Stocks Surge On Back Of Fed Rate Cut… And Credit Card Interest Gets Political 9/19/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. A new top dog at Nike. CEO John Donahoe stepping aside. The news sending shares soaring after hours. Will this be the catalyst to turn things around for the struggling shoe giant? Plus, did the Fed give the markets the green light? The Nasdaq surging 2.5 percent. The S &P and Dow setting new records. Why are investors crowding back into the growth trades? And will the momentum continue? Plus, a populist palooza. Donald Trump now proposing a cap on credit card rates in the latest move to woo fence-sitting voters.

0:35How do the policies from both candidates stack up and do any of these price capping and free money programs stand a chance of happening? I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Dan Nathan, Steve Grasso and Julie Beal. And we start off tonight with breaking news on Nike. Shares jumping after the company announced just in the last hour that Elliott Hill will take over as CEO and president in October, replacing John Donahoe. The stock is up 10 percent right now. Sarah Eisen joins us now with the full story. Sarah, finally, something's happening.

1:04Well, that gives you a reflection, the stock price of how investors were feeling about this leadership. So here's what I can tell you. John Donahoe, the CEO, announced with the board, came to the decision that he will be retiring as of October 13th. He's going to stay on as advisor till January 31st, 2025. The new CEO is Elliott Hill. He starts October 14th. He is a Nike veteran. He was at the company for 32 years, started as an intern in Memphis, worked his way all the way up to lead basically all of the brands across all four geographies, including brand Nike and Jordan brand. So responsible for 30, 39 billion dollars in the P &L.

1:42And he has he stepped down in 2020, shortly after Donahoe was named CEO. They're bringing him back. He is, I'm told, extremely well liked and well known throughout the organization, worked in 19 different roles over his time there. came up through sales, so really knows the product. And that's what's so key for Nike right now, which has sort of lost the innovative touch that it's known for. Just want to share one comment that's just coming in. You'll see it first here on CNBC from Tim Cook, who is the independent lead board director on the Nike board. He says, and I'll read you just part of it, Elliot embodies the spirit of Nike and will bring his deep connection to sport, passion for their products, and competitive instincts to get the company back at the top of its game.

2:25So that is an acknowledgment that not only is it not on the top of its game, but why? You need someone in there who knows the culture, who knows the sport, who knows the product. And that's what they see in Elliott Hill. Why do you think he was not the right guy when there was the opportunity to actually elevate him? Well, because at that time, and this was just before 2020, tech was everything, right? And Nike was becoming a digital first company. John Donahoe, having led ServiceNow right before and before that as eBay, He was the tech guy. He knew how that worked. And Nike was growing its direct-to-consumer e-commerce business.

3:01That was the future of this company. And it worked really well for a little bit because during COVID, we all went into lockdown. Nike boomed because it was ahead of all the competitors on the digital side. And then the stock peaked in 2021 toward November. We came out of COVID. And because Donahoe was so focused on the e-commerce and digital channel, they broke off a lot of key relationships with the wholesale partners like a Dillard's or an Urban Outfitters, even Foot Locker, which was its most important partner. It had really shrunk the footprint there. So these other brands came up, they innovated, they got the shelf space, and then he had to completely do a 180 Donahoe and try to get back into wholesale.

3:38So those were some of the problems that led the stock price to lose almost 50 % of its value from those highs. There's no question that some of this seems like it was macro, some of it was the competitive landscape. Athleisure also had the sweet spot of that which was COVID. But some of this, I think, especially as before this news was announced, people were looking to fiscal Q1, which is coming up, and wanted to know what was going on with that supply-demand balance. And ultimately, a question even that exists about Donahoe as a COO kind of a guy. In other words, where if he wasn't the visionary on brand and innovation, what was he?

4:12And where was Nike really failing? Because it's not just about that they were losing ground on innovation, no? It was losing ground on innovation. Also, the channels was a big part of the story. And that's how he lost a lot of the, I think, confidence on Wall Street when I talked to investors and analysts, because he did a complete 180 and had to turn that around. And just the culture, I think, of Nike is so important. You can blame the macro environment. And yes, China did slow down. North America slowed down. But it's hard to do at a time where On and Hoka and Lululemon are still showing double-digit comps.

4:47You wearing Nikes right now? Always. Right now? I've been wearing Nikes for 40 years. And one of the things is they have a very loyal – you won't find me caught dead in Hoka's. I'm going to tell you that right now. Ons? Not Ons? No Hoka's here. Tim's wearing the Ons right here. Yeah, I got some Ons on. You know, it's interesting. In my neighborhood, OK, there was a flagship Nike store on 21st and Fifth Avenue. You know what's going in there right now? And on. That went away a few years ago. And so to your point, Donahue did this huge restructuring. The timing looked good, right, into COVID. This was early 2020.

5:17But when you think about the wholesale strategy, the direct-to-consumer strategy, the cutting out categories. But then there was one other thing. And this goes to what I was just saying, about 40 years as a Nike customer. You know, they changed their whole marketing. And one of the cool things, they were awesome at marketing, right? The integration of sport and culture and all that sort of stuff. So do you think the new CEO will reverse a bunch of that restructuring that they did in early 2020? I do. And one of the things he's known for is having overseen consumer marketplace that included marketing and some of the big brand campaigns.

5:49Remember Dream Big with Colin Kaepernick? That was a huge success for Nike. He was there and oversaw that campaign. So for a company like Nike to produce hit after hit, it really does take someone who's deeply embedded in the culture. Remember, the last big successful CEO was Mark Parker, who's now the chair of the board. He came up as a designer through Nike. So it's someone also very in touch. The hope here is that because of Elliott's sales background, he knows the product. He can sell the product. And it really is about having a winning product. And you can just look on the stock Xs of the world, the secondhand retailers, to see who's out there.

6:26And look, Adidas has come up lately in the last year or so. It's always instructive. I always go to those places because those are the most highly coveted sneakers. There was also the Panda release. I don't know if you guys followed this one during Donahoe's tenure, which was popular at first, but then sort of got mocked. Is it? I don't even know what the Panda means. I mean, it feels like it's a black and white. Sounds like something I don't want to be a part of. Do you think it's ever too late? Do you think that the market has gone away from them? So you pointed out all the competitors that they have.

6:58There's a bunch that are not public that are competitors as well. Do you think that? Yeah, Alo Yoga, Biore. I mean, certainly on the apparel side. Look, it's unclear. They haven't lost. They're still Nike. They're still dominant in the field. And the stock is only down about, if you look overall since its tenure, about 20%. expectations have been reset lower, but they have an army of designers and product and marketing. But they always did. They always did, but the morale was down, I'm told, and they need someone who can come in there and understand how to bring it back up and get Nike to produce the hits again.

7:38I'm not sure that they've ceded that much share, that all is lost, which is perhaps reflected in the stock, but it'll be interesting to see the analysts because the analysts like Sam Poser, I will say. Celebrating. He had a sell early. He had questions about whether there was the right talent in the organization who understood the product. So I am curious what he thinks about this. You know, to be fair, though, you know, when DTC was all the rage, investors lauded Mikey. It was like the best thing that ever happened. People thought, oh, this is the demise of full-off. That's all we wanted to hear was that DTC number going up.

8:09Increasing, increasing, increasing. And it led to a valuation going up. It was higher margin. Right. And it was faster growth. And for a while, throughout the entire industry, all the growth was in DTC. But then we came out of COVID and we started shopping again. And they just didn't have the kind of shelf space or the hits on the shelves that they did before COVID. They pivoted. When I talked to Donahoe a few months ago about this, he said, yeah, we were all at home during COVID. He blamed it on the fact that we weren't all together. And so we lost a little bit of the innovation touch that they're used to.

8:39But ultimately, it was tough to come back from. It's interesting. If you look at their annuals, those both earnings and sales last year, 2023 was the only down year they've really ever had and not meaningfully. You know what I mean? Like single digits percentage or something. So it's interesting. It comes after that margins have actually been flat over the last few years or so. And I think it really if you think about 70 percent of their sales is footwear. All right. And what Steve just said is like they've always had competition. Remember Reeboks? I know you're still wearing them, Tim. I've never won a Reebok in my life.

9:07Every step of the way, there's been major pressure. That's how they were born. They'll night challenging Adidas, which was the big one in the room. And they've all gone away, I mean, essentially. So I think the challenge with Hoka and Enclad, I mean, these are real things. But in peril. Small, small percentage of market share. Look at basketball shoes. Nike still dominates. But also what we had when we were growing up, I should say what the kids have now is they have Instagram and they have more social. So a very tiny company can actually get on a bigger platform and start a trend where we didn't have that before.

9:36You needed that large-scale Nike advertising deep pockets. You don't really need that anymore. No, but you do have to be close to your consumer. And that is something I think that is the lesson here. With a Donahoe who came from a consulting background, came from a tech background, clearly the company is now completely pivoting to someone who really understands the deep Nike history and background. I even got emailed his list of favorite shoes. And within the running category, there's like four of them. I mean, this is a man that knows and has been there for a long time. Sarah, thanks so much for coming by.

10:15Great to have you. I'm happy to be here. Surrounded that trade. We're not done yet. Let's get more on the future of Nike with Simeon Siegel at BMO Capital Markets. Simeon, great to have you with us. What's your take here? Does your view on the story change a lot? Hey, guys. Well, I think Sarah said it perfectly. And I'm sorry that I'm not Sam Poser. I know she was looking for his opinion from the analyst side, but I think that she brings up a lot of really good points. I think that there were these words pivoting, but it's pivoting back. And so this is one of those, like, as a self-side analyst, there's so many fun potential titles to use here, but Back to the Future feels very appropriate.

10:49And so if half the conversation is about product and half the conversation is about channel and half the conversation is about storytelling, and there's a lot more halves, but we need to know about Nike. Nike sells product and tells the story better than anyone else. and you're talking about market share, I think it's a really important point to acknowledge they're still enormous. I mean, this is a business that right now the stock has been knocked down and the perception has been knocked down. The revenues really have not. Why do you believe Elliott Hill is the right guy at this point when he wasn't the right guy before Donahoe?

11:22So it's an interesting question. It's also, unfortunately, or probably fortunately, my opinion doesn't dictate who they bring in, so that's probably good. But I think that what we saw, and what you and I have talked about in the past, where the D to C not being all it's cracked up to be. I mean, when my team put out their report three years ago arguing against this blind push to D to C, the notion was, well, that's common sense. Let's get rid of the middle person. We'll make a lot of money. And what we realized is, oh, those partnerships matter. And if you do them well, they're actually incredibly economic.

11:51And I think someone who understands that, someone who tomorrow is a culture booster, But I think there's been morale questions. I think having someone who knows this business, who's been around this business, who understands all of that product, I think right now we want to go back. It's an interesting juxtaposition. I think the last time we spoke, you and I spoke, it was right after the Starbucks announcement. And so everyone was running these parallels of, oh, you've got to bring in someone new and someone who's going to know the general category but will really have a brand new perspective.

12:19And I think what Nike needed was actually the change was the problem. If we go back three, four years, like what they were doing, it really works because it's very hard to compete with Nike's size and scale, given their R &D budget and their marketing budgets are just so large. Simeon, you know, you bring up a really important point when you first started talking to us. If they're not ceding any market share, then what is it a perception versus reality thing? Because Under Armour is outperforming them. Skechers is outperforming them. Everyone is outperforming them. If they're not giving up share, why is the stock price suffering so much?

12:56So, yeah, it's a great question. And it's not to say they're not giving up share, but they're not giving up the share that we think. And the reason I think is important is all of us think about the latest drops. We think about the LeBrons. We think about the Jordans. At$50 billion in revenue, by definition, the vast majority of these units, these units are dramatically cheaper units that sell to people that are just running on the street, that are going to school, that are their kids. I mean, that is what this business has done that's so magical that they've been able to segment this incredibly expensive product that we talk about, that we compare against the Hokus and the Ons and everyone that we're referencing now.

13:31But to be$50 billion, that just means you are selling so much more than just those products we talk about. So I think that sometimes gets overlooked. And that's why I try to remind ourselves to go to the revenues. Listen, those revenues do need to be reset a little bit. They did take some of these incredible franchises and stretch them too far and dilute them. There's no question. and it'll take some time to get new products and that will replace them. But this is not a business that watches revenues collapse. Hey, but speaking of history and speaking of kind of what has changed and going back to the future, where have you been in terms of the multiple you've put on the stock?

14:02Have you contracted the multiple? Has it really just been a function of margin contraction? I mean, we can get into what have been some of the operational challenges to the business. But generally, this is the number one athletic brand in the world with, as you said, enviable scale. In a sector that still has major secular tailwinds, isn't, you know, so have you changed your multiple? I'm just kind of curious from the analyst community, what's different or what do you do now? It's such an excellent question and such a fair question to keep me intellectually honest, because at the end of the day, unfortunately, in this NVIDIA market, the multiples get moved around a lot faster than the earnings.

14:39I mean, look at the stock today. No one's changing their numbers today. And the stock obviously is moving. So by definition, the multiple is moving a lot. And so what I can say is what we have seen, it used to be Nike, Starbucks, Estee, and then dollar stores and some of the big box and some of the off-pricers. You had these hideouts in consumer that were viewed as consistent and safe and not volatile. As you lost a lot of those, people paid a lot more. The multiples for TJX, which is a company I absolutely love, looks nothing like the multiple that it used to, not because of the growth rate accelerated, but because that consistency premium ran up.

15:10And so I think, to your point, the Nike consistency premium, when things were great, far outweighed the growth opportunities. But it was okay because you were paying for that safety. When you lost that safety, when the perception changed, the multiples started coming down. And what we're seeing tonight is with the earnings not changing at all yet, because it will take time, you're still seeing the willingness to spend that scarcity value. Nike is slowly inching its way out of the penalty box and back into that premium sector. So is it expensive? I mean, that's the bottom line. I mean, all that meaning, what's they mean at this point?

15:46I mean, right now it's trading 29 forward. It's expensive for a reason. It's expensive for a reason. I think that's what I would say. I think there's plenty of the best consumer stocks right now are incredibly expensive. And this one, as it's multiple, even where we're looking high 20s, that still is cheaper than some of the other premiums you're paying for consumer companies growing less. All right. Simeon, thanks so much retrofony and appreciate it. Simeon Siegel, BMO Capital Markets. Julie Beal, what's your take in the store? Do you like Nike here? Is it worth the premium? No, I don't think so.

16:15I think there are a lot of challenges that are still ahead of it. I agree that going back to what works for them is probably a really good strategy, but there's still a level of execution. And to me, this starts to sound a lot like the problems that Victoria's Secret had, where they had such a dominant position And they really saw it get eroded away by competition of upstart peers, particularly during COVID. I just think the competitive landscape is much tougher now than it used to be. And that needs to be reflected in the valuation. All right. Let's turn now to the major market rally on the back of yesterday's Fed rate cut.

16:47The S &P 500 surging above 5 ,700 to post its first record close in more than two months. The Dow also at an all-time high, while the Nasdaq jumping 2.5 percent. Take a look at some of the paragons of the growth trade. The semi is soaring more than 4 percent. IGV software ETF hitting its best level since November 2021. And this after Fed chair Jerome Powell signaled more rate cuts are coming and that the jobs market remains strong. So did the central bank give the all clear for markets and especially the growth trade? Tim, you're making the case it'll look like they stuck the landing, look like all clear for stocks.

17:20Yeah, I guess my feeling yesterday was the market came in at all time highs and was a little disappointed. What's the big deal? Two percent growth out to 27 to me where we're going to be focused on keeping the labor market supported, where I actually don't think that the unemployment tick up was really anything more than more people in the labor force. By the way, we got a jobless claims number this morning. We're really watching the Fed, who's apparently no longer data dependent because we've recalibrated. But those jobless claims numbers are the best four week average we have going all the way back to May before we were that worried about the market.

17:49So the growth trade today is back on in terms of, again, the relative outperformance of equal weighted and whatnot. That was not today. It was semiconductors reasserting themselves. It was high multiple tech. It was like the arc revolution kind of stuff that really had a big day. I think the Fed has been late. And when they go 50 basis points, they think they've been late. So we have to decide on is are we in a recession right now? And if the answer is no, the market's OK. Are we in a recession right now? The answer is yes. Then the market's lower in a couple of months. So are we in a recession?

18:25No. I mean, close. No, we're not. I mean, what I took away, and we talked about it a little bit last night, I mean, what Powell said is the risks are balanced between their dual mandate. And right now, they're cutting because they can cut, because they feel confidence that their inflation target is going to be reached, but they also want to support the job market, which I think speaks to what Tim's talking about is they are very close to being able to say mission accomplished on a safe landing or, you know what I mean, on a soft landing, that sort of thing. And so we won't know. I mean, to your point, I mean, maybe the economy is weakening under the surface.

18:56I mean, that was the view in early August. Right. Go back to 2018. I mean, it was a growth scare globally. We're not feeling that right now. We've come out of the pandemic and some of the stuff that we've done to to battle inflation, maybe better than a lot of other folks. I just think it's important to remember why inflation rose the way it did. It wasn't policy. It wasn't this. It was a black swan event. Right. And then it was an invasion causing, you know, gasoline and not gas to go up a lot. And these were things that were very difficult. But at the same time, you know, a lot of consumers here, which is 70 percent of our GDP, were kind of buffeted a little bit by a lot of that fiscal stimulus.

19:31So, again, I think it's they're very close to landing the plane. I'm kind of bullish on. No, no. What I'm what I am more on the economy. I mean, I've been this way for the last couple months in a way because what became very clear to me is that things are OK. You know what I mean? Like the consumers hanging in there. Companies are not. I hear everything you're saying. And I thought he should have been cutting earlier. So I like the fact that he went 50. But 50 doesn't tell me that the economy that he believes the economy is OK. Well, they feel 50, 50 tells me he's worried about the long and variable.

20:00No, because it is restrictive. If inflation is going down to 2 % and they have Fed funds at 5.25, then that's the sort of thing. So why sit on your hands in July? I'm not disagreeing with you. What I'm saying is it sends a bad, bad message to the market when you go. It didn't really because the market raged today. So you would pay this? Definitely. I've been making sales, and I would. And the fact that we rallied so hard means that the market didn't understand. Everyone said, oh, 50 is factored in. It's obviously not factored in when you have a blistering rally on the second day. To be fair, though, it's not just a 50 basis point cut.

20:37It's also what he said in the press conference afterwards. And in the press conference afterwards, Julie, I thought it was also very clear that 4.4 percent in terms of unemployment, that was a line that they're going to defend. And if that's the worst case scenario for us to digest, that's not bad. If that's going to be peak unemployment with steady growth, that's a pretty good scenario for stocks. and we're seeing it, it's not just the growth trade. We saw a very broad rally, RSP doing well today, equal weight S &P, and your world, small caps also doing nicely. Yeah, really strong. I think everyone in small cap land, all small cap investors have been really hoping and excited about any kind of rate cuts because it should provide some relief.

21:18Smaller companies tend to have leverage that's variable. And so they should be beneficiaries. That said, they are more economically sensitive. And so I think there is this kind of push-pull, if you're in small cap land, of not wanting to be too aggressive, because if we do see weakness, that's problematic. But look, if you look at kind of the misery index of adding up unemployment and inflation, we're still better than 85 % of the time we have been in the last 40 years. We're in good shape. The question is, is how sustainable is it? Because we don't have a lot of cushion, either in personal savings rate or in the government's ability to fund unemployment.

21:55So are you skeptical of this rally? I just think that there is a lot of opportunity for broken hearts, right? It's only happened once before in our history that we have over 100 basis points of rate cuts and the S &P earnings up double digits. That's only happened once. So it's just high expectations always make me worried. Coming up, we are delivering FedEx earnings to you. The shipper tumbling on his latest results inside the numbers right after this.