Stocks Rally Ahead of Fed, and Has “Wokeness” Derailed Target Stock? 6/12/23

0:01Right now on fast, bullying the bears. The S &P closing above 4300, ending the session at levels not seen since last April. The index nail up over 12 percent this year as investors await key inflation data tomorrow in a Fed decision Wednesday. Plus, off target, shares of the retail giant down over 20 percent in just the last month. Is the drop mainly due to the backlash and boycotts over its Pride Month promotions or fears about a slowing sales target and sluggish economy? And later, crude collapsing again to just over$67 a barrel. Tesla's winning streak reaches a dozen days and cruising to major gains as Wall Street says.

0:36Ahoy, matey. I'm Melissa Lee. This is Fast Money. We're live from the Nasdaq Market Sight. A full house tonight. I think I've never said that on the air before. Courtney Garcia, Karen Feynman, Dan Nathan, and Guy Adami. We start off with a new market milestone. The S &P 500 breaking past its August highs, closing at its best level since April of last year. The benchmark index now up 24 % from its October intraday lows. You know what that means, full market. The Nasdaq seeing even bigger gains today, rising more than 1.5%. The tech-heavy composite up 28 percent, more than already on pace this year, on pace where its best first half since 1983.

1:11Meantime, oil prices tumbling 4.5 percent, briefly trading below$67 a barrel, settling at its lowest price since March. All of this ahead of tomorrow's CPI report and, of course, Wednesday's Fed decision. So has the rally gone ahead of itself? And will this week's data bring investors back down to earth? Guy, it seems like if you want to fight the market momentum, it's been a really tough battle here. Yeah, it's been futile without question. I mean, fighting the Fed would have been being bullish, but that's actually being right and considering things since December. So, so listen, it definitely leaves me scratching my head.

1:44Are the numbers important tomorrow? Yeah. You might get a revision from April, by the way, and we'll see what happens there. But are the numbers important? Absolutely. In terms of the rhetoric, though, I don't even know if it matters at this point what the Fed does. You know, we're still going to try to feel the effects of 500 basis points of hikes. And that's been my problem all along. It's not necessarily the Fed's still in the picture or inflation is coming lower. We've all agreed that inflation is going lower. It's what is the impact of these rate hikes. And I don't think the market feels it.

2:11Certainly, the economy doesn't feel it either. Yeah. I mean, we could get the revision. We could get a number which makes the Fed not pause, which could be sort of the little tape bomb there. But if they don't pause here and they pause the next meeting, I mean, does that really make a difference? No, I don't think it does, actually. I mean, they've already done so many hikes. And if we're talking about 25 basis points of movement, I don't think that really matters. I think it's going to be much more about the commentary and what data they're referring to that made them want to continue or want to pause.

2:38We'll see. We'll have some big data out between now and then. I don't I don't know that it really matters as to this this rally. I guess it's don't fight the Fed in that the Fed is probably over ish right near the end. Right. And so the worst is behind you, I guess. But I was sort of surprised at the strength of this market today. Yeah. There's still a lot of question marks about the consumer, though, and the consumer could see a lot more pressure having to pay student loans every month. I mean, that's an additional pressure on top of high interest rates. Yeah. I mean, there's still a lot that's weighing on the markets right now.

3:12I do think that that's one of the items, which the consumer has continued to be pretty strong. They have been paying down their savings, so savings rates are not as high as they were previously. But the consumer's actually been holding in there a lot better than you've been realizing, and you're seeing that with a lot of your retailers. And you're ultimately, I mean, unemployment is still record lows right now. You have the cash to be able to sustain this. And I think if that is able to continue, you could still see this soft landing down the line. I think that's really what the markets are starting to price in.

3:38But I think what we need to see, which we're starting to see, is a much larger breadth in the economy or in the markets right now, where it's not just the top eight tech companies are doing well. We're finally starting to see that, which I think is a good sign. Yeah. I mean, to your point, I mean, you know, small gaps join the party. Right. And a lot of that has to do with a lot of the pressure, I guess, at least in the near term, being taken off some of these regional banks or some of these smaller banks. But but, you know, I look at this and I say, OK, the Fed, this is the rally, the breakout that we've had after we had that like surely tight consolidation over two months makes the Fed's job a lot harder.

4:08Right. Because we haven't seen the housing market weaken that much. We talk about the consumer. And, you know, to Courtney's point, I mean, the consumer is still there. Guy always says don't ever bet against their want to spend, that sort of thing. I mean, there's a lot of things in place here other than valuations right now. So you say it's pricing in a soft landing. I actually think we're back to like no landing sort of scenarios. I don't really see anything weighing on the markets anywhere. OK, I see the 210 spread being weighed on. I see that at 85 basis points. I think that a lot of bulls as it relates to the stock market are explaining that away and what that means.

4:39And it's interesting that if the market is going to take a little bit more of a I don't know what you want to call it. Let's just say the CPI comes in around 4%. Let's say we have what some perceive as a dovish sort of meeting. I just don't understand. If the stock market is going to rally off that, I don't know if that's a thing that you want to continue to buy. Now, I've said that for weeks, if not months right now. But I just don't think it sets up as a great scenario because any hiccups in the economy and the market is easily priced for perfection. And then all the weak hands that have come in doing the chase right here, that kind of gets sold sort of first.

5:16And then you could have this cascading effect of those eight big names that are all up 40 percent on average across the board that make up seven or eight twenty dollars in market cap. So I think the higher we go, the more dangerous it becomes and the more complacency we see in things like the VIX and the move index. I get every single point that you have made. But at what point does somebody with a bearish narrative of the market switch gears and say, you know what, this is the market we have. It wants to go higher. It is going higher. We trade the market we have. Right. And as I say it all the time, try not to be dogmatic.

5:43And I'm sure that people will say, well, you should practice what you preach because you're being exactly that. But I look at it and say, I understand the market's gone higher, but I don't think the market's gone higher because something has magically changed or the fundamentals have gotten better. This is completely sort of anecdotal. But CFO of KeyCorp today, for example, it's a$10 billion regional bank. I mean, they talked about net interest income being softer moving forward. I mean, some of these regional banks are still have struggles. The stocks have rallied, which has dragged up the IWM, the Russell.

6:11So I think people believe it's an economy thing. It's more people trying to play catch up in these regional banks. So your question is exactly right. When do you admit or when do you acknowledge you're wrong? Or maybe the world's changed. I just think the only thing that's changed is price. Is the belief in the AI super spend cycle, Karen, which you. I know. Shockingly. A few things you believe in. Yes. Does that change? Does that override some of the other concerns you might have about the markets? Yes. Yes, it does. Now, look, if we have a really terrible market, NVIDIA is going to trade badly.

6:40Right. But I don't think that changes the fundamental story. I mean, we'll get to it a little bit, but we're seeing, you know, Oracle kind of supporting that story as well. Right. Yeah. How about you, Dan? I'm not changing. I'm not leaving here, people. I mean, because here's the thing. OK, if you're watching this program, it is called Fast Money and you're trading. I mean, I've been trading for 26 years. I changed my mind five times a day on different trades, on the direction of something like that. But when you're investing, I mean, like, listen, you had all the time in the world in April and May to buy if you wanted to buy for a breakout.

7:10It wasn't a position that I took. It's not something that I believed in. OK, I did cover when we broke out of the index shorts because, again, the technicals were lining up pretty decently. So to me, though, I just feel like if you're a long term investor, you know, and you heard me on plenty of times last year when things felt really bad. My view was dollar cost average into the Nasdaq 100. That's the thing that you want to own over the long term, in my opinion. And that has worked out pretty well. But the idea of chasing a market right now, given everything that I think has the potential to go basically unhinged a little bit, like just wouldn't take too much.

7:45OK, for this to unwind, because I don't agree with you. I mean, you're right. You're long this stuff of whatever you think this upgrade cycle, this like I don't agree that that's really a thing. I think that goes on in tech all the time. And today, this is the thing that's happened. It used to be metaverse. It used to be crypto. It used to be. I mean, the thing goes on and on and on. And so to me, I just don't think that's something you want to pin too much of a broader macro theme on right now. I think it's working right now and is dragging up the market because the biggest names in the market happen to be the ones that perceive beneficiaries of it.

8:15I think, though, what you want to look at, too, is historically speaking, when you've had like five companies outperform the markets like what's happening now, the broader markets actually tend to do very well. I think it's about an average of 11 percent over the next 12 months, which means once the magnitude of these couple of companies come down, the broader markets actually tend to perform well. I think what you pointed out earlier is a really good point, is the bears are still out there. There's been this huge wall of worry. And Bank of America just did a study. I think there's about 6 % on average of cash in people's portfolio right now because they've been so nervous.

8:43And at some point, that's going to go in there and it's just going to push the markets higher. I just think you want to be in the general markets, not just those couple companies which are overvalued. Unless it goes into CDs. That's my question. Okay, here's a question for you then. Okay, for the next one year, would you put whatever amount,$1 ,000 into the S &P 500, or would you put it into a 4.5 % CD? What I would do is put it into the S &P 500. But yes, most of my clients who have cash right now are looking at CDs and treasuries because you're getting like over 5 % on those. I do agree that that is happening, especially from the retail investor standpoint.

9:15She gets dispensation. If I had played that the way she, you would have been right on my grill. But when Courtney does, it's okay. She can change the rules of the game as she sees fit. I didn't even notice. Of course you didn't. Because you're honed in when I do it. But it's all good when she does. Repeat violator over there. Our next guest believes retail investors should consider riding out the market momentum. Julian Emanuel is Evercore ISI's senior managing director. Julian, great to have you with us. Your price target is$44.50. So, right? You just raised it. Yep. Yep. So we're within striking distance.

9:48We are. And we made the point. And look, I think we have to acknowledge this. this conversation so far in the hour, is that this is an unusual market, a kind of market we have not actually seen since the late 1990s. OK, this is momentum taking over. This is, you know, really getting around the whole AI concept in an environment we're positioning. And this is actually quite remarkable when you think about CPI tomorrow as a risk point and you think about the Fed, even though it's pretty clear that the Fed is likely to pause and then probably hike once more in July. And the markets bake that in. But to think that there are record net shorts in equities, record net shorts in bonds, record, quote, unquote, longs in cash, and volatility has dropped to near zero, the lowest levels of the pandemic.

10:40Those kind of imbalances tell you that, and we made this clear in our upgrade, that it could, 44.50 could get here by the 4th of July. frankly, after today, we may not get there. We may get there before Father's Day. And from our point of view, where the market goes from there is dependent on how close we perceive we're getting to the recession that we think happens at the end of this year and into early next year. Julian, let me ask you, if we see a hot CPI number tomorrow, is that supportive of the market or is that a problem for the market? Well, it shouldn't be supportive for the market in theory.

11:19But the market doesn't care about that right now. Okay. So particularly since the basis effect is starting to hit. So the last year on year was 4.9. They're looking for 4.1 now. And frankly, if you look at consensus, it could go either way. But even if you were to come in a little hotter for 2 or 4.3, the bulls are going to say, okay, it's coming down. It's going the right way. And we believe that as well. We actually think that you could get a two handle on inflation by the time you get to early next year, which is clearly stock market supportive. But again, the market is moving on things other than macro.

11:58It's a lot of momentum, very difficult market and big difference whether you're an institutional investor or retail investor. The institutional investors who had pretty poor years last year, It was a bear market, as we know, and who are underperforming this year may be incurring business risk and have to participate in the upside. Whereas a retail investor, we've had this conversation. You're getting 5 percent on your cash. You don't have to do a darn thing. All right. Nice job on your call. But let me ask you this. Did the stock market at its lows in October and it really meandered around for the Q4 a bit?

12:34You know, some of the biggest stocks in the Nasdaq were making lows. OK, 52 week lows in early January. Right. And so we've had. this big rip. Does the pessimism that we saw late last year, OK, does it basically discount a recession? Because you think we're going to you just said you think we're going to be a recession by the end of this year. Is that already discounted? No, we do not buy into that. OK, which is why, again, this is a time that's fraught with peril, because the most important statistic we saw was last Thursday. The weekly jobless claim series broke out to the upside. If that continues, we will be much closer to the start of a recession than people commonly believe right now because they're being lulled by the market action into believing it's further off.

13:18That's the point to us where you will have maybe not all of the indices making new lows, but you'll have a number of them feeling as if they're going to. And it's really the same effect. Choose 10s went from 110 basis points to maybe 40-ish, back to 86 or so now. Is that telling you anything, or should we not even be paying attention? The noise around the yield curve is just monumental. From our point of view, we're working under the assumption that that 111 under was likely the trough of the inversion. Therefore, actually, if you look at history, starting the countdown to the recession, which gets you towards our view of late this year or early next.

14:04And the problem the market's having is there have been times when it happens concurrently. And there's a lot of things that say we should be in a recession already, but we're not. But then again, there's 1998 to 01. And it took almost three years for the recession to hit. So if the October lows was not, you know, if they did not discount the recession scenario, then where do we go once we do see a recession or just prior to it from your 4450? So so we think, again, that there is likely to be a period of weakness that at a minimum will challenge the floor that we've seen for the most part of this last six or seven months below 4000, probably 3800 in the S &P.

14:46Wow. But think about it. But it's politely that that's not I mean, that's down 12, 13 percent from here that, you know, it sounds like you're talking about down 12 or 13 percent in a fairly short amount of time. If the market gets carried away in terms of sentiment, we saw the bulls ratio breakout. We've seen volatility on the lows. That's where we worry about public getting bullish at 4 ,400, 45 or 4 ,600, where they'd be better advised to start thinking about lightening up. All right. Julian, great to see you as always. Thank you, Julian Emanuel. annual. Courtney, in that scenario, I'm just curious, would you feel safer in big caps or smaller caps, more undervalued parts of the markets right now?

15:33Yeah, we're actually definitely looking at small caps and mid caps, which are definitely a significant discount to the markets right now. And I do think you're starting to see those perform better. And I think you're going to continue to see that. So I would actually start to weigh a little bit more towards there, especially because when you look at the SPF 100, those top eight companies now take up over 26 % of the SPF 100. So it's so concentrated right now. I think you want to start to look to other areas. It's amazing. I mean, tactically, it's been an amazing call that Julian's had. So, I mean, it's effectively his target is we're here.

16:01He talked about the possible for momentum to continue, which makes sense. But he also outlines why you should be really worried about the back of it this year. I'm surprised it hasn't happened yet. That's the difference. Like, I thought we'd be here a long time before. We're not. And maybe it's this lag effect or maybe it's all this money sloshing around, Courtney saying. But it's something. Something doesn't really make sense to me right now. All right. Let's get to a market alert here. Check out shares of Tesla, Lockheed and A12. straight day of gains. That is the stock's longest winning streak on record.

16:28The EV maker shares up over 37 percent in that period, a whopping 145 percent since its January lows. I have to go to Dan. I don't mean to pick on you at all. But this is TSLQ. That was your acronym because. Yeah. I mean, listen, I'll just say this, that in late April after that quarter, which was not good by any means, and the guidance was not good. It wasn't just me. Now, granted, I wasn't selling it there after the fact, okay, there were some of the biggest bulls on the stock that were selling the stock. So it wasn't great. So what's going on right now from$150 to$250 in a month and a half is a mania.

17:05So if you want to buy into a mania, an$800 billion market cap mania that has declining fundamentals, have at it. You should go buy it right now because that's the market that we're in. You talk about trading the market you're in. That's it. We're things that are zeros, Like a Carvana a month and a half ago was up 100 % in a week. If that's how you want to invest in the casino, I mean the market, then you should go do that. But that's not what I do. And that's not what I'm going to do on this program. So like to me, I mean, this doesn't make any sense because the biggest bulls were selling it after that quarter.

17:38So you're not picking on me. I mean, you know, I got enough of those problems in my own portfolio, but it doesn't make a lot of sense. I mean, for a mania to happen in a market cap of this size is really remarkable. And it's one thing to talk about a Carvana or an AMC or any of these sort of meme names. But Tesla is a whole other ballgame, Karen. Yes, it is. I mean, I don't know what this this I mean, I guess you can point to a few specific things, but I don't even know if that's the reason why it's up. Right. Some people really like this GM deal and Ford deal for, you know, sharing charging. I don't know if that's it.

18:13I don't know if that Twitter is. Exactly. That Twitter will no longer be his central job, I guess. There's that. I'm not even sure. I think it's just more this market melt up. And this is very much in the story of what would be a market melt up kind of stuff. Affordability, the Model 3, I think a lot of people are factoring in without question. But, you know, you're going to have margin margins are going to contract. I mean, Tesla told us that in the fall of last year when margins were probably in the low 20s. They said margins will come down. We won't get to OEM legacy automakers levels, but it'll be somewhere in between where we are now and there, which is 16 percent.

18:51Well, we're probably high teens now. And at some point, they deserve a premium valuation. But if those margins continue to contract, what is that premium? I think that's the rub right now. Right. Although it is considered an A.I. play as well. So we'll be caught up in some of that hoopla in that sector. Coming up, we're watching Oracle After Hours. Shares higher after reporting results. The details from that quarter next. Plus, JP Morgan reaching a settlement in one of the lawsuits related to Jeffrey Epstein. We've got the details on the impact on the bank when Fast Money returns.

19:25Welcome back to Fast Money. We've got an earnings alert for you on Oracle. Shares moving higher as the company beat on the top of the bottom lines. Frank Holland joins us now with a look at the quarter. Frank. Hey, Melissa, just listening to the call right now. Actually, shares move higher during the call. Just now, CEO of Software Cat said that due to the company's strong pipeline, she felt confident in raising the CapEx guidance. Something to watch there. So the shares also appear to be moving higher on Oracle cloud growth, exceeding the guidance. OCI is seen as an AI-focused cloud infrastructure player.

19:55The 54 % year-over-year rise is also acceleration. Prior three quarters, between 42 % and 45%. But to keep in mind, Oracle has about 2 % market share. For context, the number three hyperscaler, Google, has 6 % market share. So two main segments here, cloud services and license support beating estimates. Cloud and on-premise license basically in line with the rounding error, according to our team. Same story when it comes to operating margin. Oracle also reported record revenue for the quarter. It's trading at about 22 times forward earnings. Analysts I spoke with call this a sleeping giant that offers some AI exposure with growth at an attractive valuation.

20:30Melissa, back over to you. All right, Frank, thanks. Frank Holland. And Karen, you're remarking that this was a pretty solid quarter. It was. I mean, for a couple of things, look at the run of the stock on the way to this quarter. Right. So that was a high bar. And then, I mean, they just showed acceleration. The higher sales at a higher pace. Right. So and then, of course, there's the funny quote about from Ellison about NVIDIA using their their GPU cluster, you know, of how much computing power that is. So it's additive to the story. I know you'll hate that, Dan, but I think that it is added.

21:06I mean, it's all additive to the story. I mean, like so Larry Ellison, you know, the chairman of the company, said they added two billion in incremental, you know, cloud. OK, and they just hit 50 billion in revenue. And so what if this is just a rush in the near term to secure those servers, to secure access to that compute, right, to do all these sorts of things? I just think that we have a lot of potential for that, you know, and I think that there is this kind of mania going on right now. So, you know, buy into it. Have at it. It's working. You know what I mean? It is a momentum trade. But if the fundamentals take hold in the not-so-distant future because the ability to monetize all of that doesn't, like, kind of, you know, does not show itself for a bit, you're going to have a bit of a problem in a stock like this.

21:48Some of the commentary is interesting because they did remark about how their customers were cutting costs wisely. And so somebody is feeling the pain, even though they're still spending on Oracle services and maybe services to other software companies. I'm sure we'll start hearing from those companies that were the unwisely. Right. So but listen, valuation, you can wrap your head around. We've talked about that for a while for Oracle. So it's not like you're reaching in terms of valuation like you are for some of these companies. And when you hear about 50 percent growth in terms of cloud applications and infrastructure, that's a big number.

22:20You want to nitpick a little bit. Operating margins were a tad light. That's the only thing not to like about it. But valuation in this environment is something you can actually rationalize. I mean, the stock should go higher. And in terms of IMLS upgrades, you saw one, I think, earlier today. You can start seeing more and more of these things over the next week. Yeah. 22 times forward for an AI play, Courtney. Yeah, I don't think it's an overly stretched valuation right now, but it's definitely part of this AI mania, right? I mean, people are looking for whatever the next big thing is, and they're kind of in the right place at the right time where they have extra GPU capacity, and that's what people are looking for.