The Greenlight To Exit Tech… And Pfizer’s Obesity Hopes 7/11/24

0:03Live from the Nasdaq market site in the heart of New York City's Times Square this is fast Here's what's on tap tonight. Heading for the exit as rates tumble today. Investors who have flooded into the Mag7 software stock and even the obesity names, they all race for the door. We'll break down where the herd migrated and if this is a move that has staying power. Plus, hitting the brakes, shares of Tesla tumbling on reports of companies delaying the much-hyped RoboTaxi event. The details and the fallout coming up. And later, Delta's turbulent day, despite reporting record earnings, a crypto darling announcing a big stock split.

0:36And the NFL commish weighs in on giving private equity a seat at the table. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Dan Nathan, Guy Dami, Tim Seymour, and Steve Grasso. And we start off with a great rate retreat. Yields dropping to their lowest levels since March as a softer than expected inflation report boosted hopes for a rate cut in September. The 10-year falling below 4.2 percent, while the two-year was under 4.5 percent at its low. That after the consumer price index fell a tenth of a percent from May to June. The first month-over-month decline since April 2020.

1:10Markets now seeing a 90-plus percent chance of a rate cut by September, sharply higher than just a day ago. The move lower in yields, understandably boosting rate-sensitive sectors like housing, banks, retail, biotech, small caps. The homebuilder ETF jumping more than 6 percent, its best day since November 2022. The Russell 2000 hitting its highest level since March. All that made sense. On the other hand, the recently red-hot mega-cap tech stocks did not catch a bid from the drop in rates. AI darling NVIDIA dropping 5.5%. Apple snapping a seven-day streak of record closes. So is this kind of green light for investors to exit what have been very crowded, profitable trades and rotate into some of the laggards in the market, Guy?

1:55Well, when you see price action like this, the answer is yes. Yes. And again, you know, we had brought up March 8th a bunch of times in terms of NVIDIA specifically. You subsequently brought up Broadcom. I mean, that March 8th reversal in NVIDIA actually worked. And by middle of April, the stock was down 24 percent. Individual stock wise. So the same thing on June 20th in that name. And by the way, it's never recovered. But when you see a move like this, the magnitude of the reversal in the S &P, which, by the way, today made an all time high and effectively closed on the low. That's got to give you some pause, I think, for the overall broader market.

2:27So I do think those big names are vulnerable for the first time in a while. And for the first time in a while, you're starting to see technicals that suggest that the broader market might be in for a bit of a sell off. I know what you did last summer. Remember that one? No. Is that a movie? Yeah. So last summer, you know, heading into Q2 earnings season, we saw similar sort of sentiment, you know, really positive in a lot of these big names. Now, granted, they're all up a lot more year over year since then. And to Guy's point, you know, the NASDAQ and the S &P were making new highs today before these huge reversals.

3:01And so when you think about just how investors are positioned, it's not too different as we go into Q2 earnings season. It might be just as good as it gets right now, especially if you see any sort of deceleration for Q3 or the back half of this year as it relates to guidance. And so it probably makes some sense to kind of take some profits here, roll into some of these other things. And I'll just say this. It's really interesting that the S &P closed down less than 1%. We saw how the equal weight S &P traded. And I think we've just got to mention the Russell 2000 if you look at the performance there.

3:33So a clear rotation. But at some point, if you start getting softer economic data, OK, and we start seeing some guidance from some of these consumer led companies, I think the correlations are going to go much higher. And the last thing I'll just say is the fact that the VIX was unchanged today tells you that there's not a lot of fear as it relates to the broad market. Right. Grasso, this is sort of what you want to happen ahead of earnings season, right? I mean, you want sort of a little bit of air to come out of the tire, so to speak, of the hotter trades before we get, you know, results from NVIDIA and Microsoft.

4:05Yeah, you always want a better entry point. I think, you know, if you go back, the IWM's outperformance today over the NASDAQ or the S &P, it's the biggest outperformance dating back to November or so 2020. So this is not an insignificant event. It's does this last longer than a day or two. So the market wants to believe that we could usher into those smaller cap names. The problem is the smaller cap names need a lower rate environment. this is the first time that the market seems to believe that the Fed is going to cut rates really in the near term versus something where they say, okay, we're leaning more dovish at this point.

4:54So September, I still think that they're behind the curve. They should have been cutting before, but I think September, as you mentioned, 90 % odds. And I think they probably cut again a couple of more times this year. Having said that, let's see if this lasts longer than two or three days, because I have a feeling money will rush right back into those mega cap names again. I guess the question really is, Tim, you know, now that we are 90 percent sure that this is actually going to happen in September. And by the way, we're also getting some comments from Austin Goolsbee, who's saying this is what a path to two percent inflation looks like.

5:30This is exactly what you want to have here. Do we start trading for a lower interest rate environment? And what does that mean? Does it mean that the tech stocks can't rally the way they have? Does it mean that we won't see the torrid advances that we've already put in the books? Well, I think Austin Goolsbee's thought we had 2 % inflation for a long time. I mean, I'd listen to Powell this week, though, when he did say if we get more good data, that gives us more confidence that we're moving closer to 2%. There's no way they're going before September. They will go in September based upon the data we have today.

6:05But I think a lot of the reaction today is just a result of momentum trades gone wild. And yeah, I mean, we can come up with all the stats that are extraordinary, which is a 720 basis point outperformance by small caps to the semis. So the worst performer against the best performer. And you can see it, you can see it in the dollar, you can see it in gold, you can see it in rates, you can see it in the end. You can see it in places where we've had extreme positioning. And I think a dynamic also that just at least supports the view that the Fed, certainly their most aggressive days are behind us.

6:39But I'm not chasing small caps here. I'm not chasing housing stocks here. Housing stocks, which if anything, to me, we talk about this every day. So I think once you get people back into the market, prices get marked down. I think you actually have things that, you know, prints that hit the tape that show that some of these asset classes are going to be under pressure. This was a day when the biggest victims of Hire for Longer rallied as a sigh of relief. And that included some of the restaurant stocks and the apparel stocks. Look at the move in retail overall. I don't think that changes the story for the consumer.

7:12I don't think this changes the story for where most of the earnings growth is coming from the S &P. So yeah, I think it's very healthy for the market. It's nice to see it. Let's see what banks do tomorrow. We have finally an earnings season to kind of digest this. But I just think this is a result of some extreme positioning. And I think Dan referenced the VIX. I think it's right. And I think I'm not sure I'd be running out the door on mega cap tech stocks today. I mean, you almost might want to even throw in banks into the extreme positioning when it comes to the move they've seen lately going into this earning season where expectations are extremely high that they're going to declare an inflection point for NII in the second quarter.

7:53And Basel III and the seemingly the less restrictive policies are going to be supportive of these banks. People have been talking about that for a while. I mean, Austin Goolsbee, I'm sure he's a lovely guy, but he clearly doesn't buy car insurance because that was up 19.5%. I mean, he hasn't gone to the hospital, thank God, because that's only up 7%. So all the inflationary things are still there. That's why people are so exorcised at what's going on. And that's why, again, the stock market's not the economy. And now it's 39 months in a row that inflation in the form of CPI has been 3 % or greater.

8:23So he's going to be right at some point. Good for him. With that said, I mean, price action does matter. And again, as I mentioned, you saw something on June 20th you haven't seen in a while. And you clearly saw something today. And I'll throw this in the mix because why not? If you can close tomorrow below, I want to say the level is 55, 64 or so in the S &P, which is not far away. And then not only do you have an outside day, you have an outside week in the S &P to the downside, which is something we haven't seen in quite some time. Yeah. So I found the price action very curious in some of these largest names today.

8:55Definitely a bit overdone in the very near term. But the fact that some of these names closed on the dead lows, NVIDIA is one of them. Tesla is another. It makes you believe that there's probably going to be some follow through. And, you know, I just went back and I looked at the Nasdaq 100 and I think about the performance off of the COVID lows. That was March of 2020. And I think about it. It's like the Nasdaq 100 was up 140 percent. Then it sold off as soon as the Fed signaled they were going to start raising interest rates. Now, no one thought that they were going to be raising as far as they did up 550 basis points or whatever.

9:30And then we sold off 35 percent to the lows in 2022. Right. Then we had this huge rally since then. And so when you think about how much further we are along, You think about how much multiple expansion is in that. You say to yourself, listen, we could be setting up now that rates are going lower. We've seen the data is that stocks act pretty well in that period between the last hike and the first cut. I think on average, going back 50 years or so, when the Fed starts cutting rates, I think there's a decline 12 months out on average of about 10 percent or so. And some of those are bigger than they were, let's say, in the 80s and the 70s of late.

10:08So it makes sense when you hear Mike Wilson saying a 10 percent correction. We're increasingly hearing that, especially in the third quarter, that it's going to be volatile partly because of the election, partly just because of the timing in the rate cycle. We've also, you know, we're talking about inflation, the path to 2 percent. Part of the path, though, is the inflation side of it. That's what Powell had, you know, obviously addressed in his testimony in front of the House and in front of the Senate, Steve. And that is, you know, there are two risks here. the risk for inflation, which seems to be abating at this point, especially with the CPI print, but the the unemployment risk, which is still not necessarily we can't really declare that, you know, abating right now at all.

10:49Yeah, you know, as soon as the labor market starts to get tapped, that's what's going to make make Powell really start to put his foot on the gas as far as cuts are concerned. And that's what they want to stay away from. They want to keep that soft landing intact. Those long and variable lags, I think, are really starting to set in. A third of CPI are housing costs. So you really need to see that. And I think that the Fed is actually to blame partially for that because rates are staying high. Owner's equivalent rent staying high, rent staying high. So a third of that number is really based on where rates are right now.

11:31Seasonality, Melissa, with July, as we've all stated, the first two weeks are the most bullish time of the year for the markets. But after that, because about$9 billion gets put to work, most of it's passively in the markets. After that, it gets a little bit easier for the market to sell off. You have seasonality working against you if you're a bull in August, September, and October. October. So you could see a pullback within the markets. Yeah. And Tim, you know, when you take a look at some of the big cap tech trades, it's sort of I don't want to say dangerous. I don't want to, you know, make any judgments here.

12:09But the price act, the expectations being so high and the price action, just the technicals of this trade not being very good. It's a terrible combination here. It's not great. And we know that three hundred forty billion in CapEx is spent by the hyperscalers in AI, and we don't know what it really leads to yet. So yeah, look, let's watch. I think today was a very, very important day for markets. We haven't seen anything like this in a long time. All right, let's get more on rates and inflation with Priya Misra, fixed income portfolio manager at J.P. Morgan Asset Management. Priya, great to have you with us.

12:43Welcome to Fast Money. Thanks for having me. Has your outlook changed at all based on today's print? So it hasn't changed, but like Chair Powell said, we need more confidence. The Fed's looking for more confidence? Well, we have more confidence. So the Fed is about to start to cut rates. We expect the first cut in September and a series of cuts after that. I think we're going to stop talking about when do they start? Is it September, November, July came up today? Two, how much are they going to cut? And, you know, are these soft landing cuts? Soft landing cuts are very, very rare. You know, the only time we've really seen it is in 95, where they cut only 75 basis points.

13:18The market's pricing in cuts all the way to three and a half. I think even in a soft landing, they can cut to 3%. And what if that labor market does continue to weaken? Then they are cutting a lot more. Do they cut quickly enough? I think that's what the market's grappling with. But I think the fixed income market heard that report, said the Fed's going to start to cut. Interest rates fell. And I think that's the start. Now we start to price in these rate cuts and the totality of that easing cycle. Are equity valuations telling you anything about the fixed income market or vice versa? And just curious, because again, we know that valuations are not a good timing tool, but it seems that they're kind of extreme in a handful of names that represent a disproportionate amount of the earnings growth.

13:58And if we were to see deceleration, I think you'll see multiples come in. So I think it's fascinating. Unlike the equity market where the concentration is so high, in the fixed income market, I would argue there's value across the board. It's because a lot of the fixed income investors have been out of the fixed income market. Because you had negative real rates, you know, interest rates were zero for a very long period of time. Then when we had these rate increases, there was this fear that inflation might resurface, might be sticky. The Fed still might hike. I think all that money has been, you know, sitting on the sidelines.

14:29So we see value in investment rate corporate, in high yield and securitized credit. So I would say when I look at the equity markets, actually interesting tells me positioning. Positioning is highly concentrated in these few sectors. And I look at the fixed income market and I see a sea of opportunities as that as we start to realize that these all in yields of five percent, six percent, we're not getting that as the Fed starts to cut rates. I think you'll see that, you know, investors starting to look for value across the board. Priya, when we got to March, we reached the longest inversion since they started counting, you know, inversions.

15:01Right. I think it was longer than the 78 to 80 period. So we're in July now. I think we're what, 28 or so basis points. But it appears as though we're going to re-steepen. I think we got down to 13 basis points earlier this year. What does it mean? Is it a good thing or historically it has not been such a great thing for equity markets? So I think inverted yield curves are weird. And the market's been, you know, dealing with that, which is why your question is valid. I think the question is how much can we steepen? As long as we start to un-invert or dis-invert or get to more normal levels, the front end really now is the Fed starts to cut rates and we start to think, well, they can cut all the way to 3%.

15:40The Fed's own dot plot suggests 275. If they cut that much, that front end has a lot more room to fall. The long end, not as much. That's a normal yield curve. That's good for banks. I think, you know, you can start to look at every other market and say, which areas benefit from a steep yield curve? I think a steep yield curve is good, but we have to be careful. If it's steepening too much, that's a sign of a recession. That's bad. So I would say small steepening is actually good for certain sectors. You start to steepen a lot more. That means the market's getting the rates. Market's telling you that, you know, something's not that good.

16:12This is a sinister weakening. Recession's always nonlinear. Every recession starts out looking like a soft landing. I think that's the concern if it steepens too much. I don't think at a, you know, 50 basis point, two stents, that's concerning for any market. And just quickly, Perea, you mentioned the market's starting to price in now the totality of the cuts. We know that they are going to start. What are you telling clients in terms of when that happens? Do you think we're going to price that in very quickly? Are we going to see that being priced into the rates market very quickly? I think we're sort of near end of cycle.

16:44But the end of cycle can last for a while. And can we, we're in a soft landing right now. Can the soft landing persist? So what we're telling clients is we're in a soft landing right now. Think about, you know, locking in these yields. The Fed's likely to cut to three and a half or maybe 3%. If things slow down faster, you want to hedge your risk assets. And that's when you want duration risk. The only, I think, correlations are coming back. We haven't had any stock bond correlations for a long time. They're back because the Fed's telling you the inflation fear is on the side. And now they're willing to respond if things slow down.

17:18So, you know, I think we, you know, to your question, will we price it in quickly? You know, we have retail sales next week. If that's weak, we'll price it in very quickly. The market's going to start to say, well, why can't the Fed cut three times this year? Why can't they cut 50 basis points in December? So depending on the data surprises and end of cycles can turn very quickly, I think the market can be really fast. If the data remains resilient, earnings season is good and the consumer continues to spend, I think then rates market is probably fair. Priya, thank you. Nice to see you. Priya Misra.

17:50Tim, that means that the next few prints, retail sales, jobs, etc., they will be key in terms of how investors perceive this market. Yeah, and I think we go from a case where inflation with the Fed's dual mandate being inflation and full employment, it's clearly been a focus on inflation. And we'll just see where employment comes in. But you get to a place where we start to worry about growth and you could still have sticky inflation and full employment could really suffer. So yes, I totally agree. I mean, Priya's point is fascinating in that we've, you know, we could be mid-cycle, depending on who we ask who comes on our show, we could be early cycle to mid-cycle, but it could very quickly move to late cycle.

18:31And that's what's been so interesting about this period that people have universally gotten wrong in terms of the impact of one of the most aggressive Fed hiking periods in history and what it would do to the consumer and what it would do to spending. I think that is what will happen. I think we will go from a place where we were surprised by the duration of this market and the duration, though, really of the economy and a soft landing to maybe not so soft. And I think the market's disposition will be to be very fearful of prints in retail sales and the labor market that show weakness. All right.

19:02We are less than 90 minutes away from President Biden's first press conference since last month's debate. He takes the stage as more Democratic members of Congress call for the president to bow out of the race. Emily Wilkins has got the very latest on this. Emily. Hey, Melissa. Yeah, Biden's campaign to keep the confidence of members of his own party. It's not going very well. Just in the past few hours, another four congressional Democrats have spoken up publicly saying that Biden should withdraw. And others have registered serious concerns with Biden's ability to continue. So the most recent four, Congressman Brad Schneider, Ed Case, Greg Stanton, and Hillary Scholten.

19:38Now, Scholten has one of the more difficult re-elections, and she said in a statement that, quote, with the challenges facing our country in 2025 and beyond, it is essential that we have the strongest possible candidate leading the top of the ticket, not just to win, but to govern. Now, this brings the total number of lawmakers who are publicly calling on Biden to withdraw up to 14, but many more have voiced serious concerns in private and even congressional leaders have so far kept most of their statements on Biden big as they've been listening to rank and file members this week and are now trying to take everything they've heard and relay that to Biden's team.

20:17Biden's top advisors met with senators for more than an hour today, laying out their strategy for winning in November. Senator Richard Blumenthal told us after he left that meeting that Biden's team did not fully alleviate his concerns. Some of my concerns are laid. Some others have been deepened. I need more of the kind of analytics that show the path to success. Lawmakers told me that they will be watching Biden's press conference this evening, but several stressed to me today that it is not just about having a one good public appearance, but having a long ranging plan both to beat Trump come November and gain the courage and confidence of the American people back.

21:00Melissa? There are also increasing reports, Emily, that, you know, they're they're sort of polling Vice President Harris and to see if she's going to sack up better against Trump. I mean, what are you hearing in terms of the various alternate candidates, Vice President Harris, of course, but also others that that may fill out the ticket? Well, Melissa, NBC has confirmed that the Biden campaign is looking at Harris and how she would poll. And to a certain extent, Harris would have an advantage because she would really be able to immediately tap into all of that infrastructure, all of the fundraising that the Biden campaign has.

21:34And so that is a major advantage for her. She's also pretty well known at this point, having been vice president for the last four years. But at the same point, a lot of members who I'm seeing and a lot of them, you know, they like Kamala Harris, but they're not willing to say, OK, she should indeed be the nominee. A lot of them seem to be leaving it open. Of course, there are a number of other very strong contesters who could jump into a potential race. You have a number of governors from swing states who really know how to repeal to Republican and independent voters, which is going to be absolutely critical.

22:06And I think at this point, everyone is just kind of focused on Biden himself. And then, of course, the question is what happens next if he does decide to withdraw? Emily, thank you. Emily Wilkins on this developing story here. The conventional thinking is that a Trump win, a Trump administration would be better for the markets. So, Steve Grasso, if there is a change in the Democratic ticket, which could then strengthen the down ballot elections as well, what does that do in your view? Well, if there's an idea that Trump has a better chance of winning now and then down ballot, the real choice is do you have gridlock government or do you have one party come in with a wave?

22:51And if, to your point, if Trump can perform and help the down ballot candidates perform, then the Republicans take the Senate. And if they could hold the House, which seems seemed unlikely a couple of weeks ago and seems likely, then Republicans will have total control and then you don't see those tax cuts roll off in the next year and a half or so. So that is deemed as positive to the market. So you don't really know who's, and the only candidate, Melissa, that can really come in is VP Harris. That's the only way that you can get that money that President Biden has built up so far to go straight to her.

23:30Newsom would not get it. No other candidate would be entitled to it. Coming up, a Tesla snap against 11-day winning streak in a very big way. The latest headlines have had investors unplugging from that one next. And from wheels to wings, Delta also sinking in today's session. The turbulence in their earnings report that had shares heading lower. Don't go anywhere. Fast Money is back in tune.