The Fed’s Latest Cut…. Plus Super Micro’s Red Flags 11/7/24

0:02Live 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. Record closes for the Nasdaq and S &P. The Dow dipping ever so slightly into the red as the Fed cuts rates by a quarter point. And the central bank chief says he is staying put in the next administration. We'll dive into what that means for policy in the months and years to come. And AI auditing. We'll talk to the CEO of a company that's used the technology to flag accounting issues at Supermicro and other companies where she's seeing signs of trouble now. Plus, Nvidia preps to enter the Dow.

0:33Zillow shares get a renovation after earnings and the post earnings moves on Rivian, Affirm, Capri and more. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Karen Feynerman, Dan Nathan, Guy Adami and Michael Cantopoulos, director of fixed income at Richard Bernstein Advisors. We start off with another record day on Wall Street, the NASDAQ and the S &P 500 closing at all time highs. Well, the Dow closed just in the red after hitting an intraday record during the session. That as the Fed announced a quarter point rate cut at its latest meeting and Chair Jay Powell addressed his future in a second Trump administration.

1:05CNBC's Steve Leisman's got the very latest. Hey, Steve. Hey, Melissa. Yeah, the Fed cut rates by a quarter point down to 463 and suggested more to come gradually. Chair Jay Powell tried to present a status quo policy outlook as if nothing had changed. Well, even while much has changed, for one, he had to respond to the question about whether President-elect Trump could fire him. Do you believe the president has the power to fire or demote you and has the fed determined the legality of a president demoting at will any of the other governors with leadership positions not permitted under the law not what not permitted under the law thank you all right for another a trump presidency promises a vastly different fiscal regime and power responded the fed would take it as it comes of course the real question is not the effect of that law it's all of the policy changes that are happening.

1:59What's the net effect and, you know, the overall effect on the economy at a given time? So I think that's a process that takes a lot of time and that we go through all the time with every administration constantly. And I just, this will be no different. Fed chair seems to have succeeded at presenting a status quo. Probabilities for Fed rate cuts largely unchanged. 71 % for December, then a break, 33 % for January, and 67 % for March of 2025 as the market settles into this idea of cuts every other meeting next year. The recent rise in bond yields and reduced outlook for rate cuts next year may already reflect the market's new outlook for a Trump presidency.

2:39That could include potentially better growth, maybe more inflation, or higher deficits, or some unknown combination, Melissa, of the three. They said that the risks were balanced, Steve, and yet they still acted. So I'm curious as to what your interpretation of that is, because if it were perfectly balanced, maybe they wouldn't have moved, but they did. No, that's right. But that's because, Melissa, I think what the chair was saying was that we're still in this recalibration regime, that is bringing rates down to a place where they're essentially, pardon me, balanced. And then the Fed will figure out where to go based upon the notion of what the data say.

3:19But I think they want to bring it down a little bit further, do that quarter point in December again. That'll get you down to four and a quarter, maybe get closer to 4 % and then feel their way through it. Steve, it's Karen. Thanks for being on. Just on the heels of Melissa's question, where do you think the real rate goal is? You know, I think it's probably in the 3.5 % range. It's a good question. I don't think I have any more insight than the Fed does on this. Our Fed survey today has consistently, by the way, over several surveys now, put it at 3.3. That is higher. If you're going to run higher deficits, and if you're going to have stronger growth, well, then it's going to be a little bit higher.

4:01I look, for example, every day at headlines about investments needed for artificial intelligence, and you see big, big numbers in the tens of billions of dollars. All that increases the demand for capital. It's also a very interesting conversation to have about America's ability to attract the capital it needs to finance deficits if you're going to be putting tariffs on, because that's like a tax on that capital that needs to come in. So that's another question that needs to be answered. So there are a lot of uncertainties out there, Karen, that are going to affect at least the medium to short-term neutral rate compared to the longer-term one.

4:38A couple of things, Steve. I think you know this better than I do, but I think a Fed governor or a Fed chair can be fired by the president for cause, whatever that means, with some amendment to the Federal Reserve Act. But that's not what... Here's my question to you, and this is teeing you up a little bit, But you've been around this a long time. How would you stack up Jerome Powell six years-ish now compared to some of the other people? I mean, I'll go out and say I think he's done an extraordinary job. Well, I think he's had a lot of challenges. I think he maybe messed up a couple times, maybe in the initial response to inflation and the pandemic.

5:15It's going to be long debated, Guy, the extent to which the Fed might have acted earlier. I think if he had it back to do it again, they might have acted earlier. I think the notion of separating fiscal policy from monetary policy is one, again, worth examining, and whether the Fed should have acted in a way that potentially had some offset to all the fiscal spending that came through. I think he's handled it well. He's certainly done better at the politicking of the Fed, and he's done better, I think, also at innovating. Look, he's done, I think, a decent job. I think some of the outcomes were not what anybody would have hoped when it came to the inflation breakout.

5:56And, of course, there was a big upset in 2019 over the balance sheet. But, again, these are all historical things that he's been through and more or less managed them pretty well. Steve, Mike Cantopoulos, you just mentioned the inflation breakout post-COVID. Chair Powell today mentioned how he thought the year-over-year inflation rate was going to go up temporarily before coming back down in the beginning of the year. But if you look at five-year break-evens, they've gone from roughly 190, 195 to almost two and a half now, which is near a one-year high. Do you think he's at all concerned about the market's pricing for inflation going forward instead of only focusing on sort of this rearview mirror that he sort of talked about today?

6:38Yeah, I think eventually over time, I asked him about recent bond yield moves, and I think What he said to that is, well, if they're sustained for a while and have an economic impact, it's worth watching. I think they put that into the hopper. I think they also, though, see inflation getting a little help from the housing numbers, which should eventually lower housing prices, or rental prices actually, should eventually filter into the data. So I think that's an issue that they're watching, but I don't think it's decisive at the moment. Again, they're in this recalibration mode, which says we're not hyper-concerned about the data right now.

7:12We will be, though, when we get closer to neutral. Hey, Steve, you know, I'm not so good at math, but let's just say I think a lot of folks feel like the one problem, the one issue that Fed Chair Powell made was 2021 and not acknowledging inflation soon enough. Let's just say they had started to raise interest rates mid 2021. Would it have really done that much to the cumulative effects of inflation over the like, let's say, the last three, four years? I'm just curious because that term transitory seemed to be overused because in hindsight, with inflation below 3%, it was transitory, just whatever your time period was.

7:47Yeah, you know, Dan, I have been over this a thousand times in my head. I've given a couple of lectures about this at different universities about what they could have done and when they could have gone earlier. Did you forget, Dan, that in 2021 we had another outbreak of COVID? that ended up not being as consequential as he thought. But back in 2021, would you have staked your monetary policy or the fate of the nation on the idea that the next outbreak was not going to be consequential? The Fed and the fiscal side were both fighting outcomes. I talked to an economist one day, and I said, you know, what did you think about the responses, by the way, of the Trump administration, of the Biden administration and the Fed?

8:32And he said, I thought they were great. I said, why? He goes, remember, we were talking about whether or not the unemployment rate in the pandemic was going to be somewhat lower, equal to, or somewhat higher than the unemployment rate in the Great Depression. Remember, that's what we were looking down. Now, I think you could have found a two or three or four month period where the Fed might have gone a little quicker. That could have helped a little bit with the inflation numbers. But If you're saying, you know, was it a big span of time? Did they sit way too long on it? I think the answer is no to that.

9:07Steve, it's always great to speak with you. Thank you. Steve Leesman, outside of the Fed. All right, so let's talk about the market reaction here. This is widely expected in terms of what we got, what we heard. And so in terms of it didn't unravel. It didn't unravel yesterday's big gains, guys. So what do you mean? I mean, we did give up some ground on banks. Housing reversed a little bit in terms of moving higher. But overall, it's been a pretty good market performance. Without question. I mean, sometimes it's that one day after you see, especially given the move we saw Wednesday. But we'll talk about that if it happens tomorrow.

9:37But the things that I'm watching, I mean, the bond market didn't go crazy today. Yields actually back up a little bit, which I think is quasi encouraging if you're concerned that yields are going too high. But I still think the whole trade is going to be predicated on what happens to 10-year yields. And I'm probably one of the few people that think they're headed significantly higher than we are now. Where are they headed, Michael? Higher. You're one of two, Guy. I agree with you. I mean, listen, I think we were already in a place where yields were likely to go higher. Earnings growth is strong.

10:05The economy is doing fine. And now you're layering on top of that, you know, an agenda that probably is quite inflationary. And so certainly over the near term, you know, our fair value model says the 10-year should be roughly at about 4.6%, 4.7%. I could see upside to that. I think you could see 5 % again. I don't really, you know, cutting interest rates in the context of a strong economy is basically adding fuel to a fire. And so I could see higher yields. This was a mistake today. Oh, I 100 percent think the Fed should not be cutting. We thought they would cut 25 basis points, but no, I don't think they should be cutting at all.

10:40And if yields go to 5 percent of the 10 year. Right. What happens to stocks? It depends. It depends. Right. If it goes to 5 percent because the economy is really humming. and then that's one thing. If you get into a stagflation scenario, that's a very different thing. Yeah, I guess the other thing is we have to start incorporating some of the thoughts of like, if there's going to be mass deportation, or mass deportation, okay? Think about one of the biggest fears the Fed has had is that like these wage gains get entrenched in the market, right? Or in the economy and that sort of thing. So to me, we just don't know right now.

11:13I'll just say this. The one thing that I found most interesting today is that large cap tech followed through like crazy, okay? So you just mentioned the Dow closed unchanged. We had the Russell that closed down a little bit. We had the equal weight S &P that closed basically unchanged. That's really interesting to me. On the flip side of that, J.P. Morgan, which was trading up like 11 percent, gave back almost a half of that sort of move today. So I want to look at some of those gaps and if they start to get refilled. But that being said, let's say J.P. Morgan got back to that breakout level.

11:42A lot of folks would probably go in there and buy it. I mean, is tech really the winner here? I mean, if you think about what what roiled us in August, what happened in August? It was the unwind of the carry trade, right? For a day. For a day, yeah. Trump administration has seen this dollar strong, right, dollar strength. And so, therefore, what can happen again? Well, you know, it's interesting you said, I don't want to get bogged down in this, but he was one of the, in my lifetime, the only president that actually openly talked about the want for a weaker U.S. dollar. Now, he talks about the strength of the U.S.

12:10economy, but he's always been fast to say the dollar's too strong. So it's going to be interesting to see how that plays out. And that dovetails probably nicely with his want for interest rates to be lowered, despite everything that we talk about here. To your point, though, I mean, if we do see tariffs, right, and we do, then I think the strong dollar is what he could end up with. It's not what he wants, but that's what he could end up with. So I don't know how it's going to shake out, but I don't know. It's going to be some wild things are going to happen, I think. There are a lot of unknowns right now.

12:42Now, for more on what Fed policy could look like under a Trump administration, Brian Gardner joins us now on set. He is Stiefel's chief Washington policy strategist. Brian, great to have you here in person. Thanks, Melissa. Good to be with you. Especially election week here. There is a lot that we don't know, and in terms of Fed policy, a lot of that will depend on what Trump does. Immediately, what's the first thing you're looking for him to do? Will it be tariffs? Tariffs and immigration, right? What can you do first? The administration can act first. Congress tax cuts, tax extension is going to take longer.

13:13So it's immigration. I don't think you can do mass deportations. And I'm not talking from a legal standpoint. I'm talking about a logistics standpoint. We don't have the infrastructure in this country to go around and massively round up people that shouldn't be here. And where do you put them and how do you get them out? So I think I think that's going to be a little bit more for show. I think the tariffs are going to happen relatively quickly. They've already been through this exercise once. They have a good idea of where they want to go. And so I think tariffs are one of the leading items. I mean, middle-class workers, that is his core.

13:51That's the core. And tariffs would definitely hurt this particular group of people. They don't see it that way. That's the issue. They don't see it that way. They're willing to stomach a 33 % rise in toys ahead of Christmas. This is the issue that has gone on through the campaign, the great debate. You know, what's the state of the economy? And every economist you'll talk to says the economy is great. And the Trump base and people that weren't part of the base that voted for him said not so much. So there is a disconnect between the economics and the perception of what it means for voters and workers.

14:24So I think these workers are seeing, you know, they are buying into the narrative. And I'm not saying they're right or wrong, but they are buying into the narrative. It's going back for 30 years now that NAFTA and other trade agreements have robbed U.S. jobs. And so they're fine with it. He is also a president who watches the stock market very closely. And the reaction to tariffs would be negative. And so I'm wondering how you sort of square that with also his historic, his mandate that he has gotten in terms of the popular vote, in terms of a sweep, which could embolden him to be very, very go out there in terms of the tariffs and the range of tariffs he could enact.

15:03I think he was emboldened by the market yesterday. I mean, the market reaction, I think, exceeded what a lot of people were expecting. And so I think he said, hey, I'm validated. The market knows what I'm going to do. They're OK. I can do it. And now I now not only did I win, not only did I win the popular vote, I may have a majority vote. And so that is just steamrolling into the idea in his head that he has a mandate and is going ahead. You heard Fed Pal address the question about him being fired and said he can't do it. Not permitted. Not permitted, which I don't know if it's entirely true.

15:38I think it is true. But I thought, OK, it doesn't. With that said, I mean, how important is this role going to be? Because President President-elect Trump clearly wants rates to be lower. Sure. The interesting thing is now when we talk about Fed independence, because Trump has come in and said that he's not going to reappoint Powell and he's even talked about firing. Powell's more independent than ever. I mean, so I think for the next year, Powell is quite emboldened. He knows he's not getting a third term. And so he's not constrained by the political realities of trying to get another nomination and trying to get to the Senate.

16:15So for the next year, it's what Powell wants the board and the FOMC to do. Brian, I just said I'm not good at math. I think I'm okay at math. All right. So let's just talk about the undocumented workers and mass deportation. You know, I think there's some estimates that it might cost$20 ,000 to deport one worker, okay, one illegal alien. Do the math. I mean, if they're, like, going to do a million, you know, that's$20 billion. I mean, so think about it. So you're talking about logistics. the cost associated with that, and then you think about what it does to the economy. This could be a disaster, especially coupled with like a trade war with increased tariffs.

16:51Like, think about that. I'm just curious. Like, help us with that. You know, for industries that rely on lower skilled workers, because these are not high skilled workers. I don't mean to be crass about it, but they're not. So for industries that rely on lower skilled workers, it's highly disruptive. You know, you went through the math on the budget impact. Just the logistics of of of rounding those people up and you just can't fly them across a border or or bust them to a border. You're going to have to house them for some period of time. It's a logistical operational nightmare. It's it's something that the federal government really is pretty bad at.

17:28And so I suspect that behind the bluster and behind the rhetoric that there are people close to Trump and maybe Trump himself that realize this is a longer term issue that they have to that. That it's not going to be resolved in the first hundred days, the first six months, the first year of an administration. It didn't happen overnight. It's not going to be resolved overnight. Brian, great to have you with us. Thanks for stopping by. Thank you for having me. I appreciate it. How do you factor all this in, Michael? I thought Brian's point on sort of the perception about NAFTA and globalization is a really interesting one, because we've been talking for quite some time that actually it's de-globalization that is ultimately going to lead to longer term secular inflation pressures.

18:09And I think that's fairly lost on the current or incoming administration. And so that goes to what I mentioned earlier, that you've got a situation where you've got secular pressures of inflation going higher at the same time as you have cyclical pressures with tariffs and the strong growth environment. And that just isn't great for yields necessarily. It could be great for sort of small caps, you know, companies that are really sensitive to strong economic growth and onshoring. Those are the types of companies I think that are going to do really, really well in that regime. And a lot of other companies may be left out.

18:44A record day for NVIDIA as it gets ready to enter the Dow tomorrow. The stock is up about 10 percent since last Friday's announcement. The company replaces Intel, which ends a 25-year run in the index. Sherwin-Williams will also replace Dow Inc. What do you make of this run in NVIDIA here, Karen? Oh, sorry. I am. I don't think it's Dow related. I think because the amount of money that tracks the Dow, Now, it is just the, I mean, the torch has been passed a while now already from Intel to NVIDIA. Actually, when AMD was the little, you know, also ran because you need to have two suppliers just in case, that torch passed and now another one.

19:22So I don't think that's so much. But I do think this sort of animal spirits and, you know, all of the commentary around AI has been full steam ahead. When you listen to Amazon and Meta talk about it and Tesla, I mean, full steam ahead. November 20th. I mean, that's going to be great. I mean, not a lot happens now as we get closer to Thanksgiving. But November 20th is the day that everybody's been watching because they report earnings. That June 20th reversal we talked about that actually worked because you saw where the stock was trading on August 5th and traded down to 90. We've taken that out.

19:56But there's another day like that coming on the horizon, Mel. You know, what I find interesting is that Microsoft has not really participated a whole lot. It's go back, you know, it was July when the stock topped out. So it's, you know, down 9 % or so. Look at Supermicro. That was, what, third, fourth largest customer, NVIDIA. So Microsoft, they already told us what their CapEx is. But, like, I think about it through the lens of the way investors are seeing this trade play out. And maybe you see less demand, and then you'll see less demand for chips. So when you have this sort of issue with some of your big customers, or at least through the lens of the stock market, I don't know, it makes me less enthusiastic about NVIDIA that keeps going higher every day.

20:32So, you know, again, that's probably not surprising coming from me, but it doesn't seem there's a whole heck of a lot of caution as it relates to this name. Coming up from EVs to Capris, we've got our eyes on all the stocks reporting earnings after hours. We're digging into the move starting with Rivian and its latest quarter next. And speaking of results, shares of Zillow surging in the back of their Q3 report where it is seeing growth and how our traders are handling the move. Don't go anywhere. Fast Money is back in two. This is Fast Money with Melissa Lee. Right here on CNBC.

21:14Welcome back to Fast Money. EV maker Rivian Hire after posting a wider than expected quarterly loss. Phil LeBoz is speaking with CEO RJ Skaring in just the last hour. He has the very latest on this quarter. Phil. Hey, Melissa, we're 20 minutes into the Rivian earnings call, and you can bet there are a fair number of questions about what happened last quarter. As you mentioned, they missed on the top and the bottom line. Here are the numbers in terms of the loss per share, as well as the revenue coming in light of expectation. And look at the loss per vehicle. It widened out year over year by almost$9 ,000.

21:45RJ Skirinj explained to us last hour what happened last quarter. We just made a big changeover to our second generation of our R1 vehicle. And so there's a lot of costs associated with changing out. Roughly half of the bill of materials is measured by cost. And so as we brought in new suppliers, there's expenses associated with that. We also had a supply chain shortage as part of this ramp up, and that really hurt us in terms of our overall output for the quarter, which affected us in terms of fixed costs. All right, so why would the stock be up, given the fact that they also made their expected loss for the full year wider than previously expected, now up to$2.825 billion potentially.

22:27They have affirmed their plans to be gross profit positive in the fourth quarter, and they are on track to close the Volkswagen joint venture this quarter. That will obviously free up some of the$5 billion that is going to be coming to the company. As you take a look at shares of Rivian over the last year, one last thing, Melissa, RJ says they are on track to begin R2 production in 2026. They have the capital that they need to get there. Melissa, back to you. Phil, I'm just curious, didn't they cut their output forecast just in October and they cited part shortages? They did. So it's a continuation.

23:02It's a worsening of that problem in just a month. It's the same. It's one component. RJ, I talked to him about this. He said, look, we're working with the supplier. It's not a situation with a bad relationship. They just are struggling to get this one component, which is critical to their Enduro motor, and he believes that they are in position to lower their costs by 20 percent, the physical cost of goods in the fourth quarter. That's one reason why they say they will be positive gross profit in the fourth quarter. What happens to sales if the EV incentive goes away? He's pretty confident that they still will be able to make it to R2 production, that they have enough liquidity, which right now I think it's$8.1 billion.

23:48Remember, they've got another$4 billion coming from the joint venture with Volkswagen. And that is a vehicle, Melissa, that as of right now, they plan to sell for less than$50 ,000. That's the sweet spot of the market that everybody's trying to get to. All right. Phil, thank you. Phil LeBeau. Again, that conference call is underway, 26 minutes in. Guy, what's the trade here? Well, it bounces. I get it. The stock has been awful. I mean, at least they have cash on the balance sheet, so they don't have to worry about that. Maybe at$10 a share, wherever it's trading now, it's worth a play on the long side.