So will the merger mania continue in 2024? Our traders will debate that story next. Plus, not a very cheery holiday season for the energy space. Nat gas dropping hard over the last few months. And with predictions of a milder start to the new year, how will weather conditions impact energy? We're digging into that. When Fast Money returns, we're back in two.

20:50You're watching Fast Money here on CNBC. We'll be right back.

21:00Welcome back to Fast Money. Bristol-Myers Squibb striking a$4.1 billion deal to buy Raise Bio in a bid to bolster its cancer drug pipeline. It's the second deal in less than a week for BMY. Last week, remember, they bought Karuna Therapeutics for$14.1 billion. With Eli Lilly and Novo Nordisk seemingly locking up the obesity side of the market for now, is the rest of pharma ready to make lots of deals in cancer and beyond to try to get investors more interested in their stories. There's a lot more in this story, guys. And let's talk a little bit about the outperformance that we're seeing, Tim, specifically in some of the biotechs and biopharmas that are not at the bigger mega cap side of the spectrum.

21:42Many of those companies are the ones doing the outperformance. Yeah. And in the big picture, this could have been part of our conversation last block because you've seen health care really underperform. And if you look towards next year, if the world gets a little a little uglier, I think health care is going to do great. But IBB, the biotech ETF, very concentrated with some of the biggest names as opposed to the XBI. You have 900 basis points of outperformance to the IYH, which is some of the big cap pharma. Bristol-Myers, this deal, look, they've been on a bit of a spending spree. There's an argument they should be on a bit of a spending spree.

22:11I mean, I would make an argument that they've had some of the same challenges with less in the spotlight than a Pfizer, but people are questioning what's going on with the pipeline. Well, in a world where there's been GLP and everybody else, oncology. And then the radiology component of the oncology is what this deal is all about. And this is where I think people are excited about where they're looking out to 2030. But this is, again, four or five years out on a pipeline. And this is where, you know, valuation you can play around all you want with in the sector. I think IBB and I look at, you know, I look at the Amgens and the Biogens, and I think that is a safer place to be based upon both the balance sheet and where these guys have a better earnings profile.

22:49I mean, we're talking about a$105 billion company in Bristol-Myers, so we'll call it mega cap. And we're talking about$14 to $4 billion takeover targets, and that's where these stocks are doubling, right, like what we saw this morning. I wonder if the charts, are you seeing anything, Carter, there that says that it is going to be the mega cap IBB types, or is it going to be more the equal weight XBI types? And you both are raising that important point. The pure way to look at it is through XBI because its equal weight. If you look at that theme or that area of the market, it was the single most destroyed from the 21 peak to the lows.

23:23But it has moved up 40 percent from the low, matching the home builders because it's a small cap phenomenon. But it's also, well, if rates are going to be calming down, we can play with multiples more. But either way, I think one once, and you can see it here on that chart. I mean, a triple bottom, it's beautiful, the move above the trend line. And so the question is, do you play this momentum versus, let's say, KRE? I think this has legs, whereas something like Kerry, not so much. So you would rather smaller mid-cap, smid-cap biotech versus smid-cap banks? Hard to put any big dreams on banks, but you could certainly do that with biotech.