Stocks Sink as Fed Dashes Hopes For a March Rate Cut, and What Happened to New York Community Bank? 1/31/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. Yes, we're back. This is Fast Money. Here's what's on tap tonight. The Fed in focus. The central bank throwing water in hopes for a March rate cut and sending stocks to their lows of the session. The Nasdaq seeing its worst loss since October will break down all the headlines and what they mean for your money. Plus, a regional route. Shares of New York Community Bancorp seeing their worst day on record as the lender swung to a loss and slashed its dividend. What caught investors so off guard and what ripple effects should we expect in the rest of the sector?

0:31And Novo Nordisk leaps to a new all-time high. Google's parent fails a key level test, and one of our traders is checking out their target stake. The reasons behind the trade coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feinerman, Guy Adami, and Michael Cantopoulos of Richard Bernstein Advisors. Welcome, Michael. We start off with the Fed warning that cent stocks stumbling. The NASDAQ falling more than 2 % for its worst day since October. The S &P down more than a percent and a half its worst day since September. And The Dow shed over 300 points.

1:01And take a look at the 10-year, closing back in on 3.9 percent. It was almost 30 basis points higher just last week. The moves coming after Fed Chair Jerome Powell suggested the central bank has no plans yet to cut rates with inflation where it is. CNBC's Steve Leisman joins us now with all the headlines. I don't know. I feel like it shouldn't have been such a surprise. And yet here we are, Steve. Yeah, sometimes when the market hears it, it's a different story from what it otherwise has heard. The Fed sending stocks and bonds, Melissa, lower as it slammed, the yields lower, obviously, as it slammed and opened a series of doors when it came to interest rate policy today.

1:36Let's go through it. On the issue of more rate Ikes, just about closed that door, saying no longer talking about additional policy firming. On rate cuts this year, it opened that door pretty definitively, saying they were coming, but not yet. On March cuts, just about closed that door. Not quite entirely shut, but mostly. Market reaction was fairly muted until Fed Chair Jay Powell in the press conference shut the door to the March cut, saying the Fed needed more confidence. Inflation was headed to the 2 % target, even while it's been there for six months. Based on the meeting today, I would tell you that I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that.

2:17But that's to be seen. The probability of a March rate cut sunk from nearly 60 % earlier today to 35%. But futures market trade is if a May or a June cut, you can see there, is a near certainty up near 90%. And there's more. I'll get to that now. While markets have now priced in later cuts, they haven't much changed the outlook for how many cuts will happen this year. The year-end funds rate is trading at 386, or just about six-quarter point hikes still in play this year. Now, that would mean if the Fed doesn't go in March, it will start off doing 50 basis point cuts to meet the market. And the market is pricing in now a one-third chance of a 50 in May and a 46 percent chance of one in June.

3:00So the market is saying the Fed and Jay Powell are probably making a mistake by not going in March and they're going to have to catch up later. Melissa? I'm just, that's mind-boggling to me, Steve, that they're going to price in 50 later on. In terms of the statement and what stood out to me was the change in language surrounding the description of the banking system. There was language in it before the bank. And with New York Community Bank now on the radar, I'm just wondering how you perceive that change. Yeah, it might have been one of those things where they jinxed it on the very day that the Fed removed that concern about bank tightening.

3:36You did have concern with New York Community Bank that sent earlier in the day the whole regional banking index lower, as well as raising the probability of a March rate cut. So that was interesting. They did it today. We'll have to see if that goes on and creates other issues that are out there. But overall, Melissa, I like your comment at the top. It was pretty well expected. I will say I was surprised that Powell shut the door so definitively on that March cut. But the result is that what happened is the market just said, OK, you're going to give it to us, but you're going to give it to us later.

4:10So the net effect on financial conditions was really not to loosen it much at all. Steve, take your journalist cap off and put your economist cap back on. This reinversion of the yield cap, I mean, it is confounding a lot of people. I mean, it felt like we were going to flatten out and choose tens. Now we're reinverting. Does it mean anything to you whatsoever? It does mean something to me. And as you know, Guy, I had the party hats and the kazoos out not too long ago for that 210 disinversion. It didn't happen. It got really close. You can see it there on the chart. It was as close as minus 14.

4:47Now it's back down to minus 28. I think it would be helpful to the economy if the Fed were to disinvert the yield curve, create a positive slope, would make it easier for banks to lend. It would also dissipate some of the concerns at the regional banks. But the Fed is saying, you know what? That's a risk we're going to take because the need to stamp out inflation definitively is much greater than whatever might be happening either at the banks or the negative effects of an inverted yield curve. Hey, Steve, it's Tim. I like you in your journalist hat and your economist hat, whatever guy says. I put my music hat.

5:20It's more important. Well, there's no one better in that hat. But how about Powell's upgrade of the economy? What do we think about that? And because we're going to boil this back to an equity market that was disappointed today. But, you know, in the economist hat, what do you think about that? Is that is that is that a surprise in the face of what people are actually looking for reasons why they might cut? No, Tim. And I'm glad you brought that up, because really, I tried to ask a question about that. I'm not sure I got the bestest answer. I'm not sure I asked the bestest question, I guess I'd say.

5:52But here's the story. The Fed has this situation where growth is relatively strong, despite the huge rate hikes that have been out there. That says that maybe they're not really restraining the economy that much. On the other hand, it has inflation coming down, which tells you that it's having an effect. He said, by the way, that he expects rate hikes to have a greater effect as the year goes on. So the Fed does have this dilemma, and it's talking about risks being balanced. But when you see where they side for the moment, they're siding on being extra double careful that inflation won't reignite.

6:30Is that the right call? I don't know. The real question here, Tim, how long how big is the window for the Fed to really make that decision? Is it something the Fed needs to do relatively quickly? Or is there a situation where if it doesn't act soon, the easing it will provide the economy will take too long to work into the economy? Right now, the way Powell looks at it, as you said, he said the economy is strong. He's taking that and saying, I got time to be opportunistic about reducing inflation. Hey, Steve, Mike Cantopoulos here. Quick question on, you know, sounded like Powell became a bit more data dependent today.

7:08I know he mentioned that during the presser. If you're data dependent, how can you take March off the table, say you're not going to hike again? I mean, it sounds like, you know, there weren't data dependent at all. Any thoughts on that? Mike, I think that's a good point. I think what he's saying is I'm data dependent, but I'm depending on more data. I think that's the way to put it. And maybe I'm just helping him out a little bit here. What he said continuously was we need more. We're confident, but we need more confidence. And, you know, we're all sitting there as journalists in the room, kind of raising our arms and saying, hey, Jay, you got six months, two quarters of inflation, the PCE, core PCE being at two percent.

7:50The three month is even better than that. Even the service sector one that he follows so carefully is coming down. You think it's enough. But then again, you know what? You're on the line for the trades. He's on the line for the policy. I think what you're hearing him say is I the one thing I don't want to have happen here is have inflation come back and have to reverse course, especially, by the way, I wonder if the election plays a bit of a role in that. It's pretty a bad situation, I think, if the Fed were to reverse course in the middle of an election. Better to be really sure that they're going to be going in the right direction.

8:23He did talk about a process. He used that word, a process, which tells you that they're not thinking about just one cut once they start. So he doesn't want to, you know, whatever the word is, let the monster out of the cage until he's sure that he's got it under control. Hey, Steve, it's Karen. I've been sort of surprised at how strong GDP was and sort of continues to be. How do you think about productivity or is there some other something that's going on that would explain this? It's hard to say who's asked the better question here, but that's my favorite one for sure. They've all been great, but the productivity story is one I don't know if we're talking enough about, Karen.

9:04You want to be really careful because the productivity data is something that is very volatile, So quarter to quarter, month to month, even year to year. But it does look like something is going on underneath the surface of the economy when it comes to productivity, where we're just producing more stuff with fewer workers and the workers who are there are producing more. I think it's early days for AI yet to be talking about that. But it does appear as if productivity certainly, after concern a year or so ago, has come back to the pre-pandemic trend. And it may be that it's moved higher. I'm starting to read some interesting data being put together by Steve Davis, who is a work-from-home absolute specialist when it comes to it.

9:44And he thinks part of the productivity story is linked to work-from-home as well as other things that are going on in the economy. So I would just say, Karen, I think you're on the right track. Watch that space very carefully because it could be extremely consequential for stocks and the broader economy and, of course, inflation, growth, and employment. Steve, thank you, as always. Pleasure. Steve Leisman coming to us from D.C. So let's talk about this market reaction. And we referenced this at the top. It was almost like, why are you so surprised? Yet here we are. So if we're offsides when it comes to now Powell shutting the door on a March cut, how offsides are we going to be later on when the Fed doesn't cut 50 basis points?

10:22We're looking at through the lens of the Fed announcement or the commentary caused the market. I guess you could. But, you know, the VIX was elevated long before the Fed presser today, right, or Fed announcement, which we've had that conversation on our call. And I think the market was looking for an excuse. And we talked about earnings last night. So you could absolutely cast blame on this Fed presser today and all the commentary out of it. I would submit to your earlier point, it shouldn't be a surprise. Maybe there's something else going on right now. What do you think, Michael? What great minds at Richard Bernstein advisors say about this market move?

10:54You know, let's put aside the market move for a second. I think it was completely irrational for the market to be pricing in such a high odds of a cut in March. So that certainly did not surprise us at all. I still think it's completely irrational that the market's pricing in six cuts till the end of the year. I mean, that doesn't seem to make a lot of sense to us whatsoever. The way that I look at is what's the higher probability, right, with GDP humming at 5 percent in Q3, 3 percent in Q4? You know, the consumer is still strong, profit growth accelerating. That we're in recession, that causes the Fed to cut, you know, six times or that maybe inflation stagnates.

11:29And I think that's what Powell told us today. The higher probability is that inflation hangs out in that sort of 3 % range, not that we're headed to recession. And the markets maybe haven't really woken up to that yet, you know? Well, to me, the move of the day is the bond market. The move is the 10-year. And if you look at a 1.2-point rally in the 10-year, that's not an environment where the economy is a little stronger and where the Fed has essentially upgraded the economy and things are, okay, we're pushing it down the road a little bit because we'd rather risk waiting a little bit longer. That's a market that's doing two things.

12:04First of all, I think some portion of that is New York Community Bank, and we're going to talk about that. But some major part of that is the Fed is actually going to wait way too long and push this thing over the hill. And that's really fascinating. And over the hill meaning recession and actually put too much republic. The lower inflation goes and the more Fed funds stay at these levels, everybody knows this, but I'll say it clearly, it becomes much more restrictive, right? And there's a dynamic here that people are concerned that the Fed, what they told you today, the two things I heard, and we just said it, the labor market's too tight and we're not at our inflation target.

12:38They couldn't have been clearer about that. So the bond market to me says that Fed is not even close to doing what we want. It's not that equities have a bad backdrop here. It's that equities, the S &P's rallied 20 percent since October 26th. And we've had a great start to the year and everybody thought the Fed was not going to be a factor. It seems like for a while now, we have assumed that the long and variable lag effects of the rate hikes have come and gone. But today, he really opened the door to, you know what, policy is going to, you'll continue to feel it as the year goes on. So that's still the wild card here, or a wild card at least.

13:11One thing I thought was odd, I think that bonds were already moving. By the way, congrats for having the best question. Oh, thank you. No, no, no. It's usually how it goes. It's usually how it goes around here, by the way. It's always Karen, but anyway. Well, so the bonds had already moved yields lower, bonds higher before this came out. So half of that move already happened, right? So I don't know that this, what seems like a big move in the bond market, is actually that big. I'm not quite sure. I agree with you that we were set up for some kind of pullback. The market strength over the last month has been, to me, quite surprising.

13:48You know, and then last night you had earnings that were good to very good that were met with kind of ho-hum, right? You got to show us something new. And so it's not surprising that we would have this, what should have been even a bigger sell-off in the triple Qs. I mean, they were off a lot, but if you think about how far they've come, I don't know. Sometimes it's just, it might not be this particular thing that caused the sell-off, but we were absolutely due for some. And if this is all there is, I'd be surprised. I would think, you know, the bar is still high for earnings the rest of the week.

14:19All right. Speaking of earnings, let's get to Qualcomm here, giving up earlier gains now after our session lows, even after the chip company reported a beat on the top and the bottom lines for its latest quarter. The earnings call is happening now. Christina Parsonevelis has got all the details. Christina. Yeah, it's happening right now in the building that I'm in. But let's talk about that revenue beat. It included handsets as well as the auto business, but it's Internet of Things. The IoT business actually fell 32 % quarter over quarter, which is quite negative, and a trend that we also saw from AMD yesterday.

14:49Guidance was largely in line with estimates, too, so that could be contributing to maybe the stock drop that we're seeing. But on the earnings call right now, Qualcomm's CEO announcing that they are extending their licensing agreement with Apple, licensing, until 2027. So that means Apple is not only using Qualcomm chips in its new phone through 2026, but it's also going to utilize its licenses until 2027. Separately, not to confuse our audience, Qualcomm announcing a multi-year agreement. I asked specifically what multi-year means, they wouldn't tell me, with Samsung to provide smartphone chips for their premium smartphones starting from 2024 this year onwards.

15:26So like Apple, Qualcomm now has partnerships with Samsung for chips and licenses. I caught up with Qualcomm's CFO maybe about 40 minutes ago who said the beat was driven by their premium-tier smartphone business. They're noticing customers are just willing to dish out the dough on smartphones as they become personal computers, personal TVs, and they believe that willingness to spend more on phones will help drive generative AI to the edge, you know, PCs, smartphones, etc., and offset any slowing smartphone replacement cycle that we're starting to see now. But I'll have all details about that and much more with my interview with Qualcomm's CEO.

16:04It's an exclusive on CNBC at 7 p.m. Eastern time on Last Call. All right, Christina, thank you. We look forward to that. Christina Parts Nevelis at Qualcomm headquarters here. So why is the stock down? Everything that Christina had mentioned would seem to be positive the stock is cheap. It's underperformed the SMH for the past 12 months. Why this? Well, I needed, I mean, I just was looking at this because it was a 51 percent from October 26th. Just the recent run. 50 percent. It added half of its market cap. In other words, it became almost one half more of a company. Anyway, sorry for the pedantic here.

16:37I just think we've gotten to a place with a lot of the semiconductors. Qualcomm, different than the AI, although, you know, bulls in this stock have a 25 AI smartphone dynamic priced into this thing right now. But you really had a dynamic where we already heard that the smartphone market was even doing a little bit better than the seasonals and that you had this this inventory pulled forward by a lot of the supply chain. I think that's in the price. There was nothing bad here. I don't think you need to run out and buy it. In fact, I think a lot of people are hoping chip stocks pull back so they can buy them.

17:07If you look at the August, go back to August of 2022, we traded up to 154 and failed. This is where we got up to about a week or so ago. But Tim, the quarter was so good that I think people were expecting the second quarter guidance to be somewhat commensurate with that. It was not. So I think the second quarter guide might have scared some people on top of what Tim just said. Valuation, you can make a really great case for it. But to your point, it's run a lot. I don't think you're looking for reasons to sell it. You're looking for an area to buy it. And to Tim's point, it probably has a couple, probably a couple more dollars to the downside before you get there.

17:37All right. Coming up, no sign the weight loss drug boom is slimming down. Shares of Novo Nord is surging on its latest profit report. So will the pharma gains keep coming? We've got the details next. Plus, we are surrounding the big box trade. One retailer laying out some expansion plans. One of our traders is selling out another. Why she says competition could make this name miss the mark. We're back in two. This is Fast Money with Melissa Lee, right here on CNBC.

18:10Welcome back to Fast Money. Novo Nord is soaring to a fresh all-time high today after posting supersized fourth quarter results. The drugmaker's sales rising 36 % on a constant currency basis, boosted by the popularity of its obesity drugs. Novo now anticipating 2024 sales to grow by as much as 26%. Joining us now to dig into the obesity boom, Jared Holes, the health care sector strategist at Mizuho. Jared, great to have you with us. Thank you. I feel like everybody expected a gangbusters quarter. When does the rubber hit the road in terms of having to prove the stocks run? I mean, I don't want to say it's easy, but when there's more demand for your drug than you can make, it's pretty easy to meet expectations.

18:48Yeah, I think that's exactly what happened. The quarter, I actually didn't think it was so gangbuster. I thought it was good relative to expectations, slight beat. But yeah, I think the party line from Novo is that the demand, supply and balance favors them by a great deal, which it seems like it does. I feel like people still want to own the stock. Anecdotally, I hear that Zetbound is a lot easier to get a hold of. And Novo is saying that they're going to increase production of the lower dose. And I'm just wondering what your read is, because in theory, Lilly's molecule should be much more effective than Novo Nordisk.

19:21So are you going to see some sort of differentiation at any point? Like, when will you start thinking maybe people are opting for ZepBound over Wigovi? I think they are. I'm not sure what's more available where. I think it's regional and just based on the distribution cycle, things of that nature. But, yeah, the data for ZepBound is better. I think if you're a patient and you kind of are in the know in terms of what the weight loss data looks like and things of that nature, then you're probably going to opt for Eli Lilly's drug. If you don't really care, you just want something that's going to give you 15 to 20 percent weight loss, You probably just want to get whatever you can get your hands on, which was the case back in the fourth quarter is sort of the case now.

19:59I still think that, like, for the for the most part, this is a metropolitan area drug. It hasn't even gotten into the rest of the country, which is why Lily Direct came about. We talked about that earlier this year and things like that. So those are all the tailwinds, the headwinds at a certain point. They haven't been valuation one. But what's the next thing? What's the potential not existentialist, but derails these stocks in the short term? Competitive risk. Or competitive risk. It's as if there's two horses in this race. There's 70 drugs in Sullivan, 7-0 right now. Yeah, I think the impediment for the stocks to keep on going up would be one of two things.

20:36Pay your pushback to the extent where you start hearing from managed care, enough is enough. We can't take the influx of prescriptions. We're going to put barriers in order for people to get these medications. Or you start seeing pipeline failures, either at Lilly or Nova. Like there's a lot of anticipation that Eli Lilly is going to have this oral drug pretty soon. Right. There's going to be data for it this year. And that's going to be the next leg of the story for them as patients kind of wean themselves off the injectable. They go on to the oral. If the oral is not very good, if there's some safety issue, I think that stock takes a hit, too.

21:08And then obviously valuation. I mean, there are leagues above anything else in the peer group. So in totally unrelated industries, we've seen huge demand and then an oversupply. And so we're at that point now where there's this real choke point of not enough supply. How long do you think it takes to get that in balance? I think it's really tough to say, Karen. I think some of it depends on the international expansion. Right. This is a U.S.-dominated drug for them. In the meantime, Novo put in is putting in six billion dollars worth of infrastructure additions this year. Eli Lilly, three. So at some point when that comes on board and they can make enough drug, then the supply-demand conversation kind of abates.

21:50And I think the bar is definitely higher as we move forward here. Can I just switch gears just for the last question here? And that's the medical device makers, which reported earnings, and they were gangbusters, all-time highs today. And I was talking to Karen. I was like, you know, when you're hearing from insurers that medical loss ratios were higher because people were getting stuff done last quarter, it makes sense that these device makers saw great sales. And I'm wondering how much of that continues, considering the insurers are assuming that those loss ratios remain high? Yeah, I think, I mean, it's an impossible question to answer, honestly.

22:24You know, if United and Humana can't predict the future and have, you know, tons of actuaries working there and data supposedly, I think it's tough for the street to figure out. But I would say another few quarters of this. I think that's what the medical device companies are saying. I think that's the read-through for managed care, that we're at least for the first half of this year, Procedure volumes stay elevated. I think that's why the guidance out of Stryker in Boston has been so strong. But the key question is going to be when is it kind of start to go the other way? I feel like there's going to be a plateauing effect at some point.

22:57Maybe it's mid this year into the second half. And then we can kind of like figure out what to do with both of those groups. But yeah, MedTech on fire, managed care at the other end. All right, Jared, good to see you. Thank you. You too. Thanks. Jared Holes, where are we on these weight loss stocks? or? Well, you know, much in the way we've seen some of the same strength in the mega cap tech stocks, we've seen some of the same strength here and some of almost the consolidation within the rest of the ranks. I continue to believe the broader kind of value part of health care looks interesting. It looks interesting, one, because expectations are so low.