Stocks Sell Off As Santa Claus Rally Fades… And 2024’s Winners & Losers 12/27/24

0:02Live 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. Holiday hangover stocks limping to the finish after another blockbuster year. Is today's slump just a case of investors selling their winners or the start of real volatility ahead of the new year? We'll debate that. Plus, a winners and losers edition of America's favorite game is a time to keep names like Vistra and United Airlines or dump them for dogs like Intel and Humana. We'll spin the traded or faded wheel coming up. And later, charts of next year from a quantum leap to opportunities abroad to healthy returns, returning to health care.

0:37We'll go around the horn to find out what the traders are watching in 2025. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Courtney Garcia, Steve Grasso and Mike Coe. We start off with the search for the Santa Claus rally. So far, it hasn't materialized this year. Major markets off their lows of the session, but still all down to close out the holiday shortened week. The Dow's 333 point pullback, breaking a five-day winning streak. The tech heavy NASDAQ, the only index in the green for December. The S &P and Dow both pacing for their worst month since April, while the small cap Russell 2000 with its worst month in over two years.

1:11Steam coming out of the momentum trade in a big way, too. This year's best performers, Palantir, Vistra Energy and NVIDIA, all in more seeing outsized gains, excuse me, outside losses. Is this just a sign of profit taking after this year's rally, or is there more volatility and pain to come in 2025? Seagrass, so what do you think? You're a big believer in seasonality, and where is it? Yeah, so if you think about it, though, what did the market do from the election? We had tremendous amount of uncertainty. We pulled forward a rally. Market was up basically 8 percent. Bitcoin up 35 percent. So where do you go from here?

1:46I think everything gets pulled forward. So January usually what's the dynamic? January, half the month is positive. Half the month is negative. So flip a coin on that one. You have a new president coming in, lower regulation, lower taxes, pro-growth. So where do we go for here in the market? Higher. And if you think about where we started from in October, we had no clue, or I should say September, we had no clue where rates were going to be. So we had that surprise 50 basis point cut. Then the markets rallied. And then the market said, oh my gosh, let's hold back on the election. We have no clue where anything is going to fall.

2:27So let's just see where the chips are going to lie. The market said, let's buy, let's buy everything and anything and everything. And then who pressed pause on the rally? Powell. So when you start to really sit there and say, let me pull the reins back on the rally on the bulls. That's where we're at. Yeah. January 20th, obviously, is a big date, inauguration day. And we are just about 10 basis points away from this year's high in terms of yields in the 10-year Treasury. I mean, that can't be overlooked either. Yeah, and I think that's what investors have been looking at, right? So when you look at post-election, I think you bring up a lot of really good points here where all of a sudden there was a lot of this broadening and this breadth in the market, and that quickly reversed, right?

3:08Everybody had this risk on rally. They went right back to the MAG-7. But we are likely looking at this higher for longer rates. They're not going to come down as fast as everybody hoped. And that's really where you're seeing the market today. People are selling the MAG-7, which means they're taking profits from those things that have done really well. You're seeing a lot of your interest rate sensitive areas. So think of things like commodities, things like oil. Those are actually pricing higher or holding up a lot better in this market. And I think that is what you're going to start to see in early 2025, where I don't think this is necessarily a concern of where the tech trade is going forward.

3:36But are you going to see some rebalancing and see some profit taking? Absolutely. I don't think it's a bad thing for that longer term, but you absolutely want to have those inflation hedges. I think that's going to continue to be a story next year. And Mike, today, volatility, the VIX was up 8%. We can't overlook that on a Friday. Yeah, I mean, I have said before that sometimes if you think that a rally is overextended, that one of the things that you might want to look for are more of these sort of unusual moves where you're getting, you know, a one, two, maybe even a three standard deviation move in, you know, within a given day.

4:08I don't know that I'm really that concerned about what happened today. We've had a heck of a run, as Steve was just pointing out. I wouldn't expect to see a lot of people pairing their winners right before the end of the year if it's in taxable accounts and institutions don't typically take them off their sheets, you know, right before the end of the quarter, they're winners, that is. So I think I'd be more inclined to be concerned about some selling in those winners. I think we're just in a relatively thin period here between Christmas and New Year's, and that could be contributing to it a little bit as well.

4:37I mean, if we get too many of these days, though, stacked up where we get these big moves on a relative basis like we saw today and like we saw earlier, then I would get a little bit more concerned, Two within the last 30 days, 45 days, not a big deal. But you start getting up to four or five, two-plus standard deviation moves. And typically that correlates to worse performance over the ensuing 30 days. All right. So in the month of January, as we look ahead, Steve, what are you expecting? So I would think that you start to see a little follow-through with the pullback that we've seen right now.

5:09And then you're going to start to see those wild horses being set free. What does that mean? Yes. Which stocks are the wild horses? you lost me. Yeah, I lost myself. But I figured if I stop right there, no one's going to hold me accountable. So I think you're going to see, unfortunately, I think you always get pushed back into the MAG-7 stocks. I don't think that the mid-cap, small-cap names are going to rally the way everyone wants them to. So you are still in the mindset of a pullback in the MAG-7 is a pullback to buy. Yeah, because even if it's almost, remember how we used to have the Fed put, the I'll put where why do people buy the Max 7 cash on balance sheet?

5:49So if you fear that things are getting worse with the economy, where do you go? You go for those stores of cash. And if you feel that you're in a high growth environment, you go for the highest growth companies. Either way, that points you to Max 7. Well, I thought you were going to say not just cash on the balance sheet, but secular growth, a growth story that is intact no matter what. And if you think about AI, you can make the case that that is an area that will grow, that will continue to be expanded, invested in despite economic times, because that is what the next thing is to, you know, capitalize on productivity gains, et cetera.

6:24So is that the mindset of your clients? Is that your mindset that MAG7 is great in growth and great as defensive play? So it's somewhere that we absolutely want to maintain exposure to. but there's something we've been talking about for a while where if you have not made changes to your portfolio, most people are overexposed. I mean, we're seeing people at 40, 50 percent more than they plan to just because they haven't taken any profits. So they're saying, why would I do that? It's done so well. But I do think there's a lot of other areas of other opportunity. Like I think energy has kind of fallen off the sidelines.

6:52A lot of people aren't paying attention to. But that's one of these huge beneficiaries of artificial intelligence, right, where they need the energy for these data centers, for electric vehicles and all these other items that there's just not enough on the grid. So I think there's these secondary beneficiaries of artificial intelligence, which are much cheaper. But I think as you have all that cash on the sidelines, which Steve points out, there's other places to add it. So I want to own the MAG-7. I'm not bearish on it. I just want to get this broader rally, and I want to have a broader portfolio in order to take advantage of that.

7:20Yeah. Mike, are you looking to rotate, pair some of the gains in MAG-7 and move it to some of the underperforming areas of the market? I mean, Courtney had mentioned energy for the year, a laggard, materials, a laggard, staples. Yeah. And health care, a laggard. I mean, so I mean, yeah, I mean, actually energy and health care. First of all, health care is a segment. And, you know, I think we're kind of front running some other things that we probably want to talk about here a little bit. But, you know, the fact is that this has basically been dead money now for, you know, a couple of years. And, you know, the multiples haven't expanded.

7:53And there's some reasons for that. Some of these areas are under some some pressure and are kind of, you know, not very well liked. But I have, you know, it's going to be a bigger segment of the economy in 2030 than it is today. And so if we're thinking that it's going to be 20 percent of GDP, kind of have to own it. And, you know, it's going to continue to grow. And some of these companies are actually looking pretty cheap to me. Let's move on to banks here. The KBW Bank ETF is up almost 34 percent in 2024 on pace for its best year since 2011. Our next guest thinks M &A could be a big driver for the group in the new year.

8:24Let's bring in Chris Maranak of Jannie Montgomery Scott. He's the firm's director of research. Chris, always great to see you. So you are a believer that less regulation, a lighter touch, that's going to allow a lot of bank M &A. What kinds of banks are going to join? I think the banks less than$100 billion, Melissa, are much more likely to merge. I think the big mega bank deals are going to be hard to do. We may eventually have that happen in the new administration in another year or two. But I think below the$100 billion line of demarcation, there should be a fair amount of activity. And I think what we've seen the last two months actually is a pretty good precursor of that deal activity.

9:02The last two or three months in terms of which deals? In terms of deals announced in late October through mid-December. There's been a fair amount in the small and mid-sized banks. So when you take a look at the landscape, how are you thinking about how the deals would be pieced together? Will it be geographically? Will it be kinds of lines of business, the banks that have a troubled real estate portfolio, all of the above maybe? I would say it goes back to deposits. Deposits are the lifeblood of the industry. You have great organizations around the country who have excellent deposits that could get you into the southeast, into the southwest, perhaps in California.

9:39There are very good places where banks can take that funding and lend it out to a greater rate and make a bigger spread the next five years. At the same time, you're also taking out costs, and that cost takeout is very meaningful to earnings in the long run. Hey, Chris, this is Courtney here. So when it comes to banks, we do get a lot of questions from clients where they're saying, how much really should I be concerned about rate pressure and the fact that rates may not be coming down as fast as one had originally hoped? And is that something we should be concerned about with the banks? Or is the fact that the yield curve normalizing better for the banks and maybe this shouldn't be as much of a concern?

10:11Like, what would your take on that be? So I think, first off, the 100 basis point Fed cut in the sense of September has been huge for deposit and funding costs. You're going to see that in better margins in Q4 and Q1. I think the yield curve turning positive the last three weeks is a big plus. It's going to improve investor confidence. It's going to bring more money back to the sector. I think overall, the Fed slowing down the easing is probably bullish because it allows banks to reset loan yields at a slower pace while their cost of funds has come down much faster. That's where the margin expansion is really happening.

10:44So, Chris, I just had a quick question on the HTM books. I mean, obviously, as the long end of the curve has sort of stayed a little bit elevated here, then obviously, if banks are looking to merge, that's going to be a meaningful concern, something that they probably look at more meaningfully than sometimes investors even do. Well, you're correct. And in fact, this quarter, as we finished on Tuesday, we should see the marks go right back to where they were at the end of June. We're sort of doing a complete reversal of the positive marks in September. But at the end of the day, the banks are seeing pretty good payoff of the HTM portfolio.

11:15A lot of those are in residential mortgage banks that are paying off about 10 to 14 percent per year. So those are coming off slowly but surely. A lot of the high issues on marks that were hurting banks from the 2020-21 purchases have started to come down and are active. So the marks are important on the deals for sure. But I don't think they're going to threaten the transactions like they would have 18 months ago. Wells Fargo potentially could have its asset cap lifted as soon as the first half of next year. Chris, that's been reported in Wells Fargo. We've seen the stock respond to those reports.

11:51And I'm wondering if that if that clears away in your view for some acquisitions, even if it's smaller acquisitions just to bolster the deposits or other lines of business. So I would see Wells doing other lines of business before they jumped into the banking. They've got a great deposit franchise around the country, really low cost of funds. I see them adding other business lines before they went back to banking. But if you think about the next three or four years, could Wells do a bank acquisition? Sure, they absolutely could. I'm just not sure it's going to be a 25 event. Chris, what are the minefields?

12:24We saw the regional bank collapse a couple of years back. What are the minefields that we're not paying attention to now that could create some chaos? or is the rates issue off the table for them and it's an all-clear sign? Well, I think at the end of the day, the banks have to grow and they have to have some type of positive loan growth to really maximize the lower funding costs and get margins to expand. We see loan growth in the 3 % to 4 % range for the big banks and 5 % and 5.5 % for the mid-sized banks. That's sufficient. I think you do have to achieve that growth to be successful in the industry.

13:00The other landmine I would point back to is credit. Credit's always the issue in this industry. And whether it's commercial real estate or C &I or some surprise on the consumer, we have to be mindful of that. The good news is the banks have great earnings. They can cover loan loss provisions if they need to go there. Right now, it's been pretty stable the last few quarters on losses. But if we get a surprise, the earnings are there to cover that. That's really the silver lining for the industry. But that credit landmine is always something to pay attention to. Do you think regionals next year can match their performance this year, Chris?

13:32I think they can because of the M &A theme and the attitude that the investment spread business has improved. Overall, the lower cost of funds is such a big deal for the industry. That really was threatening the industry in 23 and first half of 24. So I think they can. I think the multiples are still low relative to history. We're still, you know, roughly 60 percent of the S &P. There's a lot more that can happen there on a relative PE. All right, Chris, great to speak with you. Thank you. Thank you. Chris Marinak of JANI. Mike Coe, you were asking about HTM held to maturity portfolios. Obviously, Bank of America was one that really felt the pressure from its own portfolio.

14:12And I'm wondering where you see the problems here, if any. Yeah, I mean, obviously, Bank of America amongst the money center banks was sort of the worst one. When we think about sort of the big disasters in the regionals, that was often where the trouble was. Silicon Valley, of course, that was a big part of their problem as well. But speaking to Chris's thesis that this could continue, if you just take a look at the regional bank space, obviously, they've had a good run recently. But take a look at where they are in the long run. They're basically dead sideways to where they were in 2017 or thereabouts.

14:45So if they do catch fire, there is a lot more room to run than what we've seen over the course of the last 12 months. You know, when you look at the regional bank index, KRE, it's up 15 % or 16 % year to date. Then you look at the bigger banks, XLF, up 30%. Look at JP Morgan, up 40%. So why do you have to make it complicated? Because I think there always are more minefields in the regional banking industry. You might have more upside potentially if you pick the right one, but there seems to be a lot of unknown for me. And when I really look at this, what's going to improve? M &A. And if M &A improves, you're going to get the likes of Goldman Sachs and Morgan Stanley do better.

15:28I'd stick with Goldman. Yeah. It's funny. You actually stole the words right out of my mouth. I was going to say I think that one of the biggest beneficiaries here would be something like a Goldman Sachs because we talk about M &A. Who's going to be the buyer? Who's going to be the seller? Who's doing all those transactions? That's a Goldman Sachs. And I think they're arguably one of the biggest beneficiaries of less regulation and more M &A with the new administration coming in. So I like the bank space a lot here, but I think that's going to be one of the biggest stories. I think it's absolutely something you want to play here.

15:50All right. Coming up, energy's New Year's resolution crude still negative in 2024. The XLE just barely in the green. But can energy turn over a new leaf in 2025? Gas buddies Patrick DeHaan will join us next for the oil outlook. Plus, a record year in the options pits. The name's taking volumes to new heights where traders are poised to focus after the fall drops. Don't go anywhere. Fast Money's back in two. This is Fast Money with Melissa Lee right here on CNBC.

16:26Welcome back to Fast Money. The average price for a gallon of gas briefly falling below$3 on Christmas. That's the lowest cost on the holiday since 2020. Prices on average have been on the decline in the past five months. That's according to GasBuddy. for what's next for gas, energy and oil in 2025. Let's bring in Patrick DeHaan. He's the head of petroleum analysis at GasBuddy. Patrick, great to have you with us. Yeah, good to be with you. What sort of surprised you is your prediction that WTI would actually be lower by a couple dollars or so. What are the dynamics behind that? There's going to be a lot of cost pressures on WTI and oil prices in the coming year.

17:02And make no mistake, I think it's well known right now, President Trump's drill baby drill mantra, But there's a lot of other question marks surrounding OPEC. They've obviously been cutting production continuously since 2023, kicking the can down the road now to April of 2025 to resume that oil production. So there's about 5 million barrels of spare oil capacity globally. And that's keeping a lid on oil prices currently. We expect that will likely continue into the new year. In addition, the Chinese economy, which may be turning away from oil as they accelerate their EV transition, is likely to see a lower demand for oil in the year ahead.

17:38So overall, the price of oil, we're expecting it to be modestly lower in the year ahead. There certainly are some risks with the potential of tariffs. But at least on oil, I think things will be pressured, especially when you consider that OPEC's fair capacity that lies dormant for now. How how how should we factor in the administration and their sort of push for less regulation, fewer cost fees, et cetera, for producing oil and gasoline? I mean, how does that factor into your forecast for gas products and sort of the downstream? Well, especially for the midstream and downstream, pipeline operators are probably going to have a more conducive atmosphere for more mergers and acquisitions.

18:19Even on the upstream, you could see a little bit more consolidation, as well as the downstream towards retail. There's been a lot of talk of major acquisitions at C-store chains in the past year. I would expect that to accelerate. And so I think for the midstream and downstream, the future is rather bright. In fact, downstream retailer margins have been above average ever really since the COVID pandemic. So midstream operators, pipeline operators and C-Source themselves are likely positioned to take advantage of what could be a very positive environment for doing business. Of course, those risks aside, there's a lot of, as you mentioned, deregulation likely coming, a more fruitful environment for some of those mergers that potentially have been waiting the last couple of years.

19:01Patrick, only because you brought it up, OPEC, are they even really something we should pay attention to anymore? Or if you look at the U.S., Brazil and Canada, they basically produce the same amount as OPEC. So in a lot of ways, we've circumvented what OPEC's reliance used to be. And with China sort of, as you stated, pulling back with most of Europe in recession, is it really even something to be concerned with? Well, you know, I think there's a lot that we're keeping an eye on. But when you come to it, OPEC's relevance likely has been reduced. I mean, they're continuously fighting lower oil prices today, WTI at about$70 a barrel, really struggling to get anything above that level and hold it.

19:48And we still have this potential of OPEC increasing production again in April of 2025. It would not surprise someone if they continuously push that to July or potentially all the way to the end of 2025. But as you mentioned, Canada is producing more. I think there's a lot here with the mix of potential tariffs that Trump has threatened to put on Canadian and Mexican crude oil of up to 25 percent. How the door could open then for potentially a Keystone XL pipeline to be resumed if TC Energy even wants to see something like that. So there's a lot of potential wild cards here. But really, ultimately, I think next year could be a bit more of a struggle for the upstream than it would be for the downstream.

20:26So given all that, Patrick, what's your outlook for gas prices at the pump next year? Well, I think an environment which is going to be weaker for crude oil is likely to deliver good news for consumers. In fact, next year, while we put our final numbers together, it's looking rather optimistic that aside from some of these risks, the talk of tariffs or unexpected geopolitical tensions that, broadly speaking, U.S. consumers are going to face a 2025 with relatively lower gasoline and diesel prices. And that's good news for companies like airlines as well. Any large end consumer should be fairly happy the environment we are looking forward to in 2025.

21:02Patrick, great to speak with you. Thanks. Thanks for having me. Patrick DeHaan of GasBuddy. Mike Coe, how do you want to trade this? A lot to go here in terms of the names and the stocks. You know, I think that as far as the sector is concerned, you know, it is one of the sectors that I think could be potentially poised to rebound. Look, you know, in the Biden administration depleted the SPR or depleted a lot of it anyway in mid-22 ahead of the midterms. And Trump criticized that at the time. And I can kind of see if OPEC or OPEC plus countries essentially decided that they were going to go forward and get rid of those production cuts that they have in place that he was talking about being suspended until April.

21:39If the prices fell substantially, I would hope that they would talk a little bit about potentially putting a little bit more back in the SPR. And that could actually create a measure of support. We'll see if that happens. But to me, I think that that's a potential area of stability that we haven't really mentioned yet. Yeah, and I think the idea that gas prices are lower is a very good thing for the consumer, right? Because everybody's saying, is the consumer too stressed out with higher inflation? But if we have lower gas prices, that is going to help. But also, when you look at a lot of these energy companies, things like an Exxon or Chevron, their break-evens are so much lower, right?

22:10It's like$30 to$50 a barrel, depending on the company, that we don't need oil prices to go higher for them to be profitable. They have just had to become so much more efficient. So I think this is a good thing for a consumer. It can continue to be a good thing for the energy companies. But I think China will continue to be a big part of this story. Who's the largest importer of oil? Now, he actually pointed out how they use a lot more EVs, so less demand towards oil. But they have a higher percentage of oil for industrial production. So if any of their stimulus actually does come to fruition, I think that actually could be the catalyst that pushes it higher.

22:39So I think that is something to watch here. All right. There's a lot more Fast Money to come. Here's what's coming up next. It wasn't just the S &P hitting records this year. Options volumes surging to new heights with some key names leading the charge. How options traders are positioning for the new year next. Plus, 2024 is nearing an end. And there are some standout leaders and laggards in the market. Did you stick with winners in 2025 or bet on a comeback story for the new year? You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.