Stocks surge as investors welcome Fed Chair Powell’s dovish speech from Jackson Hole 8/23/24

0:01Yes, we are live from the Nasdaq market side on Broadway in the heart of New York City's Times Square. This is fast money. Here's what's on tap tonight. Jackson Hole jump with four words. The time has come. Fed chair Powell.

0:30circuit, the summer surge, the forecast straight ahead. And later, salad days for Kava, glowing returns for uranium, and the traders bring us their most important chart ahead of next week's action. I'm Leslie Picker, in for Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, Karen Feinemann, Steve Grasso, Tim Seymour, and Carter Worth. Thank you guys for being here. And we start with the bullish setup for next week, the Dow, NASDAQ, and S &P 500 up more than 1 % today after Fed Chair Jerome Powell indicated rate cuts are ahead. The Dow climbing 462 points while the Nasdaq jumped 258.

1:04Treasury yields also falling today. Today's big winners included homebuilder stocks, Toll Brothers leaping more than 5 % while Lenar and D.R. Horton hit record highs. The gains coming on the back of new home sales reaching their highest level since May 2023. Small caps having a moment, having an outsized day today. The Russell 2000 soaring 3%. So can this enthusiasm carry into the final week of August? See if. Can it? Yes, it can. Will it? Not sure. September is the worst month on a seasonal adjusted basis for on a seasonality for the markets. And it's the worst month for semiconductors. So is this time different?

1:45That's what people will always tell you. There's a possibility is different. Election year cycle. We have a bunch of stuff that we've been waiting for. Is it priced in? We've been waiting for cuts. Now it's consensus, 75 basis points or 100 basic points cut. Is that enough to keep us going? I'm not sure, but we're at all time highs. We're probably have a little more left in the juice. Think about this one thing. Usually when you cut, that's a signal that the top isn't in the market. But you do have a couple of months before the market starts rolling over. Isn't it true, Karen, I feel like I've heard Mike Santoli say this on our air that usually that first cut is actually a selling opportunity because so much of it has been priced in.

2:28So much of it has been expected that it doesn't ultimately get filtered into the discounted capital models that investors are using. Yeah, I actually was surprised that the market reacted as strong. Like, you know, what was shocking in that speech? Not really much. Right. The four words that you did say that was OK, important. But we kind of knew we were there already. And I think the expectation of a cut is it's not 100 percent, but it's about as close to 100 percent as you can get. So I was surprised at the market's reaction. He was more dovish than I thought. But still, this is a pretty strong rally.

3:03That was sort of surprising to me. So maybe I mean, I feel like we front run the cuts a few times now. So I don't know what's going to happen when we actually do cut. Maybe he could just support the market with a cut and more dovish rhetoric. Yeah. And Tim, how much of it was just the overall confidence surrounding the idea of a need to pivot and just the fact that it doesn't seem like it's necessarily an emergency, that it's more of a pivot at this point in time? That's well phrased, by the way. Welcome, Leslie. It's great to have you here. And as Rod Stewart said, the first cut is the deepest.

3:38And I think the impact here is we got it. I mean, I think there's a lot there's a lot that is going to be not so great about what the Fed's doing. But for now, I am in the camp that says I don't see recession coming anytime soon. I I'm more worried about trends, both with the consumer trends, with margins that I think have markets looking at than all of the other macro tail risks that are out there. And a case where, yeah, I mean, I it's similar to, I think, the the kind of the analog that Steve's talking about. But I look at the move in the dollar and the dollar quietly is down now 5.2 percent from its peak in July.

4:14And this is in you can do the math on how many days. I mean, in terms of sessions, we're talking about 40 sessions or so. That's remarkable. And the rally in gold. So these are dynamics that are part of that broadening. Remember, rotation for markets at times is thought to be a positive term. And other times it's certainly the dynamic where the map doesn't always add up for the market going higher. even if you're rolling and the market is broadening. So today was obviously an important day. I still think the most important day we're watching is September 6th. That's the payroll number. That's where we're really going to get a sense.

4:49I think you could take a lot of this back if you got another poor print on payroll. And the sense will be that the Fed is behind. Again, I think there's certainly some noise in these jobs numbers. And from what we've seen so far, I don't think we're going to see that. But again, 10.25 % on the S &P from that intraday low on August 5th to where we are today. It's been a massive move. Yeah, Powell definitely signaled that the risk weighting toward the labor market is much more in focus than that of inflation. Carter, you've got every S &P sector in the green today led by those, not surprisingly, more rate-sensitive areas, real estate, consumer discretionary information technology, and even energy.

5:30Do you think that this is kind of what we can expect to see until we get those payroll numbers or more clarity, at least on the potential magnitude of those cuts in September? Sure. So I think the important development this week, and Tim was setting some of the big markets, rates and dollar before we get to the S &P sectors. And what's just to say, if you were to do literally a Google search or an AI search for when the phrase higher for longer first crept into the vernacular, it was about two years ago. And not once has 10-year yield closed above 5%. Not once. Not once. And it was only about four and a half for 13 weeks out of the last 104 weeks, last two years.

6:10That is gone forever. Happily, we can get away from something that never existed. And now with the dollar weakness, this all speaks to something. Is it just this Goldilocks moment and equus can go higher? Or, as you all were intimating, is much of this priced in? That's my hunch that the market has done a lot of lifting here back to or close to the highs. We know the equal rate index hasn't been made a new high today, but still a defensive year. Outside of technology, number one sector is still utilities, followed by gold year to date. Steve, of course, a lot has been made of the neutral rate.

6:46And it was Larry Summers who said today that he thinks the Fed's making a serious mistake by believing the neutral interest rate is so low, therefore misjudging how restrictive any given level of policy is. That's been a discussion as it pertains to the banks, and it's been a discussion as it pertains to just this overall cycle. Any takeaways in terms of just his overall legacy and whether, you know, he spoke a lot about just the transitory boat and all the different people who were in it. You know, what we'll be looking back on in a year when they're in Jackson Hole again? I think things are always transitory.

7:21It just depends on your time frame of what transitory is. I don't think he did a terrible job. I think he's done the best job anyone could have done in that seat. I think they're late. I think they should have been cutting. They should have been cutting probably in March because there's long and variable lags where it takes the tightening cycle to start hitting and long and variable lags where they start loosening money policy. So that has to that has to take place in the market as well. So I think we will avoid a recession or a deep recession. But I don't believe we're going to avoid a recession, period.

7:59How will he be remembered as what the Fed is always late, late in the beginning, late at the end? They have 400 economists there and they've never had a pression call. And that's not a dig. It's just not what economists do. So when I look at my portfolio, I'm looking to sell things right now, not to buy things right now. The Russell, the reason why the Russell's rallying is that 40 percent of the Russell needs variable rate financing. They need the market to come in. They need the interest rate market to come in. The percentage of unprofitable companies in the Russell is over 40 percent. In the 1990s, it was 15 percent.

8:36That variable financing was something that caught the attention of Dan Loeb and his investor note that came out today, talking about expectations for more volatility in the credit markets as a result of this phenomenon. Karen, I'm curious your thoughts, whether you think the Fed is kind of behind the ball, and if so, that indicates a 50 basis point cut. I mean, I actually don't think there's that much difference between 50 and 25. I think they'll do 25 unless things change. But I think he's done a masterful job, actually. If you think where we were two years ago, and Carter's talking about higher for longer, when higher for longer was firmly in place, The expectation of us having a recession by now, right, mid or getting into late later 2024, seemed highly unlikely.

9:17And yet here we are with GDP still healthy. Right. And I know employment has ticked up, but still at a very healthy level. And you have inflation coming down to their target. That's a pretty masterful job, I think. And so I think, you know, I think we keep saying, will he be able to soft land? He has. at some point, of course, we'll have a recession, whether he's there or not. That's just the way economic cycles work. We're not, you know, that cyclical business hasn't gone away. I think he's just done a masterful job. Good for him. It didn't seem like a drop the mic kind of moment, but I don't know.

9:54I think he should take a victory lap here. Tim, you want to be the tiebreaker here? Yeah, I'm with Karen. I also think that a lot of the inflation issues are certainly ones that were fiscal. not monetary. We gave away 25 percent of GDP during the covid. There's been some dynamics, I think, in terms of what's going on with corporate tax cuts. Again, by the way, both sides of the aisle. We're not a political show. But I do think that where the Fed was, you know, look, as a as a citizen, as as a consumer, I'm very happy to wait a little too long in terms of endemic inflation. Paul Volcker believed that the psychology of inflation was something that was so important.

10:35And I think we still have to overcome this. And I think you see pricing power that corporations feel like they have had. I do think that there are obviously price pressures, but I also think there's a case where you could see more headwinds to that. So I'm happy that the Fed has stayed in there. I think the Fed has done a lot to regain some credibility. I think the Fed is going to be late, as Steve says. And I also think that we're going to have some problems in the head. But Fed's done fine. That's just an economic cycle, perhaps. We'll get more on Powell's comments on rate cuts today and the potential for those.

11:11Let's bring in CNBC senior economics reporter Steve Leisman from Jackson Hole. I heard there was a storm, but it looks like sunny skies. I don't know. Maybe that's a transitory metaphor of sorts that you can help break down for us. It was meteorologists. Well, we have such an amazing an amazing crew here, Leslie. And what they did is they held down the tent and then they cleared the rain out. So it's really quite remarkable. Give those guys a raise. I'm trying to get them to do a rainbow for me, but I don't know if they're that good, but they are very good, this crew. A rainbow bonus, perhaps.

11:45So I want to talk about something that you guys were talking about, which is, you know, why did the market react? And I was really interested, by the way, in the reaction of the dollar. They clearly, the dollar, our currency traders clearly weren't prepared for this. The bond market, the stock market, the market was not, had not priced in fully what Powell said. And I'd suggest three things, the three Ds. He was more dovish, more definitive, and more direct than I think anybody thought he was going to be. And there's two other aspects that I think worth considering. This is not a rate cut cycle that's going to come with strong forward guidance, the way they did, for example, in the great financial crisis, the way they've done other times after recessions.

12:29But there is a little bit of forward guidance in here. You'll notice he said adjust rates. You don't just adjust by doing one. He also said rate cuts. So it's a process, which is something I asked about at the last press conference, and he affirmed that. The other thing is Tim made a really interesting point about, well, if the next jobs report is X. I don't think it's quite that sensitive, Tim. I think what's happening here is the Fed chair is explaining we are cutting rates now because of the progress previously achieved, not because of what's going to happen necessarily next within certain parameters, obviously.

13:04So it's a bit like saying, you know, you're going to get the award for your GPA over the course of the four years, not just for the next couple of months when you may be screwing around at college in the last couple of months before you graduate. rate. So I think there's some tolerance, guys, for inflation a little bit above, employment a little bit stronger, the economy a little bit stronger, and you'll still get some rate cuts, with the debate being the exact one you had, which is how much, how many, how fast. The adjust language there also insinuates that there's not an emergency necessarily that they see on the horizon, right?

13:40No, that's absolutely right. He's not in any hurry to bring rates down very quickly, but there is a point at which if you're worried about the economy you want to be in a position to help just to use another perhaps lousy metaphor here if you're the guy who's going to catch the gymnast coming off of the beams you got to be in a position to catch them you can't be two steps back okay what does that mean it means you got to get down to a place where you're within striking distance of neutral within a decent amount of time by the way taking account for the lags that y 'all we're talking about there, so that you want to be 100, maybe even 200 less than where you are right now in order to provide stimulus, which would be going below whatever you perceive neutral to be.

14:28Steve, when you look at it, I'm going to get slightly in the weeds on this. Should we be concerned about the Fed's balance sheet? My favorite place, Steve. Should we be concerned about the Fed's balance sheet pre-pandemic, post-pandemic. We got it up to nine trillion. We're somewhere in the high sevens now. Do you feel that the Fed is even thinking about that or not thinking about thinking about that? I think it's thinking deeply about it, Steve, but I'm not sure it's coming to any conclusions. There's an idea out there that there might be something of a free lunch in the balance sheet. And I'll explain that in a second.

15:10But let me give you the warning. One of the rules of economics is there are no free lunches. So we haven't quite found the cost. But let me tell you the free lunch idea is that it's helpful on the way up in terms of increasing the balance sheet and not incredibly painful or hurtful on the way back down. I think the Fed continues reduction of the balance sheet, even while it's cutting interest rates in order to get it back down at this slow, methodical pace. They've taken$2 trillion off. I don't know where they want to go to. We have market estimates in our CNBC Fed survey of$6 trillion or so with$3.2 or a little bit below around$3 trillion for the bank reserves.

15:48There's room for them to go down and to keep going down. And until I guess they feel like there's some, you know, a yelp of pain from the funding market that says you've taken too much out. But I think, Steve, right now, We seem to have been able to take$2 trillion off the top, and there's no obvious evident pain in the financial markets. Yeah, it's a great point. Steve, thank you so much for getting into the weeds there in Jackson Hole. Really appreciate it. Great coverage today. Our Steve Bissman. Thanks. Our next guest has the street's second highest year-end S &P 500 price target at$5 ,900.

16:27He raised his forecast from 5 ,200 at the start of the year. Here to tell us why he thinks stocks can keep pushing higher is Oppenheimer Asset Management Chief Investment Strategist John Stoltzfus. John, thank you for being here. So I guess, does Powell's speech today make you even more bullish, or do you think some cracks in the employment picture could ultimately create a risk to your thesis? I mean, I guess it's, what, 5 % upside from current levels. You know, where we are right now, Leslie, I've got to say we thought there was no surprises in what the Fed chair said today. We've been a fan of the Feds this cycle.

17:01I've been in this business since 1983. So I came in when Paul Volcker was in his second term. So I've been a student of the Fed for years. And since Bernanke, it's never been as comfortable working with the Fed because they telegraph their punches. They tell you what they're going to do. Generally, the market still doesn't believe them and they play against it. But this has been a remarkable cycle in the sense that they've been extremely sensitive throughout it. We've had not we've had 11 hikes and nine pauses. That's 20 FOMC meetings and no recession. I think they're also aided and abetted by the fact that the economy is bigger than ever.

17:41There's more cash floating around everywhere and it's global. The U.S. stands out in terms of its growth potential because of technology and innovation. So I feel comfortable. Cyclical, still overweighted versus defensive. We think at this point you can look to we've been seeing a broader rally since October of last year, October 27th. It was broad across the sectors led by tech. Then it narrowed at the beginning of the year. We've had several times when it widens and the smalls and the mids look like they've really got a potential here. Once the Fed begins to cut and the market gets a, it's one thing to intimate it's going to cut.

18:23But when it actually takes the cuts, as long as we don't find that the Fed is cutting because we're in a recession or because we are about, they think we're about to fall into one, that's a good sign. It means in Spanish you'd say, ya basta, which means enough is enough. John, thanks for being here. Would you think that growth, those other rotations, I guess, into the Russell 2000, for example, cyclicals, for example, is that taking away directly from the Magnificent Seven from tech, or do you think they both can, all of them can work? I think they can all work with tech essentially sharing the spotlight quite often.

19:04It won't be center stage all the time. Sometimes it'll move over on Broadway, right? It'll move left of stage, center, or right of it. But we can't help but think that the innovation related, not just AI, but the way it affects software, the upgrade cycle in hardware that we're about to experience, already beginning to experience, this is something that is a watershed type of event. There will be disappointments along the way. You know, there'll be quarterly disappointments for some companies. But others, just like with retail today, look at retail. Retail had some really good news, you know, and the retail numbers were better last week when they came out.

19:44Or was it this week? This has been a long week, as I recall. So I'm pretty excited about it. I think related to the Russell, my problem with the Russell 2000, I prefer the S &P 600, which is a better quality. I think you have to be profitable a year to get in there. I think that's it. On the other hand, 40 percent, right? Joe Terranova always reminds us that 40 percent of the Russell 2000 is not profitable. Some of that probably just because they're waiting to grow, you know, and they're waiting for business. But the Russell 2000 tends to, when the tide comes in and all ships float, that's when the Russell is really leading, you know.

20:27But the S &P 600 did pretty good today. At one point, it was just a little bit under the Russell in terms of performance. And obviously, Russell leading the way today on the heels of those comments. John Stoltzfels, thank you very much for being here. Thanks for having me. Appreciate it. Carter, what's your take? Well, OK, John makes an important point about the breath. And we saw that today, of course, that the equate S &P made a new all-time high. And that's not the case for the S &P. The real question is, there is this notion that small cap stocks on a long-term basis outperform the market, the Russell 2000, by virtue of their innovation.

21:07And they have so much room to grow. But the truth is, actually, it's mid-cap, the S &P 400 mid-cap, that is the very best of all. And there's a reason for that. Once you're large cap, you're pretty picked over. Many people are aware of you. And so unless you're a champion like NVIDIA, you become sort of owned by all. And there are many things in small cap that never make it out of out of the nursery, if you will. Mid cap index, S &P 400 mid cap is over time the best performer. And it did very well today. Tim, what's your take? Well, I think it's great having the strategist on after we talk to the economists, because it really is about EPS.

21:43And so we have 11, 12 percent EPS expectations for 2024. We really are starting to collect that mosaic of outlooks for 25. And I think that's really where the rubber is going to hit the road. I do think in the short term, we have dynamics around you talking about small caps. I look at the move in the regional banks today. I think the money center banks, especially in a world where we don't have those credit issues yet, like all the guys that I talk to that are smart credit guys are not necessarily saying, hey, I see it in these regional banks here. So I think there are places you can continue to be aggressive.

22:16And I think ultimately, though, we're going to get to that place where we're going to need to understand where EPS for 25. Yeah, those regional banks definitely a tell about kind of where the market sees the potential credit pain or not in this current environment. I would say today it's probably a not. Coming up, Alibaba shares jumping as the Chinese e-commerce giant does some wheeling and dealing with its Hong Kong listing to tap into mainland China's cash. What it means for the trade next. But first, topping the tape, we'll dig into the monster move of shares of Kava. Can it keep climbing from here?

22:49You're watching Fast Money. Here on CNBC, we'll be right back.

23:03Welcome back to Fast Money. Topping the tape now on Kava. Shares surging over almost 20 % at their highs in today's session after last night's earnings beat. The company saying traffic rose almost 10 % in the quarter and raising its full year forecast. Karen, last night you said this could be the next Chipotle. You missed Chipotle. because it always seemed too expensive. Right, and I'm really making the exact same mistake here. This one just seems stratospherically expensive. I mean, those metrics, though, were so good all the way down the line, starting with same-store sales, just gigantic, margins good.

23:35I think, you know, it's interesting. There's so much room for them to grow. They're only at a little over 300 stores now. Originally, they had planned to be a little over 1 ,000 by 32.3, I think. There's so much room for them to grow. I think they're just more constrained. They do have this GM Academy to try to train people to be able to open new stores. I think that's maybe a little bit of why they're not opening more faster, because I think there is demand there to be absorbed. Just what an extraordinary story. I just I can't get it. It's sort of trading where there's no oxygen. I can't breathe at a level like that where this is trading.

24:12And they're following the same part to your point where they had the loyalty program that Chipotle had that put probably$2 billion behind Chipotle. They're trying to do the same floor plan, the same business plan, the same strategy that Chipotle did. And Karen can't jinx it because she didn't invest there. There you go. Right. So she's not going to hurt you. So you're welcome, Cava shareholders. Exactly. And then when Brian is done at Starbucks, he comes here to be the CEO of Cava. Well, there you go. Full circle, full circle, just in the Mediterranean space. Carter, in terms of the whole expensive debate, what do the charts tell you?