The Market Calm Before The Storm?... And Lionsgate’s Nasdaq Debut 5/14/24

0:02On a day when the Nasdaq set a new record close we're coming to you live from the heart of the action in New York City's Times Square this is fast money. Here's what's on tap tonight. The volatility puzzle, multiple measures of market unpredictability are at deep lows, even as uncertainty looms over investors. But are things as calm as they might seem on the surface or is trouble brewing below? Plus, the state of streaming up fronts are underway and the battle for viewer eyeballs is heating up. We'll talk to Lionsgate vice chair Michael Burns about what is next for the industry and the just completed spinoff of the company's film and TV studio business.

0:33And later, Google steps up its game in the AI wars. Meme madness goes beyond the GameStop's and AMC's of the world and the CEO of a biotech company disrupting the healthcare space. I'm Melissa Lee. Come to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Dan Nathan, Guy Adami, and Katie Stockton, founder and managing partner at Fairlead Strategies. And we start off with a market that may have gotten a little too complacent in the face of rising uncertainty. The NASDAQ closing at a record for the first time in over a month today and volatility across a variety of asset classes somewhat surprisingly low.

1:06The CBO's VIX index trading near its lows of the year. Bank of America's MOVE index, a gauge of volatility in Treasury futures, is down 8 percent this year. Even crude oil vol is at depressed levels. All this despite uncertainty over the consumer and rates, the potential trade war with China and an actual war in the Mideast. But two big data points could soon cause some ripples in this market, Placid Waters. CPI tomorrow and NVIDIA earnings next week. So is this low volatility world just the calm before the storm? Guy. I would have said that months ago, but I'll say yes again today. And it's interesting.

1:40Listen, this is what I think is going on. But people have been conditioned to learn that markets, if they go down, they don't stay down. And there's no point in being long volatility because long vol trades typically don't work. And oh, by the way, we can actually create a synthetic dividend for ourselves by selling volatility. And I think all those things together is sort of what's going on here. Now, I also think that's sort of a recipe for destruction. That's a trade that will work the majority of the time. When it doesn't work, you sort of blow up. But right now, when people see a PPI that comes in hot, yet the market doesn't react.

2:11And when they see the geopolitical stuff going on, the market doesn't react. They get emboldened to continue to do these things, and they'll be right until they're not. And that's not meant to be glib, but that's how these things typically end up. Yeah, and you also have a market that is broadening out. I just said it there, people. And, you know, you can debate that, too. You know, Guy, I know you like to do a lot of quantitative work this afternoon. You took a look on the facts that here, how many stocks in the S &P 500 above their 200-day moving average? We were talking about it before. It's over like 75 % right now.

2:37And you're also seeing the S &P 500 outperform the NASDAQ a little bit. That doesn't say that I'm getting bullish or anything like that. I think a lot of what Guy just said is really true. But the fact of the matter is the Fed chair Powell comes out today and he basically says, hey, listen, it's going to take us a bit longer. Get comfortable with rates higher than you expect. And that doesn't even phase market participants, equity market participants. And I guess when you're thinking about it here, though, you know, we have an S &P that's up 10 percent back at all time highs. All those readings you said are very near lows.

3:07There is an alternative here, people. You know, three month treasuries are paying five point four percent. So if you think that, you know, we're going to go sideways, there's other places to park your money right now. And I'll just say the last thing. I get it. Earning season, Q1, better than expected. Q2 guidance on a one off basis. There were some situations here. It looks pretty decent. But at the end of the day, we're likely to get the benefits of a lot of this excitement in and around generative AI with these top five names. They're probably in the stocks. It's probably in the market. And that's what we saw last year when we got into July.

3:39It was a pretty rocky period on the way to the lows back in late October of 2030. Are we in for a surprise, do you think? I think the market is positioned actually for a surprise to the bullish side or, in other words, a more benign inflation print. I think you've had and I think there's more focus on on CPI than ever, not only because we've had three bad prints, but because if you look at some of the data we got today, the components of the PCE have been very mixed. There's been there's been actually enough to say maybe you could read through this. The Fed should be OK. But that's right. I mean, Powell was out there in Amsterdam today and he's saying I'm not going to hike anytime soon.

4:14But he also didn't say he also said I'm not going to cut anytime soon. He really reiterated the higher for longer and that restrictive policy needs to remain restrictive. But again, the flow to the market has been as long as the Fed is not hiking. And I know that's it's it's almost absurd to think that that's oh, it's great, great risk on if the Fed's not going to hike and nobody even thought they were going to hike. But but truly, the data for the last few months has been has been to a point where people might have had to quickly reassess. So I think, look, look, the move in the market and the collapse in volatility is all post Fed meeting.

4:45We're going to build up to this again. I think it's all about the Fed. And we're in an environment where we know eventually they probably will cut. we just don't know when. And the markets love this. I mean, maybe half the battle is just knowing where the Fed stands. And he addressed the possibility of a hike. He said he really does not see that as being the next move. And by many, many measures, he used two many's, policy is still restrictive at this point. And so you know the Fed's going to stay up here, and maybe that's enough for the markets at this point. What do you see in terms of the possibility of a surprise on volatility?

5:11Well, you know, we see the VIX as a measure of market sentiment. And of course, with it so low, or relatively low, it would suggest that there is complacency in the market. It's not always the case. But right now, with the meme stocks running up, it has that feel to it. What was interesting is that yesterday, Monday, the VIX gapped up after having declined pretty notably for more than three weeks. And it came into some support on the chart. Now, longer term, the VIX tends to move in these cycles, sort of a low vol versus high vol cycle. We've been in a low vol cycle for more than a year, which is above average.

5:47And the indicators are starting to shift momentum wise to suggest that we'll get into a higher vol type of environment, both near term and also potentially over the coming months. Right. But in terms of higher vol, you're mentioning some of the structural reasons why volatility will not go back to the highs that we've seen in the past. Do you think that holds? I believe it. Listen, that's my belief. I'm not suggesting I'm right. But if you think about sort of the arc of this entire thing, there used to be a time where people bought volatility, bought options to protect portfolios. When they realized sort of zero interest rates did not allow the market go down, they said, you know, why do we need to do this anymore?

6:23We're not going to. And then I think some genius came out and said, wait a second, not only don't we need to do it, we can actually sell this volatility again, create this dividend for ourselves. And I think that's been the game for a while. I think that's why vol has been muted the way it has been. However, you do get instances where that genie gets out of the bottle. We saw glimpses of it a month or so ago. It was short-lived, but I do think we're entering a period, to Katie's point, where people better be prepared for it on the upside. And then we've been talking throughout earnings season about the giant jumps or declines in stocks on the back of earnings.

6:55So individual stock volatility on an event basis, we've seen that. I mean, time between Meta and Starbucks, I mean, so many big cap names are seeing giant moves up or down. They seem idiosyncratic. I think there's kind of two themes, though, that we could kind of think about. One would be who's benefiting from generative AI and all the spend. And the other one is the consumer starting to weaken. And I'll just say this. We're going to get a lot more data about the consumer as we get deeper into retail earnings. I think what Walmart has to say on Thursday is going to be really important. If it corroborates some of the things that we heard from some of these other consumer companies, then you should start to get worried about the U.S.

7:29consumer at a time where Powell just told us rates are going to stay higher for longer. A lot of U.S. consumers are spending on credit. We're seeing a lot of credit reset at much higher rates. So these are all things I think we can focus on. But the flip side of that is if we do have a benign CPI number, if we do have yields go lower, we have crude going lower, we have the dollar going lower. These are all supportive, I guess, of equities and equity valuations and a consumer maybe giving them a little bit of a backdrop or something like that or backstop. So to me, I guess it's a really difficult time right now.

8:01Now, the last thing I'll just say is I just can't foresee a situation where we get a massive gap on a weak CPI to new highs where we are essentially right now. But to a stat, well, because I mean, I really to me, I think that's what happens tomorrow. You do. You think we get like a one, two percent move on a weaker than expected? I mean, listen, I think you could see a huge relief. We've had three bad ones in a row. I mean, kind of probabilities here. I mean, people priced in a lot of people have CPI shock. And if you've got something that look benign. And again, we're near those. We're near those peak.

8:30We have semis that should be under some pressure here that are within 3 % of all-time highs. And you've got the NASDAQ, which, again, an all-time high, even though it is underperforming the S &P. But I feel like this market tomorrow wants to go higher on a better CPS. So you think that's a bit of the pain trade, too, right? And so if you look at what else is going on with meme stocks and everything, I mean, like, I get it. Like, you don't want to really step in front of that. But, like, for instance, if the number is a little hotter and it's the fourth one in a row, then I think the narrative starts to shift a little bit.

8:57And then really quickly, we get back to earnings with NVIDIA next week. And what does that mean for the entire mega cap tech complex? Because if you lose that, which we lost last summer, then you lose the market. Well, I would say, you know, we're prone here to a false breakout in the S &P 500, very close to the highs, minor resistance, around 5260. What I could see is a gap up and a positive initial reaction from the market, but something that's not sustained. And for us, we always want to make sure these breakouts hold near term. And I don't think it'll hold. So we feel like we have one more down leg to this so-called corrective phase that began in April.

9:34And the VIX and its posture would corroborate that. And the downward leg would bring us to what level, approximately? Well, I wish I knew. But the initial support is around 50-55. I think that would be prone to a breakdown, just given the status of our indicators, a little bit too overbought for that to hold. So, you know, the secondary support, 4810 to 4820, that includes that former resistance level. That seems a bit aggressive to me based on where the indicators stand. So perhaps somewhere in between. I think for the long only crew, though, you know, you talk about those levels. You may absolutely be right.

10:06And I think there's been a number of stocks that have maybe proven that, especially in the mega cap, the M7s. But, you know, down to, say, 50-50 on the S &P. For a lot of investors, it's like, whatever. You know, that's not something that scares people from getting out of the market. And if you think about not just passive flows, but people that really are investing along secular trends, they understand there's going to be volatility. That's a lot of my clients. They just, you know, they're like, I just I don't want to not be in the market. And if you told me that the corrective phase is down to 50-50, I'm probably not going to be too cute around the edges, I think.

10:35Yeah, it's managing risk just short term and waiting for better entries. Well, is the pullback in volatility pushing traders into riskier assets like meme stocks, Mike Coe's the options read, Mike? And some of the volume has just been staggering in these names in the past couple of days. Yeah, they're back, it would seem. I mean, the stocks themselves are not back to the prior highs in some cases that they had seen. But the options volumes have certainly recovered. We have a couple examples here. Beyond Meat traded 8.3 times its average daily call volume. And the buyers were most active in the May 10 strike calls, which expire at the end of this week.

11:1025 ,000 of those traded for about 81 cents on average. Virgin Galactic traded 7.3 times the average call volume. The May 1.5 calls were the busiest ones there. About 18 ,000 of those traded for about 16 cents. And Lucid Group traded 6.2 times its average call volume. May 3.5 calls, most active, 36 ,000 or so traded for about 16 cents. In every one of these cases, the traders are betting on moves of 30 % to 35 % and risking anywhere from 6 % to 12 % of the current stock price to make those bullish bets. All of these have very high short interest, and I think that's something to see what they're after.

11:44Yeah, that's a common thread there. What kind of action have you seen in GameStop and AMC? Very much the same thing, actually. I mean, most of these, you know, really beaten down stocks, it basically is that whole theme. People are screening, I think, for high short interest. I think those two, actually, we've seen really big volumes both today and yesterday. And that's not surprising. You know, the Roaring Kitty return, I think, probably really got the GameStop thing in particular really fired off. But it's all of these. We also saw activity in things like Plug, ChargePoint, a lot of these names that are actually single digits and probably on the cusp, you might say.

12:26But they're not on the cusp as far as call buyers are concerned who are trying to play for a squeeze. Is this the result, Guy, of this low volatility world? People getting pushed out on the risk spectrum. I mean, it's clearly devoid of fundamentals. We've said it doesn't matter, though. I mean, we've made the point. And listen, over the last two days, AMC, for example, has traded over a billion shares of volume. This is a stock that typically trades, I think, 18 to 20 million shares a day. A billion shares in two days is a lot. So again, any shorts that have been in this name have had ample time to get in, get out.

12:57I mean, part of it's shortcoming without question. I mean, just part of it is a chase as well. So this can last. I mean, Tim talks about all the time. Karen said it last night. Silly can be silly a multiple of different times, and we're seeing it now. My concern is that people will get left holding the bag at some point. And we actually said last night one of these companies should do a secondary. AMC actually did today. It didn't matter, obviously. But, I mean, that's if I were running these companies, especially at GameStop. Not that they needed it or anything, but this is an amazing opportunity, especially at GME, I think approaching all-time highs to do something in that realm.

13:29Well, yeah, but, again, you know, we talk about this. We don't like to use this term in a way that sounds derogatory, but this is playing at the casino where the odds are just stacked massively against you. We talked about yesterday where GameStop went out. It was trading at$30. We were looking at the at-the-money straddle, the call premium and the put premium in the same strike where the stock's trading. It was like 65 % of the price of the stock going out a few weeks. If you look right now, just playing for May 17th in GME, it closed at about$49. The 49 call, if you wanted to define your risk and make a bullish bet on this between now and Friday's close, it'll cost you$12, a quarter of the value of the stock price.

14:07So, you know, you better be fast. You better kind of know what you're doing. You've got to understand that this stuff could be binary, and it could be really hurtful to a portfolio. So, again, if you are good at trading this sort of stuff, like, have at it. But it's not my game. Well, there are definitely plenty of the traders that we're talking about. It's not derogatory at all. They're traders. And so I had a partner once who was one of the best traders I've ever worked with. And he said, you know, don't tell me what to buy. Tell me where to buy it. And that that ultimately is what you have.

14:36You have you have volatility on steroids here. Why it's suddenly been interjected, whether it's Mr. Mr. Kitty or or or not. I mean, it's it's extraordinary. But Katie's right. This is a sign of risk aggression. And it's something that we've seen at periods in this market. And look at credit spreads. I mean, people are pricing things like nobody's going out of business. Mike, thank you. Always nice to see you. Mike Coe. Coming up, the AI race is heating up as Google announces its most powerful Gemini model yet, how it compares the latest ChatGPT product announced just yesterday, and how it positions Alphabet in the neck and neck battle.

15:09Plus, running ahead of the competition, sneaker maker on holding, jumping after results, and Nike gets left in the dust. Can the legacy name launch a comeback, or is there a new goat, G-O-A-T, in the shoe game? Don't go anywhere. Fastenies back in two. This is Fast Money with Melissa Lee right here on CNBC.

15:40Welcome back to Fast Money. Google's I.O. 2024 conference kicked off a few hours ago with Alphabet CEO Sundar Pichai unveiling a slate of new products to compete with OpenAI and Microsoft. Deirdre Bosa sat down exclusively with Pichai just after his keynote, and she's here now with all the highlights. Hey, Dee. Hey, Melissa. So this is really the biggest change to search that we have seen in decades. An AI overview will now be the default. It'll roll out to all American users of Google this week and then to Google's billion plus users over the next, by the end of the year, rather. The technology now will decide whether you get those 10 blue links or whether you get more of a chatbot answer.

16:17I sat down, as you said, exclusively with CEO Sundar Pichai right after the keynote, and I asked him how this is going to change the business models. He said that both users and advertisers are going to weather this upheaval, much like they weathered the shift from desktop to mobile. And he thinks that it will be smooth. Also this week, between OpenAI's demo and Google's today, we got our first glimpse of AI agents. Here's what Sundar Pichai said about Google's. I think you started seeing examples today across our keynote of what we think of as agentic capabilities. Project Astra itself is one, right, to be able to process the real world in front of you and constantly process it and answer it intelligently.

17:01We are building, you know, you can go to Gemini and ask it to plan a trip. In search, we announce multi-step reasoning. You can write a very, very complex queries. Behind the scenes, we are breaking it into multiple parts and composing that answer for you. So these are all agentic directions. very early days, we're going to be able to do a lot more. I think that's what makes this moment one of the most exciting I've seen in my life. One of the criticisms of Google, particularly over the last 18 months, is that it doesn't move fast enough to release these products. So even though the demo, they're calling it Project Astra, that AI agent, even though it was really amazing and captured a lot of imaginations, I asked him, when are we actually going to see it?

17:45And he told me that he expects by this time next year, IO 2025, that it's going to be ready for the mainstream and they'll have rolled it out to all of their billion plus users. Melissa, back to you. So, Dee, having seen GPT-4.0 and now Agent, how do they stack up? They sound sort of similar in what they're going to try to achieve. Yeah, I think the major difference, which they both share, is that this is no longer a chatbot that you type queries to. This is an agent that you interact with, that can reason, that has emotion, that remembers where you left your glasses because it has scanned the entire room that you are in.

18:24So I think they're pretty similar. And that's the key. I mean, we talk a lot in San Francisco about the commoditization of large language models. Now we're going to start to see the AI agents roll out. Do you need to be good enough for the consumer, good enough for the enterprise, good enough for developers? That's where the next race is going to take place in the application layer. who gets it out, how capable it is, how it works with you. That's going to be really key for the next year, as Sundar Pichai calls it. You asked the key question, though, in terms of how it changes the business model.

18:53Did you feel like you got a satisfactory answer? You know, comparing it to the transition from desktop to mobile is fine. But when you're talking about an agent and you're dealing with this chat bot and they're talking to you, where is advertisers? You know, that That fundamentally is going to change Google's model. It's a great point. Now you're relying on the technology to either show you a merchant's link or give you a generative AI answer. And if it gives you that gen AI answer, it pushes the links that have proved extremely profitable to Google, push it below the fold. So our advertisers are going to be spending the same amount of money.

19:28I'm not sure he answered it directly, but he did say that people are using search more than ever, and they're finding these opportunities to provide them links, and that a chatbot isn't what users want in some of these cases. So I think that's still being negotiated, but he said that it's, you know, they're going to be traveling. It's a bit of a path up and down to see where they all level out, but he did not seem so concerned about it. And he also said that the costs for them are not going to go up materially. When you think about what it takes to run these queries, I think a lot of us thought it would be way more expensive.

20:00You need to use GPU-level compute power, he says that they've actually figured out the technology to make it a lot more efficient. All right. Debo, thank you so much. Deidre Bosa at the Google conference. What's your take? She really surrounded the trade there. It's Debo. Let's just call it. I mean, let's say a couple of things here, because we've all been waiting for like a good generative AI, you know, presentation by Google. The stock market says they got it. It didn't crash, you know what I mean, or fall dramatically, which it has done a few times over the last year and a half or so, especially in the face of what OpenAI did yesterday and what we expect maybe OpenAI does with Apple.

20:38That's going to be a really determining factor, I think, for some of this technology over the next few weeks, over the next few years, what gets announced for WWDC. But this is about distribution. And when you think about nine products from Google have over a billion users. If you think about one and a half billion users for Gmail, if you think about Android, this is really important. Three billion users globally, right? Why is iOS and Apple so interesting as a partner for, let's say, open AI? Because of distribution, because of their installed base of 2 billion iOS users. So to me, I think a lot of the stuff that we've been focusing on, chatbots, and Dee talked about this, is that that was so 2000 and early 24.

21:17I think what happens next is really about how these huge platform companies distribute this tech and monetize it. And Meta has already done that to some degree. It got a little bit punished for the spend. But that's, I think, the argument going forward. I think Google set up to do this. That's a question that I have, though. How do they monitor? Do they charge for this specific service? Do they benefit from advertising, which seems like an unknown business model? Because it doesn't seem like things will change, right, if there is this sort of chatbot sort of model. Or does it enhance their ability to sell other products?

21:51I don't know where the answer is at this point. I don't either. But it leaves us with the same question. is the pie any bigger that they're pulling from? In other words, you know, their revenue stream is a function of the business they're doing today already in those areas as the dominant player. So it's a fascinating thing. And Dan pointed out that the market's reaction. I'm shocked at the market's reaction. So the market's reaction was no reaction. So you have to have some reaction. We've been vilifying or maybe not vilifying. The market has been pushing Google around, although Google has been pushing higher, because they really haven't had this, you know, earthquake of an announcement.