Target’s Sign Of Consumer Relief… And An Active Activist 8/21/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast slide. Ford pumping the brakes on a three-row electric SUV and shifting its overall EV strategy. Is this just a Ford problem or a fresh warning for the auto industry? And later, the fountain of youth tech investing icon Alan Patrikov here to tell us why he's investing all his energy and money on improving our golden years, the technology, the breakthroughs, and more coming up. I'm Leslie Picker in for Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Steve Grasso, Karen Fireman, Dan Nathan, and Guy Adami.

0:52Such a fun group. And we start with three key retail reports today showing two big winners and a loser. Target shares jumping more than 11 percent on top and bottom line beats. The move comes despite a warning that full-year sales forecast could come in flat. TJX jumped 6 percent. They hiked their full-year outlook and delivered better than expected results. The big loser, though, may sees their Their shares plunged almost 13 percent after slashing their full year forecast. So are consumers still spending just more deliberately? Guy, it seems like that whole trade down dynamic is still in full effect.

1:26Before we get into anything, it's a thrill to have you here. I know you've done it once before, but I wasn't here. So as far as I'm concerned, this is your maiden voyage. This is like a party for me. I'm having a blast. No, but it's great to have you. I think it speaks to finally, I think, Target figuring things out a little bit better because operationally they were a disaster for a long time. So if you look at their inventories, their inventories came down, their sales growth is up. Obviously, shrinkage was not a problem, although just the term itself is problematic. So, you know, good for them.

1:53And now with the valuation they're trading at, you can say, okay, you can understand why it can continue to levitate. But I think to try to say the health of the consumer and you look at Target and try to marry the two, I don't think that's what's going on here. I think in terms of Target, it's just an operational thing for the first time in a while. What does it mean about consumer behavior? Well, it's interesting. You know, think about it over the last month. When we were at the heart of Q2 earnings, it seemed like a lot of consumer-oriented stuff that kind of disappointed. It was kind of hit kind of hard here.

2:19And, you know, a good example of this would be McDonald's. You know, this stock had been underperforming all spring, and it was really trading. I think it made a new 52-week low just in early July. And look at the rally it's had back. So I think the sentiment towards consumer stuff has changed a lot. And I think just in the last two weeks, when we go back to that jobless claims number and the kind of panic around how much or how slow the economy is becoming, how quickly that's happening to right now where the S &P is back towards those prior highs. And a lot of consumer names are acting really well.

2:49So I'll just go back to a line I use pretty often. I mean, the consumer or the help thereof is as clear as mud right now. And Macy is the CEO there saying that they're seeing more of their consumers browsing in stores rather than purchasing stores. So they're kind of looking around, but not quite in the mood to really purchase. You know, as we see things like credit card debt going higher, delinquencies going higher, inflation coming down, but still at relatively high levels compared to a few years ago. Is this something that we can expect to see from a lot of retailers in Macy's camp, do you think, Steve?

3:24Or is it something that is more idiosyncratic, more of like a Macy's where they sit problem? It's probably a where they sit problem. And maybe Karen would agree with this or not. It's a deal stock right now. I don't think you're pricing this as a department store any longer. Or that's the only hope. The deal's over. I mean, I think the chance of a deal has been over for a couple weeks since Brigade dropped it. I don't know that anyone thought that they would actually be back. So I feel like there's no deal stock left in it. And that's why it's underperformed the two others. So if you don't get a deal, it doesn't perform.

4:02And I think they're talking about a smaller store or in a high traffic area. I don't really know what that means. I don't know if that's a kiosk. I don't know how small we're talking about. But, you know, a guy brought up shrinkage. When you look at Target, now they're enforcing theft on$50 or higher. Before it was$100 or higher where they would stop the theft. So it's less of damaging to their bottom line or top line, both lines, however you slice it. It probably gets better because theft is theft. They're probably going to slowly but surely stop the shrinkage on that side. TJ Maxx has outperformed all three names.

4:43They're working on freight costs, more efficiencies. That probably is the one to stay with out of the three. Karen, as you think about kind of the macro picture as well, And we had some negative revisions on the labor data, which, of course, is backdated. But it does kind of shed this light and reiterate that concern that the employment picture may be weakening. What do you expect to see from the retailers kind of given that backdrop in the labor market and focus? I think they're sort of very idiosyncratic. If you've got something that the customer really likes, then I think you're going to do fine.

5:15Right. We've seen, you know, Abercrombie. They've done great. I think Gap stores might be set up to do well. Macy's, which Steve brings to the point of shrinking, shrinking to grow into profitability is a very, very difficult endeavor. And so, you know, retail has just been massacred until about two weeks ago. And then I was looking at names like Lulu, which I have been buying, which bottomed out at 230, down from 500. You know, that that was sort of interesting to me. We'll see it next week how that. But I feel like so Lulu is a premier name that's sort of for the first time face real competition.

5:48They haven't had that before. but was trading well below a market multiple. That was interesting to me. We haven't seen that in a while. Nike, very similar story. Facing competition they haven't seen that was, but Ohoka and On are really real threats. So that maybe has bottomed. I hope it's bottomed. I'm long it. I'm long Lulu. I'm long TJX, which is the most expensive of the bunch. It probably deserves to be. I mean, they really did a great job. The same store sales were very strong. That was a surprise. I mean, they continue to do a great job. Their inventory was low. It's setting up really nicely.

6:21It's just not it's not cheap. Doesn't deserve to be cheap. Macy's is very cheap. And for a reason. For a reason. Yes. It's the opposite of what you find in those individual stores. Exactly. We have a news alert on Charles Schwab. Kate Rogers joins us with those details. Kate. Hey there, Alexia. Take a look at shares of Charles Schwab. They're down just under five percent. This is an announcement from TD that it's seeking to sell up to two point four billion dollars of Schwab shares, reducing its ownership from just over 12 percent to just over 10 percent. It also has agreed to not sell any additional shares for 45 days.

6:55A reason for the sale has not been given. But as you can see, Schwab stocked down by just under 5 percent on that news. Leslie, back over to you. Interesting. Thank you, Kate. Dan, what's your take? Yeah. So, you know, they had that merger. It closed, I think, maybe a year, year and a half ago, obviously consolidating two of the largest players in the direct-to-consumer or online retail space, you know, becoming the largest shareholder, you know, it probably makes sense. I think TD is obviously now headquartered in Toronto. That's kind of in the name there a little bit. And they're going to probably be looking to compete with Schwab in some way, shape, or form as they kind of get out of whatever period is they probably had to non-compete or so.

7:31So the idea of kind of paring down that stake makes some sense. And I know we're going to talk about it later, or we already set to talk about it. Big article in the journal today talking about how this bank, the Schwab Bank is going to be transforming. So maybe there's just some operational or execution risk that they probably don't want. They want to focus on their own business. Yeah, it's a real microcosm of a sign of the times. Meanwhile, a bearish sign today for the job market, the Labor Department revising U.S. payrolls down by 818 ,000. CNBC's Rick Santelli has more on that, Rick. Yes, Leslie, you know, it wasn't a shock and it was within the range of what we expected, $350 ,000 up to$1 million.

8:08And as you look at the charts, I put a two-year going all the way back to May of 23 because we were toying with potentially closing under$388 ,000 briefly, but we didn't do it. We avoided the worst case. Same could be said for tens, which closed almost virtually unchanged after a very volatile session. So we didn't comp it back to July of last year, but we're very close. The dollar index stuck. That weakness stuck. We did close at the lowest levels of the year. 818 ,000. I guess what concerns me most is how little attention was paid to it with respect to the experts. They said it really doesn't mean anything.

8:43It's old. You know, it's from April of 23 to March of 24. All I know is that a few bricks of that Fed Foundation with regard to what their policy is built on was predicated on a strong labor market. Now we find it's not nearly as strong as we thought it was. Hey, Rick, you know, when you trade, as you know, you trade off the data that you have, not the ones that you think are fact or not. You trade off of whatever is there. How does this affect the soft landing, hard landing, no landing aspect in your mind? Well, you know, in my opinion, it makes everything a lock with regard to an interest rate cut cycle.

9:23And I do think that that's not going to necessarily cure the problem. I still see lingering issues with inflation in energy areas, and I still see a good chunk of the economy, participants in the economy that aren't going to necessarily benefit from, you know, maybe a cumulative 1 % drop in rates from here. It won't hurt, but I don't know if it hurts, fixes what ills us. But what I do think is, is that I would ignore the experts here. I've had it up to here with the experts. You know, if you look at what happened with regard to the Inflation Reduction Act, that spending caused inflation. There's just a big paper out.

9:57I want everybody to read it from MIT Sloan. Mark Pritzman, he wrote that the determinants of inflation, a good chunk of that was the spending we did with the Inflation Reduction Act. If you look at Biden at the time, he had 17 Nobel-winning economists sign a letter. It wouldn't cause inflation. You know, real big names. George Akerlof, that's our Treasury Secretary's husband. Joe Stiglitz, Robert Schiller, or you can go back further, 51. 51 experts saying the laptop wasn't real. Then you have, what, 16 Nobel economists recently say, Trump's policies will fuel inflation. I've had it with the experts.

10:36They never seem to be right. Let me tell you something. When you overspend, when you're in debt, what we've done is we still have all the debt. We just don't have the good jobs that we thought we had, unless they're kind of under-the-table jobs, because many of these immigrants might have taken those jobs, But it's hard to get the numbers right, so it really starts to get a bit dicey. But believe me, it makes a difference on how the Fed's models work. Garbage in, garbage out. Rick, you sound exercised, so I'm going to do my best not to heighten that exorcism. Let me ask you this. Why do you think, and you've been doing this a long time, why does the market react to any of this, in your opinion?

11:16The S &P is within a couple of handles of being at an all-time high. You know, I think it's really fascinating because, in my opinion, what's going on with the equity markets really flies in the face of those that think, of course, that the economy warrants major cuts. Because I think that the part of the population that is having a hard time isn't going to necessarily benefit, as I pointed out. But I do think that interest rates can come down a bit. But I think that there are certain aspects of the economy that are doing very well. I think that it's the government policies that make things a little dicey.

11:52And I think when you have countries with the geopolitical issues, the issues with China and Russia, I still say at the end of the day, even the countries that don't like it and the big participants within those countries, they still invest in America. So I still think American markets are good. Hey, Rick, it's Dan. Let me ask you this. I heard what you just said about the IRA. When I think about it, that was signed in August of 2022. And when you think about CPI that topped out right around there at 9 percent, it's been coming down fairly aggressively. So when you talk about, you know, spending, I get it, fiscal, that sort of thing.

12:26Maybe they didn't need to do that at the time. There's a lot of other things tied into that. But what about the idea of like big tax cuts when you think about it? Like, you know, if President Trump is or former President Trump is reelected, they're talking about extending those tax cuts. And you just talked about debt. You flew a trillion and a half dollars onto the deficit. Isn't that a problem also? Well, you know what? I think it is a problem. And I think both candidates, it could be a problem. But here's the way I look at it. The policies of Harris, I'm not sure exactly what they are, but everything I hear her say, everything that she publishes, is about the government orchestrating.

13:02Where are they going to get all the money? $25 ,000 for a down payment on a house, which means those houses are going to go up$25 ,000. So to answer your question. I think taxes for corporations need to remain where they are. And if the deficit gets a little bigger, I understand. I hate deficits. But to me, it's the alternatives of raising it that will slow the economy more and make the deficits rise even faster. All right. Rick Santelli, thank you as always. So we're seeing evidence, new evidence that the job market is cooling. Consumers are moderating and now even crude prices have gone negative for the year.

13:38Does this make the Fed's job easier as the Jackson Hole Symposium gets set to start tomorrow? We're joined now by Jackson Square Capital founder Andrew Graham. He says there are three critical economic reports out between now and their September meeting that will greatly influence what the central bank does. Andrew, welcome. Given what we know at this point in time, 25 basis point cut, that's your base case at this point? Yeah, I think they move incrementally as usual. I don't think they're going to change their personality overnight. You know, you would need to see a pretty bad August payroll number on September 6th in order to generate something larger than that.

14:17They don't want to cut 50 percent for a lot of reasons, but one of which, of course, just signaling that things are weaker than they than they appear to be. What's your expectation for Jackson Hole this week? Do you think there will be any market moving news? No, it's largely an academic conference, or at least it's billed as such. So you're probably not going to get a lot of specifics. You're going to get a hint that we're probably ready to cut rates. But that was in the Fed minutes that we saw today. You saw several members say that there was enough evidence to potentially cut rates in July.

14:51Everybody voted in lockstep, which is fine. I think it's a very tough call. They have a very hard job. Rick is right, by the way. The fiscal spending has made their job a lot harder. That's why we have a 5.3 funds rate. And we've got a neutral rate, according to the New York Fed, that's somewhere closer to 2.5%. So there's tons of room to cut. If they do it incrementally, it runs the risk of a policy mistake, of falling behind the curve. If they do too much in 50 basis points, it's going to send a signal that things are weak and the market may also react that way. So you're in a good but still not easy spot in here to engineer a soft landing or something better.

15:35Andrew, it's Karen. So let's say they do 25 and he gives a fairly dovish conference after that. Do you think that's exactly what the market is expecting or would it is that where we're pricing in that exactly right now? And if they move off of that, what happens? I think that's fine. I think that's what the market's looking for. And I think they're looking for 25 basis points at every meeting thereafter. Something that suggests that they're not going to move in sort of a sequential manner, I think, would be a negative. And markets would probably sell off on that. A 50 basis point cut in response to a bad payroll number on September 6th, I think, would be negative.

16:18You've got a multiple here, a four multiple on the S &P of 21 times, roughly. And markets with high multiples don't respond well to rising unemployment rates. We saw that last month. And you saw a good deal, a spike in the VIX. And markets don't respond well either to higher levels of volatility. Now, volatility levels have compressed in the short term. I think we've got a near-term pain trade that's to the upside for the next few weeks. As volumes are low, attendance is light, and liquidity is relatively thin, You have a wide open buyback window and you've got those vol targeting strategies becoming buyers again.

16:58So you've got a little period in here where I think you'll get this kind of a drift upwards. And then then some seasonal. Yeah. Then the potential for some seasonal weakness. And yeah, the Fed's going to be important right there, right then at that September, mid-September. Andrew, that's exactly where I was going to go with this. The seasonal weakness of September. It's infamous for being the worst months for the worst month for the market. And it's the worst month for the market with the semiconductor index as well. How do you invest around that or you just sort of steer through it? I think we always steer through it.

17:36I mean, the problem that you're going to have with some of these semiconductors is you're lugging some big unrealized gains for people with taxable accounts. We're talking about individuals. And there's ways around, of course, with option strategies and so on and clipping off maybe some low basis pieces that you may have put in there, or high basis, I should say, positions that you put on. But, yeah, it is a challenge anytime you're dealing with something that's had this big run. I would say that fundamentally, the semiconductor business is as strong as it has ever been. And I think it's going to continue to be strong for a time to come, for a long time.

18:14And you've got to make a decision whether or not you're going to maneuver around that, whether it's based on seasonality or it's based on maybe a bunch of Fed rate cuts and the fact that other equity segments of the market are going to be relatively more attractive. When the Fed starts cutting interest rates, cyclical stocks become more attractive. Small cap stocks become more attractive. And those are the stakes here. We're talking about a Russell 2000 that vastly underperformed the S &P 500 of the last two years. There's at least 40 percentage points of potential outperformance that could come from a cyclical recovery.

18:53So that's the Goldilocks scenario. You get some Fed easing cycle and you've got higher Russell 2000 and cross markets like copper prices are also going up. That's something to follow. Yeah, certainly seems like an inflection point for everybody. Not the time to stop doing your homework. We appreciate your perspective, Andrew. Thank you. My pleasure. Coming up, pausing the charge for delaying a new EV plant as it downshifts its electric ambitions, how they're shifting their strategy next. And Toll Brothers is still climbing on their back of earnings. The impact it's having on the rest of the home builders.

19:28Don't go anywhere. Fast Money is back in two.

19:38Welcome back to Fast Money. Ford shares modestly higher today after the automaker announced a major shift in its EV strategy. They're delaying the start of production at a Tennessee facility to instead focus on hybrid vehicles. Ford had planned to begin producing its next generation electric pickup and a now canceled three row SUV. As soon as next year, the company will incur a 400 million dollar special non-cash charge for the write down. Steve, right move. I think they've messed this up dramatically worse than the rest of the group has. Toyota Motors had it right when they went hybrids right out of the gates.

20:16So people want to start adapting the EVs. They don't want to dive in 100 % EV. GM has done a magnificent job at navigating the waters. And just look at year to date, up 30%, Ford down 11%. It's actually underperformed Tesla. Tesla's your, you know, this is EV. I'm diving in. I don't want to worry about anything, but Rivian can't get out of its own way because they're losing money. So Tesla is the single play with EVs. GM is the other play. Yeah, I guess the market, you know, is questioning, you know, the strategy of full-on EV, right? And Elon Musk has made it very clear that they are not going to go the hybrid route.

20:57He said that on their last call. And I think it's interesting because almost every other major automaker, to Steve's point, is going in that direction. I'll just tell you the other headwinds. You see that there was announcement about a nine percent tariff coming out of Europe on Tesla's that are coming in from China. And most of the Model 3 is the low end are coming from the Shanghai gigafactory. And then on the flip side, it seems like former President Trump keeps talking about if he is reelected, how he's going to get rid of those tax credits here in the U.S. So those seem like two big headwinds at a time where Tesla can't get out of their own way by stimulating demand by lowering prices for their cars.

21:34So it really seems like, you know, hybrid EV is going to be the way to go for a while. Yeah. The demand picture is what was misestimated, it seems like here. Coming up, we're watching two names on the move in the after hours. Snowflake and Zoom video, both reporting results. The details from those quarters next and more on activist investment firm Elliott Management's latest stakes. The changes they're looking to see at Starbucks and Southwest Airlines are watching Fast Money Live from the Nasdaq market side in Times Square. We're back after this.

22:08Welcome back to Fast Money. A pair of tech earnings movers after the bell. Snowflake and Zoom both beating on the top and bottom line, but heading in very different directions after hours. Kate Rogers joins us with the action. Hey, Kate. Hey, Leslie. We'll start with Snowflake. As you mentioned, the company beating on the top and bottom lines. The company's CEO, Sridhar Ramaswamy, looking ahead to future AI product usage, saying in a statement, quote, the quarter was hallmarked by innovation and product delivery and great traction in the early stages of our new AI products with the combination of our platform, the network effect of collaboration and our AI innovations.

22:42We have a huge opportunity ahead to deliver even greater value to our customers. But unfortunately, that outlook not helping shares down over 7 percent, as you can see, after hours. And turning now to Zoom, that company also beating on the top and bottom lines for the quarter and raised its annual revenue forecast to a range of$4.63 billion and$4.64 billion for fiscal year 2025. That compares with the$4.61 billion and$4.62 billion forecast earlier. It also has some upcoming C-suite changes. CFO Kelly Steckelberg will be resigning on October 31st, the company said in a filing. That move important here, not as a result of any disagreement with the company.

23:20And a search is currently underway for her replacement. The stock, though, as you can see, up over two and a half percent after hours. Leslie, back over to you. Kate, thank you. Dan, what's your take? Yeah, and Snowflake in particular. I mean, we've highlighted this and probably some other enterprise software companies over the course of this year. They've just been left out of this AI rally. And I heard Cairo say AI like seven times, you know what I mean, in that report. and they just don't seem to be getting any of the benefit of that. And you look at this stock and you think about the valuation.