The Great Rotation Takes the Wind Out of Big Tech’s Sails, Plus Digging in on This Year’s Hot Options Trades 12/11/23

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. The great rotation is the market starting to turn its back on this year's Tech Titans and head toward a new set of leaders. We'll check out the breakout in industrials, financials and small caps and ask, is it real? Plus, serving up live sports, Netflix set to court new viewers with a special live exhibition tennis match. What impact will another streamer diving deeper into sports have on Disney and ESPN? And later, snapping up shares of Snap will bring you the upgrade driving today's move.

0:32Nike roaring higher. What's behind its one-month jump of 12 percent? And buyout talks giving Macy's a boost. Who else is riding high on this news? I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Dan Nathan, and Guy Adami. And we start off with the latest sign that the great rotation may be underway. Big tech stocks all dropping to kick off the week. Meta leading the losses down more than 2 percent. The so-called Magnificent Seven losing a combined$160 billion in market cap just today. But the broader markets seem to respond to the mega cap sell-off with a big shrug.

1:05All three major averages finished the day in the green with the S &P 500 notching its highest close since March of 2022. In fact, the equal-weighted S &P outperformed the benchmark by a ratio of more than 2 to 1. So what can we glean from this great rotation in the markets? Now, first of all, you'll probably notice a little different look today. Yeah, what's going on here? Something looks great. Something looks awesome. The network got a big graphics redesign, new charts, new ticker, new everything. Same traders. All part of an effort to make what should be on the screen bigger, bolder, and easier to understand.

1:39So we hope you like it. We think it looks amazing. But, Guy. People at home saying you should have gotten rid of that jerk Adami and kept the graphics. Probably right. No, it's very encouraging. And just to amplify what you brought up, given all those stocks you mentioned down in SMH, which is 19 % in video, which was lower on the day, was higher on the day. And that continues to sort of levitate through those prior double tops. So it is a very encouraging sign. I'm not going to dismiss it at all. Again, we play the game if I had told you. If you had told me all the things you just said, Guy, where's the S going to be?

2:14Going to be down 40 handles. Easy. Obviously, that didn't happen. And we saw a couple days last week that sort of mirrored today. So encouraging sign. But again, I'm skeptical as to all the bad news we continue to hear that's being dismissed. At what point does it matter? I'm glad you brought up the SMH because it was just basically NVIDIA that pulled back. AMD higher, you know, Broadcom higher, Intel, your Intel higher. Yeah, yeah, doing really well. Well, there was comments out of the government, you know, talking about the invest in our own semiconductor sector. There's a lot of money that's going to be thrown at companies, especially those that are seen as national champions here.

2:51You know, Intel, which really hasn't been a champion of anything for the last five years, but it really from a stock perspective, it's under owned. And the valuation is very different than some of the peers and in their core business. And in data center, they're starting to, you know, we found a bottom. What I think is interesting is that, yes, you are seeing some broadening of the market. It didn't happen when the market bottomed on August, excuse me, October 26th, 27th. It bottomed on the CPI November 13th. So if you look at the equal weighted S &P, it's only outperformed by 3 percent. Let's not get too worked up.

3:20But it is important. And we have seen some other I would say some sectors have done better than others, even in the more equal weighted. I think industrials have done very well. Banks have obviously done very well. Energy has underperformed and some of that related to some some of the macro. But I would get back to let's be clear, triple Q's or Nasdaq 100 outperformed the S &P today and the semiconductors are up 2.4. So I would just get back to if you look at a relative performance chart of the Nasdaq 100 to the S &P, look, that's an uptrend. That's a really nice chart from from from August. And if you look at where semiconductors are going, I still think that they have leadership for the the the mag seven.

3:59Maybe it was slightly different. It was today was not a great day. Look at software. Look at look at some broader parts of the tech sphere really outperforming. And in fact, I think some of these names are underlooked. You look at a crowd strike. You look at a snowflake. Guy talks all the time about Palo Alto. I mean, some of these names have been must owns and they're still going higher. If we get through, obviously, CPI tomorrow, Fed meeting on Wednesday, and it's just benign. It is. I mean, like, you know, white flag here, you know, like like like we're off to the races. I mean, like when I say off to the races, I mean, we're like, you know, going back towards that 4800.

4:32That's how these markets work. Right. And we're at this time of year where there really won't be any data unless there's something that we can't foresee, maybe geopolitical or the like here. And then you just have to kind of make a decision here, right? Like the stuff that got us here, it's rotation right now. I look at that equal weight S &P up 14 % from the October 27 low, and I look at the S &P that's up 12.5%. I don't think that's really speaking to a level of breadth that's that important. I think when you look at the SMH making new all-time highs today, to your point, up nearly 2.5%, with NVIDIA down 2%, that is impressive when you think one-fifth of that index or ETF is that one stock.

5:07But again, Broadcom, I mean, you could have had all you wanted two days ago down 15 % from where it is right now. They gave a quarter. They gave the guidance. The stock wasn't moving. We're sitting here on the desk. That was the same thing that went on with AMD. But it's funny, you know, like sometimes in markets, people get a little geeked up for all the wrong reasons. You know, at the time when Google or Alphabet was demonstrating this Gemini, right, and it was starting to come out, and it was just not doing anything. And the next day, it was up 5%, 6%. This is a$1.5 trillion market cap company.

5:35And everything that I've read over the last five days since that move is not good for Alphabet and Gemini, like relative to what OpenAI is doing, relative to their own execution. And so, like, it just, to me, means that investors want to do the things that they know how to do. They know how to buy dips. They know that rates are down, that dollar's down, crude's down, inflation expectations are down, right? And it seems like, I'm going to just trigger Guy here, it seems like a Goldilocks situation for this moment right now, given where investors are. But I don't think it has to last that way as we get into Q1.

6:05Really locks in three bears. How many charges do we have today? Three. Well, Tim's been bullish for quite some time. So quickly, listen, I hear what everybody is saying. It is interesting. Julian's going to come on in a minute to talk about his prognostications. But there are so many things to be concerned about. But what seemingly is assuaging all those concerns is the daily rise in the S &P 500 as if those concerns go away. The concerns haven't gone away. In some instances, they may have gotten worse. But again, the S &P is the judge and jury right now. My incorrectly, you know, my concern for a while has been at some point the market's going to start to take notice and matter.

6:45It hasn't happened yet. When do you give that up? I don't know. I mean, nothing's going to. You know, the things that I'm concerned about are long. These things have long tails, long cycles. They're not going away. Peace is not going to be declared overnight like things aren't going to go away. Bank credit, which has been contracting, leading up economic indicators down 19 months in a row. That doesn't change on a dime. All those things have to filter through. And some of those long kind of tail trades, I totally believe in that. I believe at least in some of the investing that I've done over my career, especially in international.

7:15The dollar, I would say, until last October. But then obviously it's had a couple of very strong bouts this year where it's pushed higher in the face of a lot of people thought it'd go weaker. Thirteen-year bull market. Thirteen-year bull market in the dollar. Again, the move in gold, one of the best 20-year charts going. And they're emblematic of what's going on with the Fed and monetary policy and a lot of things going on. The minute, and look at Bitcoin, you know, and I'm not, you know, there's much more informed people than me on Bitcoin. I'll just tell you, and I remember Brian Kelly saying this probably two years ago.

7:44When the Fed's done or when the market's going to sniff out the Fed's done, Bitcoin's going to have a big rally, leaving aside the halving and all these other things. There are asset classes that are playing the long game right now, and I think some of those trades are on. What happens if we have a situation where, let's say, the CPI data is a little hot? We have some data that starts to heat up a little bit. Let's say some of these geopolitical hotspots start to heat up a little bit. We start seeing this inventory restocking, this stockpiling, all this sort of stuff. We see a greater push towards deglobalization, reshoring.

8:12All this stuff is inflationary. What if we have a 10-year back above 4.5 % in the not-so-distant future? How do you think stocks with a 12.5 VIX are going to react to that? To me, I just don't see that as particularly bullish. I don't really see where valuations are right now. And I know no one cares about valuations right now. No one cares. Like, trust me. OK, but they will care. And it will be one of the reasons why when they're careening lower, because if there's ever a fundamental reason to sell the MAG-7, and we may know in late January when we get Q4 earnings and Q1 guidance or ever visibility that they have, if there's a reason to sell them, they're going to sell hard.

8:46And all this stuff, all the crap, all the unprofitable stuff, all the laggards that people have been piling into since November 13th, they're going to come out of that stuff really quickly, too. So I think the higher we run into year end or into the new year is the harder we fall if there are fundamental reasons to actually take profits or to reduce exposure. Well, yeah, and that's of course. And we have sentiment that also has gotten if you're measuring complacency in the VIX, it's a good place to start. But there's there's all types of investor surveys, you know, the AI, which came out late last week and basically pointed out a level of complacency in terms of the bearishness, which, you know, or the bullishness.

9:22that's really, you know, back to 2018 levels, the bearishness that's very, very different than when we started November. So to me, a lot of this also just gets back to positioning and sentiment. And I think that's kind of, those are the different pieces of what markets give you. We talk technicals, we talk fundamentals, we talk positioning. And I think, frankly, the fundamentals in terms of the macro and the leading indicators that Guy has cited, they've been terrible for a long time. But I look at the MAG-7, I look at the software companies, I mean, these guys are still growing, You know, there's there's enormous growth going on in a handful of companies.

9:53There's a lot of companies that are not. So I think the most important things right now are positioning and positioning right now says we'll touch those all time highs. But then I think it's going to be tough to go a lot higher. If yields go back to four and a half percent or go above, how do we you think that stocks will go down? But we've seen those levels before and more. So is a reaction worse or is it better? Or have stocks gotten used to the idea? It's fascinating. It's a great question. And, you know, on the way up, stocks care. On the way back down, they champion the fact that we're through it.

10:24So it's seemingly this Pavlovian response to, you know, as rates come down, party on. If rates go back to 4.5%, I'm hard-pressed to believe it's going to be encouraging for stocks because it's not – they're going to go up for one of two reasons or both, hot CPI or auctions which continue to be at best tepid or at worst bad. Well, what's interesting, I said one month ago the night before a very benign or very bullish CPI that that CPI number was not going to do a lot because I thought we'd had a lot of rallies on weaker inflation. At some point, I do think some of this, Jeannie, is out of the bottle.

11:01I do think right now, remember, higher rates were bad. The other side of that is are low rates good? And this is where the markets are struggling. Right now, you know, we don't want that 10-year going to 350. The easing of financial conditions does not help the Fed land this no-landing plane that is being dialed into. I want to make one last point on the stock market. I look at the S &P 500. There are 210 stocks in the S &P 500 that are down on the year. OK, so think about that. The S &P is up 20 % on the year. The equal aid S &P is up 7.5 % on the year. There's a lot of stocks in that major average that don't act particularly well.

11:33And I'm assuming that's because of fundamentals, right? But then there's a whole host of stocks that act extraordinarily well, A, because of fundamentals. Their exposure into the secular shift. their exposure to all this passive investing behavior and the like here. And so to me, that's the thing that probably has to meet in the middle. At some point, if we do have more headwinds from an economic standpoint, where investors, they want to sharpen their pencils and say, OK, what do we own and what the environment is going to be like going forward? And I just don't think that's been done right now.

11:59Well, Treasury yields pulled back midday following a big auction of 10-year notes, 30-year bonds heading to the auction block tomorrow. Our Rick Santelli joins us now with the details. Rick, I saw you when you graded the auction C -. So it wasn't great. What's your take on what's going to happen with the 30 year tomorrow? Yeah, it was a C minus on 10s. It was a D on three years. And I think I was overly generous on both. You know, you bring up a good point, though. If you look at an intraday chart, a couple of days of threes and 10s on one chart, what you definitely see is that we made our high yields right as the auctions ended.

12:3611.30 Eastern for the three-year, that was the highest yield intraday going back to the end of November. If you look at 1 o 'clock Eastern for the 10-year, it made its highest intraday yield going back to the 4th of December. Now, if you open the charts up for a week, you can see the importance here. Yes, yields came down after they spiked on auctions, but they're still elevated. And if you look at a 30-year, which is tomorrow,$21 billion, it's completed a cycle from the end of August to basically three days ago. So the real issue is what's it going to do next? And I think if you look at auctions in general, think about baseball games, okay?

13:16If you have a first-place team and they're doing well in the standings, but you didn't watch the game and somebody asks you, hey, what do you think about Team XYZ? Well, they're looking great. They're in first place. Well, 10-year yields, 30-year yields, we haven't had a lot of problems there. So many say, oh, I don't understand why these grades are weak. Look at how great these sectors have been doing during much less times. And what my answer is, you have a couple of bad games. It can affect you in the macro. That's why these auctions are so important. So for tomorrow's 21 billion 30 years, all you have to do is watch the pricing.

13:53If the when issued is higher than the results and it tails, I don't care what the market does after the auction. That means investors are not being aggressive. What we want to see is when issued lower than the actual yield once the Dutch auction results come out. That's good. That's called stopping through. And we want to pay particularly close attention to the indirect categories, which represent foreign interest. because in the grand scheme of things, you could have a lot of weak auctions before you start to affect the overall market. But watching who is strong and weak on the bidding gives you the best information.

14:33Back to you. Rick, thank you. Always good to see you. Rick Santelli. Evercore ISI out with its 2024 market outlook calling for the S &P to reach 47.50 at the end of next year following a mild recession in the first half. The price objective just 128 points higher than today's close. Joining us now is the person behind this forecast, Julian Emanuel, Senior Managing Director at Evercore ISI. Julian, always good to see you. You just take a look at the absolute numbers, and it doesn't seem like there's much movement, but you're actually saying that there's going to be a lot of movement within the year.

15:02Yeah, a lot of churns. So, look, we were treated to a very non-volatile year this year. As much as people want to think, you know, we did have a banking crisis for a couple days back in March. We had a peak when the Fed made what we think it was the last hike in the cycle. And if you drop back and you go back to the last time sentiment was this low in terms of numbers of bears, it was early 2018. And if you think of all the roller coasters that we've been on since then, the one thing as an investor that you can't do is let your emotions go and sell low and buy high. And the way we look at the market right now is that there's going to be enough event risk over the next 12 months and there's enough tightening in the pipeline so that there will be that temptation to sell low and buy high.

15:57And we don't want to do that. And we want to message the fact that it's going to be a year where you're going to have to be patient. You're going to have to play a little bit of defense, having played a lot of offense the last number of months, and that ultimately patience will end up being rewarded. So what does that mild recession look like and when will stocks start pricing that in? So we think it's sooner rather than later. I think we've talked a few moments ago about sort of the first quarter looking a little sloppy. And obviously, December tends to be very positive seasonally. But when you think about the catalysts, you know, two potential government closure iterations, an election in Taiwan, you know, a number of other things.

16:39The Iowa caucus is that entire cycle starting up against the backdrop that the economy very slowly but perceptibly is weakening. And there is a fine line, particularly with the tick up in unemployment. We do think that the caution will be warranted coming into the new year. Julian, 47.50 in the S &P would be 20 times almost on the screws. Your 2025 earnings estimates of about$235. So there's obviously some math associated with that. But what are the chances that that 235, given everything we just heard from Hasbro? Again, I'm not making Hasbro to be the economy, but continued layoffs across a number of sectors.

17:21That 235 is high. What are the chances? So our view is actually when you think about 2024, where consensus has it wrong is consensus is too high for 2024. That number is more like what people are thinking about 2024. And obviously that kind of news, we think this is going to be the third consecutive year of essentially unchanged earnings. Right. And so so when you think about valuations, remember, this year was entirely multiple driven. Yes, it was driven underneath the hood by a number of stocks whose whose earnings did rise. But at the aggregate, multiple driven. The fact is, is that the risk to earnings is less about the exit out of the recession, because you do get an acceleration and more about sort of what's right in front of us.

18:11So using your under the hood metaphor. So as you look at the subsectors below the S &P that you think will outperform and underperform next year, I'll pick out two that I think have had a tough year. Again, as people were really in offensive mode, but industrials and health care have had a pretty tough year. You can make an argument that Dan talked about all these stocks, 210 stocks in the S &P that are down on the year. You're going to find a ton of health care stocks. You're going to find a ton of industrials. How do you see that separation? Because health care is always defensive during the times you're talking about.

18:41But I look at big pharma right now. And outside of Lillian Novo, a lot of these stocks have been disasters, not just not just a little bit. And I own one of them. So, I mean, you know, I get it. And then I look at the industrial side and I make an argument that so I get why health care historically performs during the kind of market you're talking about next year. Industrials have already had their bear market. So shouldn't you know, the other side of that is some of these companies have already suffered mightily in 23. So so I think you have to separate between the two. And in health care, you're totally right, Tim.

19:12Essentially, the GLP-1 and everything else trade has really what caused generalist investors to walk away from the group at a time when, if you think about it, with interest rate volatility and geopolitical uncertainty, you should actually be doubling down there. And given our view on slow growth, we think that's going to be fruitful. And frankly, if you think about the last few weeks with the sort of catch up in the equal weight, that's part of what you're seeing. rotation into some of the tax loss names that have been sold. We think that continues into next year. Industrials is a little bit different.

19:48Look, I'm sympathetic to this concept of a rolling recession. But frankly, when you look at Canada just rolling over, printing negative GDP last week, we know what's going on in China, France and Germany negative. We just don't think that the U.S. can remain indefinitely sort of an island of prosperity in the sea of slowdown. And so even though there has been a good deal of damage done to industrials, we think that's going to persist for a bit longer. One last question. They're going to scream in my ear because I'm asking you one last question. But given this volatility, given what you're forecasting in terms of mild recession, it seems like it'd be wise to stay maybe in 5 percent treasuries at this point.

20:32at least through the period of recession. We around this table have had this discussion a number of times over the last six or seven years, is that as an individual investor, this is one of these times the market has had a great run. You need to think about how you're going to feel if the market comes in 15%, basically what we're calling, or maybe even a little bit more. Are you a buyer down there? Okay. If you're not, you need to raise a little bit of cash. It's just not going to hurt you at this price. Julian, thank you. Good to see you. Julian Emanuel, what do you think? It's interesting. When you say it through the way he says it, very measured, makes a lot of sense.

21:12People at home. Problem, of course, is the people that say, yeah, I'll be a buyer down 15 to 20 percent. When it happens, it's always a lot scarier and for reasons you never envisioned. So those people would be like, sign me up. When we do, in fact, if in fact we get there, we'll be the ones probably going the other way. I think he's exactly right, by the way, in terms of his prognostications for next year. I actually think maybe a little bit lower in the first half of the year. But it's reasonable to think we're right back where we are now at the end of next year. Yeah, and he mentioned other parts of the world.

21:43It's just interesting. DAX went to all-time highs today. You have other parts of the world in Japan where, you know, what's going on with monetary policy and the BOJ, probably pretty good for Japanese equities where I think you're going to see our performance. Coming up, we are watching Oracle after our shares on the move after reporting results. The details on that quarter and how to trade this name next. Plus, a real miracle on 34th Street. Macy's jumping on a potential buyout bid. But is this just the start of more dealmaking in this space? The department store details when Fast Money returns.

22:13This is Fast Money with Melissa Lee right here on CNBC.

22:26Welcome back to Fast Money. We've got an earnings alert for you. Shares of Oracle dropping after reporting mixed results. Earnings coming in slightly ahead of estimates while revenue fell short. Our Christina Parts and Elvis has got more on the quarter. Christina. Yeah. Melissa, well, revenue came in short in three operating segments. Hardware was the only category actually to surpass estimates. But on the call right now, they just gave Q3 guidance. They expect total revenues for Q3, including Cerner, to grow roughly six to eight percent with Q3 non-GAAP EPS to be in a range of$1.35 to$1.39. That falls in line with estimates at $1.37.