The Health Sector’s Fear Factor… And The Last Fed Decision of 2024 12/13/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast money right now. We will debate that. Plus, December doldrums. The homebuilder struggling this month, down more than 7 % after riding high for much of the year. Is it time to nail down profits in this trade? And later, Broadcom booming on the back of its earnings. Can it keep climbing? Kissing the ring, the latest wave of execs set to visit the president-elect ahead of the inauguration. And counting down to FedEx, will they this holiday season beat? I'm Melissa Lee, coming to you live from Studio B at the NASDAQ.

0:46I'm the Deaths Tonight. Tim Seymour, Karen Freiderman, Bono and Eisen, and Steve Grasso. We start off with the latest overhang for the beaten down health care sector. The New York Times reporting that a key ally of Robert F. Kennedy Jr. is also behind a petition to revoke approval of the polio vaccine. Aaron Seary is a lawyer specializing in vaccine lawsuits, also helping Kennedy vet candidates for top jobs in the nation's health agencies. He petitioned the FDA in 2022 on the grounds that the polio vaccine's safety hasn't been studied sufficiently. It's one of more than a dozen vaccines he has filed petitions against.

1:21This just the latest sign of potential hostility toward vaccine makers in this next administration. Since President-elect Trump's victory, names like Pfizer, Moderna, Sanofi all seeing significant losses. It also comes amid a wave of backlash against health insurers following the murder of UnitedHealthcare's Brian Thompson and a Senate bill that could force insurers to break up their pharmacy benefit managers UNH, CVS, Cigna all down double digits already this month. The broader health care industry down sharply to more than 10 percent below its 52-week high. It is the worst performing sector in the S &P this year.

1:54So how do we trade health care? The question is simple. Maybe the answer is not so simple. Tim. It's not simple because it's complex. This is going to take years to play out in terms of policy. What we've, I think, argued on this desk is that the headlines are not necessarily the follow through. I look at, say, a Pfizer who's already been indicted in the stock market. And I do mean in terms of the valuation over the last really year and a half in terms of their vaccine profile. And this is a company that spent a lot of money getting deeper into oncology, investing in their pipeline. And so, you know, I tend to look at this as an opportunity.

2:26I don't know that you have to go jumping in. I think we've often seen at times it's interesting. Usually the buildup and the headwinds against health care come in the lead up to the election, typically, as opposed to the post-op. And this is what it feels like when you get it, when policy is still uncertain. So I think we've had actually a nice recovery in some of the GLP names. When you look at the names that have been most under pressure and you talk about the health care business and what's been going on in that space, it's not surprising there's some reprisal in the market here. And you need some catalyst to the upside right now.

2:58We're waiting for earnings season. How about valuations that ultimately in many of these cases look pretty interesting? Yeah. Sentiment is so, so, so terrible when it comes to this space. Once upon a time, it was defensive. And now it's got every single, you know, it's a bipartisan. All these issues are bipartisan issues. That's the issue. That's the problem. Right. With these policy efforts. Yes. Yes, that's true. And that is clearly weighing on the whole sector. But I think that just I mean, I agree with everything that Tim said. I do. This is you know, these headlines are kind of sensational and it's not surprising that the stocks would react.

3:29And one other that we didn't include in that is Merck with Gardasil. That's a really important product. So that's the HPV vaccine. And I think I long the space, as we know, it is the H in my in my helm trade, XLE. But I think that you I think you brought up the other day this idea of why are we seeing MLR ratios so high? Right. And then some of the health care names not doing well. Where is that medical loss ratio spend going? Right. Somewhere. So there's a bit of a disconnect there to me. I'm staying long. It's been frustrating for sure. But we also haven't seen the pushback from the lobbyists yet, which we know will happen.

4:12It's happening under this under, you know, we don't. Historically, I mean, it's kind of it feels like big pharma historically has controlled Washington. So you're right. Right. So we haven't seen that yet. We don't know if it's happening, you know, quietly, but it will happen at some point. Well, so fact from what we think is going to happen. He's already said that he's not and he's not totally going to do away with vaccines. Actually, RFK said he's not going to do away with vaccines. Whatever is on the market is on the market is basically what he said. Whatever's going to take away. And he also said, I want more transparency.

4:45I don't want if vaccines work for you, have at it. Right. Sounds like Dan. No, but so you're not going to get that taken away. Are there going to be new ones? So your point is the new ones that are coming to market. I think there's going to be a more of a transparent process because Big Pharma, to Tim's point, has run D.C. They've run over everyone. Everyone is in is in. It's sort of odd because you said it's bipartisan. Everyone's against Big Pharma, but Big Pharma pays every politician. So I think we're all getting a little presumptuous that he's going to do away with vaccines. That's not going to happen.

5:23So mRNA, 95 % of their revenue is from vaccines. So they have to figure out, let's get away from COVID and figure out what other things you want to get into. But the problem is no one wants a COVID vaccine. No one wants a flu vaccine. And they put them together now. So now you have two things that people don't want as the main source of your revenue. So if you're a GLP, you're okay. I think whether or not the vaccines are actually taken away, if that effort is actually successful, and maybe it won't be, maybe it will be, it sort of just underscores just the question mark around science and the value of science in this administration and how science will be weighed at the FDA as well as the various agencies within HHS.

6:09because if we have these vaccines like the polio vaccine or the MMR vaccine that has been in use for decades, you know, with very few side effects, if any, successfully stamping out basically an entire illness for generations questioned at this point, then you have to wonder what else is going to be questioned. But that's not RFK, though. That's his ally. This whole article was about his ally. This guy's next to RFK picking out who's going to head all these agencies. But remember, not to be political, but we were told, follow the science. And the science had no clue what the hell they were doing during COVID, right?

6:43Six feet, it was arbitrary number. The COVID vaccine, it's going to safeguard you. No, it really doesn't safeguard you. So that's what put a bad taste in the population, following the science that really was no science. Back then, this is different. Polio, a different beast. And Trump, by the way, is on record. Those are emergency circumstances, by the way. We didn't have time to do years and years of research. I don't want to get political on this at all. I don't. And Trump said if someone tries to take away the polio vaccine, he's not. He's going to put up a fight. He's going to put up a fight.

7:15So I think there's. Polio is safe, but how about the 12 others? That's my question. We'll get some more transparency. I do think there needs to be a delineation between longstanding polio, tuberculosis, smallpox vaccines whose efficacy really shouldn't be called into question. I can actually understand the argument around and again, staying on topic, how it affects stocks. Right. I can understand some of the concern around the covid vaccine without having a political bent, just the speed of which it was. It was an emergency use case. I can understand there being pushback. There's been speculation around there being like heart conditions linked to it.

7:49So I think I'm definitely in support of there being transparency and ongoing studies, because a lot of times you won't know 10 to 20 years from time of it coming to market what the real pushback or some of the side effects may have been. Now, getting into how to trade the stock market, I do think this calls into question how you look at trading the health care sector altogether, particularly large pharma. I think it makes a lot of sense that this sector or subsector has kind of lagged recently because you've had performance. You've had two years of 20-plus percent performance. Now, going forward, you really start to call into question because these are supposed to be low beta names that seemingly, whether it be headline risk or whether it be internal operations, aren't giving you the downside protection and low beta portfolio hedging, which is really their use case.

8:37And if that continues to be the case, well, then you're probably forced to look for growth and you're forced to be into the Eli Lilly's and the Novo Nordisk of the world. And you're kind of eschewing it from a capital flow allocation standpoint. That, to me, is what brings concern about about this. And I agree with that. And I think you've had a fresh opportunity to possibly, you know, re-initiate some of those trades around GLPs. But I would get back to Bristol-Myers. I mean, there's been some big updates within the community, especially around cell treatment and hematology and so around cancer.

9:10And these guys have drugs in phase coming to market. This has been a major underperformer. Bristol, you can make a valuation argument. Regeneron, same thing. I mean, these are names that are very heavily in cell therapy and committed to CAR-T and Dynamics that I think are places you can invest around. I mean, this doesn't get into the crosshairs of what's controversial. In fact, there's a lot of support for these therapies. So I think you just stay away from the headlines. But I think people that are willing to go after some of those headlines and take some chances are going to be rewarded by oversold conditions.

9:40I do want to bring to you a response from the RFK Jr. team to NBC News in response to the New York Times article that we cited earlier regarding Aaron Seary, the lawyer, looking to petition the FDA to revoke the approval of the polio vaccine. RFK, through a spokesperson, saying the polio vaccine should be available to the public and thoroughly and properly studied. So thoroughly and properly studied. He wants further studies. Available first and studied later? Well, I mean, it should be available to the public still, as well as thoroughly studied. This is all we have. This is what we have right now to NBC News through a statement.

10:17That doesn't stop Aaron Seary from petitioning the FDA. It doesn't stop his lawyer from, you know, questioning the validity of the other vaccines there. For more on all this, let's bring in Dr. Peter Hotez, co-director of Texas Children's Hospital Center for Vaccine Development and Dean of Baylor's National School of Tropical Medicine. Dr. Hotez, great to have you with us. Thank you for having me. You have actually spoken to RFK Jr. yourself, correct, about vaccines and the potential link to autism. And you speak not only as a vaccine expert, but also as a father of a daughter who has autism. So I'm wondering, what was his reception when you told him that you didn't think that vaccines caused autism?

10:58Yeah, and I'd even written a book with the straightforward title, Vaccines Did Not Cause Rachel's Autism, about my daughter. and it's based on a massive amount of scientific evidence. And let's go through it a little bit. I don't know how much time we have, but, you know, what RFK and other anti-vaccine activists do is they keep switching the goalposts on what their actual beef is about vaccines. So the original assertion was in 1998 with false claims that it was a measles, mumps, rubella vaccine, the MMR vaccine causing autism. That was debunked through extensive scientific studies. In fact, the paper was retracted.

11:39And they were expensive studies and long-term studies that required hundreds and even thousands of children involved. And then RFK Jr. wrote a paper in Rolling Stone magazine and in Salon simultaneously said, OK, it's not the MMR vaccine. It's the thimerosal preservative that's in vaccine. Same thing again. That was debunked through large studies, even non-human primate studies. Then they switched it up again. I call it vaccine whack-a-mole or moving the goalposts. Then they said, OK, then it must be that we're giving too many vaccines at once. In other words, they weren't taking no for an answer.

12:15They were going to look till they found something. Then that was debunked. And then it was allumin vaccines. Then they switched it up to the HPV vaccine for cervical cancer and other cancers. They said that must be doing something. They said it was causing infertility or autoimmunity. That was also debunked. And now they're moving towards something that's so vague that no one can quite understand what they're talking about, something called chronic illness. The point is each time the scientific community responds. But there's another piece to this that's really important. And it's not just the scientific evidence showing there's no link.

12:50There's no plausibility. It's because autism begins in early fetal development before the child is even born. We now have at least 100 autism genes, many of which are discovered at the Broad Institute, at Harvard, MIT. We did whole exome genomic sequencing on Rachel and my wife Ann and I. We found Rachel's autism gene, which is similar, although somewhat different at the same time. And now at Stanford Medical School, at Sergio Pasco's lab, we even have studies with brain assembloids or organoids, mini brains in the test tube with neurons with autism genes showing aberrant migratory pattern. So it's a complete story.

13:28There's no there there. Right. So obviously there's the element which you outlined in terms of the tremendous amount of man hours and dollars and time being put into debunking these theories. Just a waste overall, you know, in the view of the scientific community. But what does this tell you about the role of science? I mean, what are your top concerns going forward when you take a look at how this administration is shaping its HHS, shaping its FDA in terms of research and development, drug discovery, things like that? It's multifold. First of all, I'm worried about public health because we're already seeing now through this kind of rhetoric a rise in anti-vaccine activism in the United States.

14:12Now we have a five-fold rise in pertussis cases, whooping cough cases from 2023 to 2024. We've gone from four measles outbreaks in 2023 to 15 measles outbreaks. So these are breakthrough infections that are occurring because parents are not vaccinating their kids. We've had polio in the wastewater in New York State in 2022. This is a fragile vaccine ecosystem. And I'm worried all of these horrific scourges, both as a vaccine scientist and a pediatrician, I've taken care of children with Hib, Haemophilus, Meningitis, or Congenital Rubella Syndrome, or gasping for air from whooping cough, or intubated because of measles, pneumonia.

14:56These are horrible, horrible diseases. They're all coming back. because of this kind of rhetoric. And that's my number one concern. And also the chilling effect it'll have on, as one of your guests or panel members mentioned, on bringing new vaccines to the attention of the FDA. I'm worried this will have a chilling effect. Seeing that, you know, we have Dr. McCary in line, potentially, to head the FDA. You're starting to see, and I'm not asking you to be the political analyst, But when you're seeing who is being put in key positions and what kinds of physicians they are and where they come from, a lot of them are respected physicians.

15:35Are you actually worried that science is going to take a backseat? Or do you think that do you think that there are enough checks and balances within who is being appointed to offset sort of, you know, the conjecture science? In addition to RFK Jr., if you look at the appointments for the NIH director, the FDA director, they were during the pandemic talking heads on Fox News that espoused some ideas that were not part of the mainstream of science. There were claims that we would have herd immunity a few months after the pandemic started. That never panned out. There was a fair bit of anti-vaccine rhetoric.

16:18So I am concerned of what's going on, not only with RFK Jr., but all of Health and Human Services. In fact, I don't want to make it about RFK Jr. What I really want to focus on is all of the amazing science that's gone into these vaccines over the last few decades, since 1954, after the randomized placebo-controlled trial of the polio vaccine was conducted across the nation in 1954 and published in 1955. I don't want to see all of that erode. Dr. Hotez, great to get your thoughts. Thank you so much for joining us. Thanks for having me. All right. So we don't want to be political, but there are some questions within mainstream science about how science will be valued within this administration.

17:05And that throws into questions. Some of the drugs are being developed right now. Some of the drugs are on the market right now. And so, therefore, if those questions remain and are out there, can you buy a Pfizer? And you have it and you own it. Yeah. And this is just another thing on top of the pile for Pfizer. Well, if this was two years ago and let's just say it was even at the same price it's at today or the same valuation, whatever you think is the way to look at it here. I think you should be more concerned. I guess my sense is the market isn't really valuing the core vaccine business they have at this point.

17:39And that that is something that it's been two years in the making. Just one thing to add. Pfizer is not going down on bad news like this anymore. Right. Right? So I think a lot is really priced in. All right. Meantime, shares of Broadcom topping the tape after earnings last night. The chipmaker posting better than expected profit and AI revenues that tripled from a year ago. Today's 24 % drop was the stock's best stay on record. Took its market cap over the$1 trillion mark for the very first time. Shares have now more than doubled this year. So is Broadcom the new winner in the AI race? By the way, you said 24 % drop.

18:13I think you meant. Oh, no, no, no, no. Opposite pop. Bono, what do you think? I do think it's a new winner. And I do think looking out, you know, they spoke to 2027 numbers. We've all talked about pulling forward earnings. I do think that that is probably the one bone that I would pick. You don't like that? No, no, not at all. I think that's a very slippery slope. But to answer your question more succinctly, I do think it's a new winner. And I do think eventually their business is at the expense of NVIDIA. Because with the custom silicon business, the core business that they have, they're really catering to hyperscalers that eventually are going to be the competitors and have their own capabilities.

18:53I think with inference and as these large language models get more complex, you're going to need more customized solutions. So I do think that that raises to question how you want to trade your NVIDIA position. So how do you trade your NVIDIA position? I mean, I think you listen, I think ultimately I will wait until 2027 before starting to really, you know, take chips out of NVIDIA and add them to to Broadcom. But I do think in terms of needing to chase NVIDIA higher, given the performance that it's already have, this may be, you know, a secondary. I think he brings up a great point. See, with with Broadcom, the clients you have Apple, Alphabet and Meta.

19:34they're more apt or those companies are more apt to go to a Broadcom than an NVIDIA because they're going to be competitive. So I think ultimately the would you rather that you're going after, I would go with Broadcom versus NVIDIA. NVIDIA's chart looks like it's rolling over. Broadcom, yes, spike. I wouldn't buy the spike. I would wait for it to settle in, though. I will go to you with the would you rather. Okay. Straight up. Pfizer or Broadcom? Yeah, right. Right. So, look, what I I'm going to eventually get there, Mel. But what I liked about Broadcom is that not only is there a three times multiple in their AI business year over year.

20:11We knew that. And that's exciting. But but I will say that the Wall Street analyst community to what Bono is pushing back on in terms of going all the way out to 27. I mean, the street right now is saying we see 40 to 50 percent growth out of Broadcom for the next three or four years. So this is something that I think at least has provided some sense of where they do sit and where they can sit in between. So I'll go Broadcom. All right. Coming up, homebuilders on shaky foundations, the group deep in the red this week after a strong start to the year. Can they get their house in order or should you close the door on this trade?

20:42Don't go anywhere fast when he's back in two.

20:51Welcome back to Fast Money, the S &P Homebuilders ETF in need of some major renovations. renovations, the group dropping almost 4 percent this week ahead of next week's Fed meeting. Toll Brothers, leading the losses since Monday, down more than 13 percent. It's worst week since January 2022. KB Home, Pulte, Lenar also seeing outsized losses. And the chartmaster out with a note today, this afternoon, in fact, saying things will only get worse from here. Take precautions, he said. Where are you on homebuilders? So I agree with that. And I think you're going to see the bifurcation that we've seen, new homes versus existing homes, I think as rates, quote unquote, are coming down, you'll probably see existing home sales go up.

21:28But if you look at DHI in particular, they have the highest rate of mortgage buy-downs amongst all homebuilders, which impede their margins. So I think it's going to be tough for a homebuilder, but if you own a home, I think you have an easier job selling the home that you're actually in. Hi, Mel. Hi. Yeah, you are ordering people around behind the scenes. Well, I saw on that screen we had DRI instead of DHI, which is a common mistake. But it's a very big difference in what kind of company it is, Darden Restaurants versus a home builder. It sure is. But anyway, I was trying to point that out. Sometimes people would prefer to go to Darden.

22:09The bottom line here is also this was the worst week in two months for rates. We closed at 440 on the 10-year. That sensitivity is there. You can't say it's not. There are secular themes at work. Wall Street, private equity have been heavily investing into rental properties. I mean, there is a dynamic that says at some point there are ways to meet demand in the rental market. That's not going to change the homebuilder story. I think it's a case of, look, they've been and if you look at that chart, they've been struggling up at these levels. Rates aren't helping. And I do think valuations for the main ones are full.

22:36So I like Home Depot and Lowe's, which anything that sort of hurts the homebuilder story isn't normally really good for a Home Depot and Lowe's. But I do think that the economy is doing well and rates do come down, even a little, not enough to get all that existing inventory onto the market. Still, that can be a decent environment for Home Depot and Lowe's. I've owned DHI. Not DRI. Not Darden. And KB Homes. I have actually gotten out of that DHI position. I've lined up the KB Home position. I'm a bit reticent to just completely not allocate to that subsector because it still trades at a market discount.

23:14And frankly, I think that the supply-demand dynamics are still supportive for this subsector. The last thing I'll say is, listen, to Tim's point, the 10-year rate shocks that we've gotten from roughly 3.6 to 4.25 and back, and we've kind of like round-tripped this thing twice, I think that's really what's leading. You know, we're essentially becoming uncorrelated from Fed funds target. And until you get that rate volatility to calm down a bit, I do think it's tough to own these in terms of having a core position. But I do think they will likely, given the volatility that we've had, present some trading opportunities in the short term.

23:48All right. There's a lot more Fast Monday to come. Here's what's coming up next. Payment Pump. Shares of PayPal helping the Blysep trade today. Why some on Wall Street are getting more bullish on the name. And what's in store for the fintech in the new year. Plus, one more Fed rate decision before 2024 comes to a close. What investors expect? And if the central bank's easing campaign is about to come to a close? You're watching Fast Money live from the NASDAQ market site in Times Square. We're back right after this.