The Dow Surges Nearly 750 points and the Small Caps Hit Best Level in Two-Plus Years 7/16/24

0:02Live from the Nasdaq market site in Times Square, this is Fast Money on a day. The S &P hits the 38th record close of the year. Here's what's on tap for tonight. The great rotation. Investors have been rushing into trades that have lagged this year. What that means for the rest of the market and the names that have been red hot. China descending. A flagging consumer. Questions over trade. There's a lot at stake. How it will play out for the markets and their economy. Later on, insuring gains in UNH. Airlines about to take off. and an industrial that's quietly constructing major gains over the last week.

0:35We'll bring you those trades. I'm Carl Quintanilla in for Melissa Lee, live from Studio B at the NASDAQ. On the desk tonight, Steve Grasso, Karen Feinerman, Guy Adami, and Katie Stockton, founder and managing partner at Fairlead Strategies. Guys, what a day to fill in. And Carl Quintanilla. Hall of Famer. He's in the Hall of Fame. It's like in golf. You can make the Hall of Fame while you're still playing. That's Carl. Let's begin with the Dow today, surging to that fresh record high. industrials far outpacing the major averages up 742 points. Biggest gain since November of 22. S &P also notches the record close of half a percent.

1:10NASDAQ with a small gain. But beating all of those small caps, Russell 2000, three and a half percent. Highest level since January 22. Over the last week, it has outrun the S &P by 10 points. And then check out the sectors leading industrials up two and a half. Materials consumer discretionary close behind. Meantime, the previously red-hot tech sector does take a backseat. Micron, CrowdStrike, NVIDIA among the laggards, each down about 2%. As for market broadening, check out the equal weight S &P. It does continue its outperformance up almost 5 % in a week. Is today's action confirmation of a shift in the market narrative?

1:49Well, it's clearly a shift, and again, it's great to have you. But I'll say this. You know, if you had told me that NVIDIA wouldn't participate, you know, these big, broad, large cap tech stocks really not participate in the last couple of days. Where's the S &P? I've been like probably significantly lower. Here we are. So that is a great sign. And we're lucky to have Katie here because the last time she was on, she thought that consolidation into Russell would start to resolve itself to the upside. And that's what's happening right before our very eyes. With that said, a lot of grain of salt here.

2:18I mean, a large part of the IWM is small and regional banks. I don't think they're out of the woods. 2.35, I think, in the IWM was the prior high in the fall of 2021. That's where we're headed. It's a question of what happens when and if we get there. Yeah, I mean, it was a major breakout for IWM and really anything related to it, equal-weighted RSP as one example. And I do think the rotation is meaningful because these triangle breakouts tend to be very high-probability setups and see immediate upside follow-through. Indeed, we've already had that to some degree, but I think it's still actionable.

2:51I think it was Jeff DeGraff yesterday who used the word durability of the rally. That is still in question, I would say. The long-term setup is favorable, but the triangle itself really only has implications over the short to intermediate term. So we'll have to see if it manifests itself over the long term. So I've been waiting for the IWM for a long, long time versus my cost basis. This is nice the last five days, but it's been sort of a trade. You know, it's interesting to see just the stampede, you know, out of MAG7 into this. But we are going to start to see some of those earnings that the MAG7 trade is really sort of pegged to.

3:30Microsoft next week, Meta. I mean, all the, you know, really big ones. And we'll see is that story still alive. And I don't know if that will cause the flow to go back the other way or just we're going to see more money in the market. We obviously have this sort of we have a couple of things. Obviously, Powell being more dovish, and then the expectation of a Trump presidency rising and the likelihood of that being friendly to markets. So all those things sort of converging, although the last five days in the IWM versus the Qs is I don't think I've ever seen an index trade convergence that strong in that short of a time.

4:06It is remarkable just the magnitude of the move and how spread out it is, right? It's not just limited to IWM. We're seeing it across sectors that had underperformed. and that's meaningful. It shows breadth expansion, but even more importantly, it shows expanding leadership. And that's what this market did not have. It didn't have broad leadership. Now we have more choices, a lot of nice looking charts. And I do wonder how much of that is, the catalyst was short covering. So everything that everyone said is correct, but how much of it was short covering because the market was so lopsided with those top seven names.

4:43So how much of this is a blip? All right, we're talking about this. How much of it was short covering? How much of it is rates? How much of it is deregulation? And the answer is it's all of the above. It's just a matter of what's the longevity of it before money starts coming back in to those top tier names versus a lot of these names that 45 % of the Russell 2000 is unprofitable companies. They need lower rates to survive. So what's real? What's fake? What's interesting to me, Carl, quickly, and a lot of people throwing this around, and I've been talking about it, and we say this all the time, Jim talks about this, metrics like PE multiples and those types, it's not a timing mechanism by any stretch of imagination.

5:24But at a certain point, it matters. And what I said last night is the margin for error now with the Buffett indicator, for example, at levels that we've never seen before, is concerning. Now, the market can go whistling past it for a while until something happens, and then people start to focus on valuation. And that's when things get dicey. Right now, nobody seems to care, but they should be watching it for sure. But to Karen's point, do you think it needs to be zero sum if Microsoft were to miss or blow out? Does it does it mean that it can only be tech or small caps? No, I don't think so. I think you can have participation from tech, but maybe not the leadership that we've gotten accustomed to.

6:00So we have perhaps NVIDIA advancing from its consolidation phase. Microsoft has a great long term setup. We had a breakout, a big long term breakout in Amazon. So we still have very good prospects from that segment of the market from a technical perspective. But when you look at the ratios, you look at the ratios, they look very extended and now are starting to pull back. I looked at the momentum ETF MTUM today. On that ratio, it looks pretty toppy, actually. So it feels like it's just an out-of-favor situation, but they can still perform in absolute terms. And in the S &P, Carl, to the point of your question, 34 % of the S &P is technology names.

6:36So for a large part, as Katie said, when you have the Russell outperform and the breadth expand, all of those sectors have to work to match up the one in tech. So if one starts to fall off, they all sort of domino off. But as Karen said, she's been waiting for years. The dislocation between IWM and the NASDAQ has been going on. If you look at that chart, that chart is abysmal for IWM names. Until, I mean, really, until this week. Yeah. You know, looking at it over the last six months and then this week. Well, I was going to say five days ago, Russell, year-to-day gain was 1%. Today it's 12. That's crazy.

7:20For an index, that's enormous. But for context, it's interesting. All those numbers are right. But I think the aggregate sum of the IWM in market cap is a little over$3 trillion. And we know what that$3 trillion is. I mean, those are three different stocks we talk about all the time. So there's an importance to it. But when you look at it compared to NVIDIA, Microsoft, and Apple, I mean, it's just one of those three. And real quick, the last time Kitty was here as well, she mentioned the setups she was seeing in the VIX. And we'll see what that augurs for or towards. But, you know, she thought the VIX could start to move on the upside.

7:53And I think that's something you have to probably watch as well. This is one little footnote on this. this is the most overbought on an RSI basis to kick it back to you on the Russell as it's been since 2017. Just reiterate that, like absorb that stat. But we don't actually see that as a negative. We see that as a byproduct of the very strong breakout and momentum. It'd be very unusual to see a breakout without that kind of reading. So it is notable in that it's different, but we think it's still bullish. We don't have any countertrend indications yet, regardless of what is driving this move, short covering or otherwise.

8:30And the VIX comment per guy, I do think that this is probably the start of a more highly volatile type of environment. But that's not necessarily bearish. It just means we'll see more pullbacks, more individual stock volatility, and in a way, an opportunity for active managers to outperform. We mentioned industrials at the top. XLI, I think today, best day in a year. Is this telling us anything about the macro? I mean, people were not impressed with Delta a few days ago and J.B. Hunt's down aftermarket. I would say for the first time in a long time, I'm getting questions about areas of the market that are not technology, right?

9:04So the pay VTF infrastructure, home builders, areas like industrials that have really pulled back in relative terms and now seem to be providing opportunity. I could even say financials I'm getting more questions about because we have breakouts there. And financials and health care taken together actually make up about the same footprint as technology in the S &P 500. So they're very key. It's interesting. Throw up an XLI chart or a Caterpillar chart because they are, I think, 5 percent of the XLI. I think GE is the number one holding. But, you know, that stock reports, I believe, next week. Don't at me if I'm wrong.

9:38And you had a big sell-off, but it's making moves towards that prior all-time high. So there are a lot of stocks that are proving themselves, but they're going to get towards levels where they're really going to have to start to prove. and Caterpillar is one of them, big holding in the XLI. Well, Katie mentions financials, and certainly this monster move in the banks, this earning season has been interesting to watch. Regionals jump another 4.5 % today, bringing their gains over the last week to nearly 15%. KREs on a seven-day win, longest since March of 22. And the big banks also rallying, up more than 13 % in a week.

10:10B of A among the big winners today. The stock surges more than 5 % on these better-than-expected numbers and upbeat guidance. Stocks at two-year highs. Meantime, all-time highs for Goldman and JPM. And RBC's top bank analyst thinks the bank rally might be in its early innings. Gerard Cassidy's co-head of Global Financials Research, a multi-year top-ranked analyst by institutional investor Gerard. Great to have you. What do you think is driving some of this price action, at least the past couple of days? Thank you for having me on the show, Carl. I think one of the biggest drivers here is the expectation that the Federal Reserve, its next move will be to cut short-term interest rates through the Fed funds rate.

10:51We saw it today with Bank America. They were talking about the second quarter is likely to be the low point for their net interest income. PNC, which is a big regional, reported today, they showed the inflection in net interest income this quarter. As you know, anywhere from 55 % to 65 % of most banks' revenue comes from net interest income. So that, I think, is the big driver and the expectation that the Fed's going to cut rates over the next 6 to 12 months. Gerard, it's Karen. Thanks for being on today. Do you want to be positioned to have more of a bet into a rebounding NII or to loan growth or better?

11:30Where do you think this sort of juice is in the next part of the move? It's been an incredible move when you think about how much higher they were before earnings started, which usually makes for a very tough bar, and yet now they're even higher still. So where is the next sort of leg up? No, it's a very good point, Karen. And I would say that the next leg up is going to be on more, I think, the regional banks, which have lagged the universal and money center banks. When you think back to over the last 12 months, the largest cap banks have actually had the best moves relative to the regionals.

12:05But if it is true that the Fed does cut rates and you start to see the funding costs for these banks fall, while at the same time the yields on their earning assets should increase because the cash flows are coming off of lower coupon assets being invested in higher coupon assets. For example, PNC did a restructuring of the bond portfolio. They sold off coupons of about 1 and 1.5 % in the bond portfolio and reinvested it north of 5%. That's a huge pickup. Gerard, loan loss provisions have been ticking up seemingly across the board, number one. Number two, for Bank of America, for example, which I didn't think was a great quarter, but OK, I get it.

12:47Right now, they're trading at about 1.27 times book. Their book value reported today was the same as last quarter, 3440. Now, I get it. They're probably a better bank than Citi in terms of that metric. But they're probably getting a little long in the tooth historically as to where it's trading now. What are your thoughts there? It's interesting, Guy. If you go back to the high watermark post-financial crisis on valuations, it's year-end 2017, early 2018. And that's where the banks, as a group, traded at 1.6 times book. Now, not all the banks traded there. Of course, Citi didn't trade there. Even Bank of America didn't trade there.

13:25But I still think there's upside. And to your point, when you start to see the bond portfolios mature, we have to remember that the book values and tangible book values are depressed because they have to take out the unrealized bond losses from those calculations. So the growth in book value and changeable book value for Bank America and others will be much faster than earnings growth over the next 12 months, which tells you that even if they maintain the valuation, let alone see it expand, the stocks should still move higher. Gerard, I'm a firm believer that J.P. Morgan always got the Jamie Dimon premium.

14:01So you can push back on that if you'd like. But now when you're coming towards the end of his career or the final innings of his career, does that premium get pulled out? Because J.P. Morgan has underperformed, not by a large margin, but it's definitely underperforming. Is this a Dimon premium coming out? David, you make a great point. There is definitely a Jamie Dimon premium. I don't disagree with you. I think part of the relative underperformance over the recent term has more to do with the risk on versus the risk off strategy. If you really believe we are in a soft landing, Fed's going to cut rates.

14:42To Guy's point about the provisions for loan losses, they start to stabilize or even may go down next year. Then you want risk on bank stocks rather than the risk off name like JP Morgan. So you layer that in with what you pointed out, the premium, which I agree with. He definitely contributes to the valuation of that stock. And the day he retires, the stock is going to trade down. Now, he's got a very deep bench, highly qualified people, but it's tough to replace him. Obviously, he's a one of a kind CEO and has done a great job for JP Morgan. Gerard, look forward to having you back, especially as we work our way through some of these regionals in light of what B of A did say today about things like commercial real estate.

15:21Thanks, Gerard Cassidy. Let's trade that. Are you satisfied with that answer on JPM? Yeah. I mean, he agreed with me, so I happen to be satisfied with it. I'd be an idiot. Excellent. I hated his answer on that one. So I am satisfied with it. And I think that Jamie's smart enough to sort of backload. I think when you see when things are going to come around to when he has his final day, it's not going to come down with a hammer. There's going to be a backloading of a bunch of headlines. Like a Fed Cup. Exactly, that are positive for the name. So J.P. Morgan is my biggest bank holding. I love Jamie Dimon.

15:59I'm sad that one day he will not be the CEO. But, you know, they're really laying the groundwork. He's finally said, OK, within five years. And then likely he will be the chairman of the board for some amount of time. And, you know, it was interesting on that call. I don't know if it was Investor Day or the last earnings call where he said, within five years, I will not. So the stock was down probably about 10 bucks just on that statement alone, which is a little more than 5%. I sort of think of that as half the Jamie premium. The other half is when he actually says beginning X date. Right. I won't be the CEO.

16:34We'll see. It's going to be we made a joke on that day. Could be one, could be five. We just don't know. Exactly. When we come back, some healthy gains for UNH. The insurer reporting better than expected results before the bill today. Is there more room to run for the stock and the group? We'll debate that. Schwab shares did tumble after the brokerage reported these unconvincing Q2 results. Is that a tell? More Fast Money after this. You're watching Fast Money here on CNBC. We'll be right back.

17:11Welcome back to Fast Money. UnitedHealth posted some healthy results this morning. Shares surging 6.5 % to their highest close of the year. That after the insurance company beat earnings and revenue estimates for the latest quarter. CEO did cite cost cuts helped in part by AI. But the company noted that the cyber attack from earlier would cost more than previously expected. Are we convinced that we've got a lid on these numbers for the year? I don't think we could be convinced of anything. UNH is one of these names that I've been long. I'm not currently long. But when you look at the chart, it's giving you a bunch of fake outs.

17:43And within the last year, you've had a death cross, a golden cross, another death cross, and now we're heading towards another golden cross. So Katie can speak to that. But when you look at the FTC problems that they have with their pharmacy benefit management side, that was what was growing. They're sort of in the line of sight for Congress. But I think with the Trump presidency, maybe that's seen as mitigating it a little bit. Yeah, I mean, what you're describing is a trading range for now more than two years or so. So until it lifts out of that range, a short-term breakout is good. But the resistance for UNH is around 558.

18:19So unless it can meaningfully clear that, the range, you have to assume, is still dominant. Two years of sideways action, to Steve and Katie's point, without question. And I'm not saying it deserves a market multiple, but it's traded cheaper than it is now. I think it got down about 13 times forward earnings. But even with a 17.5 times now, I think this should trade at a higher multiple. And I think it sets up to break out through those prior highs. So UNH is best in class. I know the whole space has problems. But if you want to own one name, it's UNH in that space. More broadly, we talked this morning with Jim about sectors that would benefit from a change in administration.

18:55Banks and health care, you think, are the two biggest ones? I don't know that health care necessarily, because I feel like the rhetoric of we're going to try to keep drug prices low is sort of a bipartisan. Exactly. And so I think, you know, we could see both candidates really pushing on that. So I'm not sure that I buy that. But I think the UNH, there was a little bit to like and a little bit to not like here. And I think part of this, half of this movement today was just the party and just, you know, being part of the broad party of the market. There's also the the string of of hacks, right?

19:32Disney and some of their slack material. AT &T the other day, we've been living with this one for a while. The effect on names like Snow last week, Steve? And they stated that, too, where they know that dealing with the cyber attack is going to make a huge sucking noise of money coming out of the company. But it matters what the market wants to pay attention to that day. So you brought up the point of this is a sector that should, in theory, be helped with the Trump administration. And I think the market is focused on that and focused on that PBM income or revenue was actually actually outperformed.

20:07So if you see lower headwind from the FTC, higher revenues, higher, higher revenues with Trump and less regulation, I think that that altogether makes for a bullish day. Look at cyber. I mean, cyber still in play. Google made a deal or trying to make a deal. I mean, Palo Alto, volatile stock, expensive stock, another best in breed. I mean, I think you want it as difficult as it is in times like a Z scale or a CrowdStrike or Palo Alto. You've got to be in one of those three names for sure. There's a lot more fast to come tonight. Here's what's coming up next. Bad news for a brokerage and industrial gains for one equipment company.

20:43The headlines sending two popular names in opposite directions today. Why investors are running to and from these shares. Plus, do recent warnings from luxury retailers signal real weakness in China? And how could the presidential election shake up relations with the U.S.? We dive into what's next for the emerging market heavyweight. You're watching Fast Money live from the NASDAQ market side in Times Square. Much more after this.

21:20Welcome back to Fast Money. Shares of United Rentals topping the tape today and over the last week. Shares of the equipment leasing company up five days in a row, adding nearly 18 percent in that period. URI closed today at a record. And, Karen, you point out that the move comes on literally no news. On nothing, seemingly nothing, which I like URI. I've owned it for a long time. I think Matt Flannery, the CEO, is great. They're in a nice spot. But nothing has really happened. Now, maybe it shouldn't have been where it was. You know, it's traded around and arranged for a while. They've done an extraordinary job with their business.

21:53But this is something completely unrelated. And so at the very end of the day, I had to sell some 760 calls against my position. First of all, they were$25. So, you know, that would be selling some stock at$7.8. It was at$6.27 last Tuesday. So this move is great. It's fun. But something that goes up like this could also sort of go down like this. The other thing is it's not levered. It's not like this is a crazy levered story and it's working. They're not particularly levered. So I'm happy, but I got to taper that with a little takes a little. All right. Yeah, we'll see if we get some commentary out of Caterpillar, for example, about that space in the coming days.

22:32Meantime, got some breaking news. Former President Trump giving an extensive interview to Bloomberg where he talks about Jerome Powell and a potential Treasury secretary in his administration. Let's get to Megan Casella for more on that. Hey, Megan. Hey, Carl. So we are just digesting this massive interview with Bloomberg News between Donald Trump and Bloomberg reporters that they say took place in late June. So just a couple of weeks ago, a wide ranging interview on business and the global economy. So we're going to run through a few of the highlights here on the Federal Reserve. Trump said he will allow Jerome Powell, if he's elected, he will allow Jerome Powell to finish out his term, which would run through January 2028.

23:10That is, of course, a reversal from previous statements from President Donald Trump. He's saying now I would let him serve it out, especially if I thought he was doing the right thing. He does say that he's warning the Federal Reserve now to abstain from cutting rates before the election. That's different from what the markets are expecting. But Trump says that that would be something the Fed knows they shouldn't be doing. On taxes, he says he wants to bring the corporate rate to as low as 15 percent from that current 21 percent level. So he told a group of executives recently he wanted to push it to 20 percent.

23:42But now he's saying about 15. On personnel, you mentioned that Treasury Secretary Hint. He says he'd consider Jamie Dimon, that J.P. Morgan CEO, chairman and CEO, to be his Treasury secretary. On tech, he says he no longer plans to ban TikTok. He says he's for TikTok now because you need competition. And he's not thrilled with Mark Zuckerberg. He wants some competition for Facebook and Instagram. Just a couple more here on crypto. It wasn't long ago, Bloomberg notes, that Trump said Bitcoin was a scam and a disaster waiting to happen. Now he says that it and other cryptocurrencies should be, quote, made in the USA.