The Most Important Chart in the Market, and Who Will Win the AI Race? 12/7/23

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. From queues to crude to credit and beyond, the traders set to reveal the most important chart they are watching as we count down to the end of the year and look ahead to 2024. Plus, taking flight, airlines roaring higher, the Jets ETF up nearly 20 percent in the past month. We'll see what the options action is saying about the next move from here. And later, dialing up new highs at T-Mobile, getting behind the gains at Walgreens, and why a couple of AI laggards are catching a bid right now.

0:33I'm Melissa Lee coming to you live from Studio B at the Nasdaq. On the desk tonight, Tim Seymour, Dan Nathan, Guy Adami, and Mike Coe. We start off with a rebound on Wall Street with the Nasdaq popping nearly 1.4 percent. The tech heavy index climbing back into positive territory for the week and looking to close out six straight weeks in the green. The S &P and Dow also up today, both breaking three-day long losing streaks. All this as investors turn to a trio of key events in the coming days. Tomorrow's jobs report, Tuesday's CPI print, and of course, the last Fed decision of the year coming in less than a week.

1:04So with all these potential catalysts looming over the market, we wondered what our traders think is the most important chart right now. A lot of pressure here. Guy, why don't you kick it off? There's always pressure on this show, Melissa Lee. I think it's a bank. So if you go into the premise that our economy is driven by people buying things, right, people having jobs, people buying things, people buy things on credit. Well, bank credit has been contracting now for the last couple of years, and it's starting to move in a pretty noticeable way. So I think that's concerning, especially when you couple that with the fact that we're going to know about this within a few hours, this unemployment rate that I think is going to start ticking higher in a meaningful way, in a stair-step way higher, which, by the way, the Federal Reserve wants.

1:46So if bank credit is contracting, if people are starting to lose their jobs, in my opinion, it can't augur particularly well for the economy and then subsequently the stock market. Now, you will say correctly that you've had these concerns for a while. You're 100 percent right, Melissa, and it hasn't manifested itself in stocks. No, no, no. There's no reason to leave. We're two minutes into the show. However, I just think it's, again, I use the word inevitable. I think there's an inevitability here. I have a question about the state. Does it include mortgage debt? I believe, well, it's interesting you say that.

2:15Because I would think that there would be a drop-off because people are taking out less mortgages. Without question. But I also think it's interesting. You know, the banks were on Capitol Hill, regulation coming, more stringent requirements in terms of, that's all fine. It may happen. Private equity will fill, or private credit will fill that void. Problem with that is private credit will fill that void at probably 2x where banks lend money. So I think it's somewhat problematic. Is this problematic in your view or is this the consumer becoming a little bit more careful? Maybe we want the consumer to be more careful.

2:44What consumer? The American consumer? Yes, the American consumer. More careful. I don't know. Dan, what do you think? No, no. I mean, listen, you know, I think, as you pointed out, she would be right to point out that you've had this concern for a while. And we have. But, like, that's kind of the point in a way, you know, like the way kind of economy and the mechanism, and how it works into the markets or whatever. So to me, it's all going to happen at once. And that's kind of the history of the last 25 years. The consumer goes until they can't anymore. And there's some sort of other event that causes some sort of dislocation.

3:13And then it's reflected in risk assets, in my opinion. Tim, what is your chart? My chart is the NASDAQ 100. And it's the NASDAQ 100, though, relative to the S &P. And I just get back to the double-edged sword that is the leadership that has been the story of the market for the last two and a half years, maybe three years, maybe even five years. And this chart, by the way, again, it's a relative value chart at home. You can do this if you want to basically do QQQ divided by SPY and you get a ratio. And you can see that we're about to set either fresh new relative highs to the S &P, which means the biggest stocks in the world are leading, or we're at the old triple top and we're at a place where, Frankly, we talk about this all the time.

3:55It's also very equally scary that the concentration of longs in these names, whether it's passive investing, whether it's hedge fund crowding a day like today, when you have the kind of moves in Google and Apple. I mean, Apple is right back to near those all time highs. Amazon, to me, of all of those stocks is breaking out and has the best chart. But but again, this is the story to oversimplify. Sure, we are. We keep talking about wanting the market to broaden, but it's not. There's a lot of crowding. And that's a big risk for this market. And it's a big risk that at some point these things run out of gas.

4:27So, Mike, in your view, when you take a look at that chart, is a glass half full or glass half empty? Because you could read it either way. Well, certainly for the people who are buying these things, it's half full and it's still filling up. But personally, I think a lot of these names are getting pretty stretched here. I would be inclined to fade, I think, all of the enthusiasm that we've seen. I mean, really, what is the enthusiasm propelling the Nasdaq more than anything else? It's really this AI story, I think, picking up these biggest mega cap stocks. And, you know, I think if you've been lucky enough to ride this train, boy, I think it's probably time to get off.

5:01We've had, though, the S &P 500 hold up as we witnessed this rotation. So isn't that proof that there can be a broadening out of the rally and that's a good thing? And we can survive maybe without the MAG-7 making new gains if they're just sort of hanging in there, Guy. A hundred percent. I mean, that's the bull case is, listen, guess what's happening here? You're having a brought in out of the rally. That's a good sign. Energy has been rolling over, but it's making up for in other places right now. Yeah, it is encouraging. And equal weight is starting to show its strength for the first time in a long time.

5:31The Russell's starting to participate a little as well. A hundred percent. And if you think we're going to go into next year and that will continue and inflation is going to continue to come down, the unemployment rate doesn't basically jettison higher in a meaningful way. That's sort of that soft landing scenario. It's just, in my opinion, I don't see it happening. You've also had, first of all, the inflation thing you're talking about, let's be clear, it's been painful on the consumer. It's brought the Fed to high alert. It's been great for corporate earnings, okay? And they were selling fewer units at higher prices, and the numbers look pretty good.

6:02So the other side of this coin is what happened to the bond market because of what the Fed's doing, and then some of the technical things we talk about with issuance and where we are with the deficit. We go into this payroll number tomorrow where, I mean, the bond market's telling you, And I think it could be a wake-up call for everybody that thinks that rates are going to 375 quickly on the 10-year. I mean, the market's priced it in like we're getting 120 ,000 jobs tomorrow. The consensus is 185. We've had a lot of labor data over the last 10 days, different parts of bigger indices that have come in.

6:30And I think you have to be careful about that. You just said, you know, what's happened in the bond market. Nothing's happened in the bond market. Like, for all intents and purposes, the 10-year is back where it was four months ago. So you just rise to five. Yes, skip it. And then you tell me, where's 30-year mortgages? Have they round-tripped? They haven't. Okay. You know what I mean? So to me, yeah, they're not going to. So I think you can take any data point that you want. I know a lot of us are focused on that November 13th, that CPI print that we had that caused that move in the 10-year to retreat from 5 % in the stock market has been a ricochet since then.

7:04But to me, until we get some more clarity about what Fed is going to do with Fed funds rate, I don't really care because I agree with you. I actually think that the 10-year probably finds a lot of support in around 4%. All right. What is your chart? Oh, yeah. Okay. So mine is about that Fed funds rate. Yeah, it does a little bit. So listen, I'm nothing if not persistent here, and I made this point on many occasions. This chart is over the last 30 years. It's a log chart. It's the S &P 500 versus the Fed funds rate. And you can see that funky one. That's the blue one there. And you can see those kind of rate hiking and rate cutting cycles by the Federal Reserve.

7:38And you can see the S &P 500 overlaid with that. We talk a lot about the fact that, OK, the Fed has paused, which they, you know, they did that in July. And so to me, that was the all clear, I guess, this fall to start buying stocks, because the next thing is going to be that they start cutting. And a lot of folks think that's going to be good for stocks, good for valuations. That chart says otherwise. If you look at the rate hiking cycle that happened in 99 and the pause in 2000, the rate hiking cycle that went into the early 2007, the rate hiking cycle that went into 2019. What happens when the Fed actually comes off the pause and starts to cut, they start cutting aggressively.

8:16And in 2007, the S &P got cut in half. In 2020, we can all agree that was a black swan event, okay, but the S &P went down 35%. Now, it did come back very quickly, and we know why. You tell me what's going to happen in the fastest rate hiking cycle that we have ever seen in our lifetimes, okay, with valuation stretch, with all these credit dynamics that we've just talked about in a way, when the Fed finally has to cut next year, it's not going to be with a big mission accomplished sign, you know, like, you know, put up behind it, in my opinion. And that's going to be difficult for risk. I want to just go through this chart just a little bit, because on the surface, it looks like the S &P 500 goes up regardless of what the Fed does long term.

8:57But you're saying that does that. Right. Yeah. So So why not just be long for a training show? Be long, except that a lot of folks who watch this show, okay, they make lots of silly mistakes, as I do too, by the way, okay, at highs in the markets, okay? They make lots of mistakes at lows in the markets. And sometimes it's just not that easy, right? And so, like, again, you know, like people get their YOLO and stuff. They're getting into their second home. They're buying cryptos because they think that's the answer to this. They're doing all sorts of things. You know what I mean? I thought you were throwing the red flag on him because his chart's actually two charts, by the way.

9:31You said, I mean... Well, yours is sort of two charts, too, except you did the ratio, so you combined the two charts. I presented one line, people. I like Dan's chart. Look, Dan's a history book. That makes sense. I mean, that's what has happened, and there's no disputing that, and this time, it's always different, and it rhymes and all that weird stuff, those things, those expressions that I barely even understand, that one particularly, but the way this is playing out is taking longer, And that's why I think it's, you know, it's it's been an extraordinary environment for picking stocks. And I think it still is.

10:04And I think it's an environment where the Fed, there's one hundred twenty five basis points of Fed cuts. So this is like doubled in the last couple of weeks. And the Fed's has to hold their ground. So I think it presents trading opportunities. I think the consumer will weaken. I think credit spreads are too tight. I think it's going to take some time. And I think we're going to continue to see that labor market weaken. But I bet it's not tomorrow's payroll number. Mike, what's your chart? I was taking a look at crude. I think this is a very important chart. First of all, look, it's a major input cost for so many industries, particularly everything related in the industrial space to transportation.

10:39I mean, you're talking about 30 percent of the operating expense for an airline. You'll get 20 percent for shipping and trucking and probably somewhere between seven and 10 for sort of the logistics companies like FedEx and UPS. It's also a bellwether, right? So we can sort of see what global demand looks like in the OECD countries. Demand for crude is essentially stagnant year over year, which I think speaks a little bit to what these guys are talking about in terms of how people are doing, at least in the developed countries. I mean, the only growth we've seen in crude demand is really coming from the developing world.

11:09So I think this is an important thing to look at. I think also it's psychologically important for U.S. consumers. It's going to represent not a huge percentage of discretionary income, but it's the one that they look at every single day. So the perception of inflation and how it's impacting household budgets, I think it's going to be impacted by the prices that they see at the pump. And even if you drive an electric car, you still drive by gas stations. So you get to see that thing every day. So I think this is sort of important for the psychology of the consumer. I think it's important for the expenses, essentially, for a lot of these companies.

11:44And, you know, I'm keeping close track of it also because I want to see whether demand is actually falling off. And if it is, that's evidence that things are slowing down still further. So this is also a glass half full, glass half empty situation, Mike, because all the things that you highlight in terms of consumer perception of inflation and inputs, you know, that's all good, right, with crude coming down. But on the other side, you know, if you have demand coming off, that indicates a slowdown. So what is your final take on that? Yeah, well, I mean, I would say that the demand side in the developed world is suggesting that consumers really aren't spending that much.

12:17And there's other evidence that they might be slowing down. I mean, we see rising auto loan delinquencies. We see basically peak revolving credit levels. You put all these things together and it just suggests that there's not a lot of discretionary income left in this part. But what it also tells me, interestingly, is that the developing world still seems to be growing, albeit at a slower pace. And, you know, if shipping costs come down and we do start to see rates fall, then maybe that will loosen up checkbooks just a little bit. All right. Well, we got a fresh jobs printout tomorrow morning.

12:47Our next guest warning a hiring slowdown is here. Let's welcome back Peter Bookvar. He's a chief investment officer at Bleakley Financial Group and also a CNBC contributor. Peter, great to have you with us. It feels like the markets want to see, you know, slowing in the labor market. The markets want to see a reason to rally into your end. What derails that in terms of the print tomorrow? Well, before today's rally, when I looked at the action earlier part of the week, I felt that maybe the market was shifting its attention from the happiness that the Fed's going to start cutting interest rates, by stocks to starting to question, well, if they're cutting interest rates and oil prices are dropping, that means possibly a recession is upon us and maybe I should be selling stocks instead.

13:32So if you told me the number today, I don't necessarily know which one of those things that the market would sort of latch onto. I'm beginning to think, though, that if we see a weak print, I think the reality of a a more dramatic economic slowdown next year is going to be more front of mind rather than, oh, the Fed's going to cut rates and everything is going to be fine. I think Dan's charts, I think, was a good history lesson. And many people in the markets weren't around on trading desks during that. And that's because the markets focus more on the deteriorating economic situation rather than just the joy of the Fed cutting interest rates.

14:08It's interesting, Peter. I think right now the market is pricing in five cuts next year starting in March of next year against a backdrop where I haven't really heard Jerome Powell waver all that much. So the market's seeing something I don't think the Federal Reserve is necessarily seeing. So let's play it out a little bit. Let's say it's a strong jobs number tomorrow. Does that revert? I don't say it's reversing from 415 to 5 percent in a 10-year. But we have an auction coming up, a lot of things to be talking about. Could you see a significant move back up in yields on the back of a strong jobs number?

14:42It is possible. I think, though, a strong jobs number based on a growing bunch of evidence that is pointing to a deteriorating pace of hiring, that I'm not sure if that one jobs number is going to really shake things on the upside. I do think what would be the most concerning thing is that after this fall in longer-term interest rates, if it reverses in the face of still weak data, that to me is a big flag. Because we were three and three quarters in July in the 10-year yield. So even with this pullback of about 90 basis points, we're still above where we were. And you can argue that the economic situation today looks weaker than it was in July.

15:28If you look at a lot of what retailers are saying and even a lot of the jobs data, whether it's continuing claims, whether it's what the PMIs have said, whether it's the job openings number, whether it's the hard-to-get question in consumer confidence, all are pointing to a slowdown in hiring. And ADP, the three-month average in private sector hiring, according to ADP, is only 99 ,000. That's a clear slowdown from the pace we saw in the early part of the year and certainly versus last year. So, Peter, part of the reason why I think your work is so effective all the time is you have a macro view, you have an economist view, but you also have a view in terms of market positioning and sentiment, and you kind of weave that into an overall view.

16:08And the smart lady to my left yesterday talked about how the recession is now consensus. And there's nothing good about that in terms of positioning, in terms of what markets are doing, both in terms of possibly on the bond market, But that actually, sorry, no recession. I'm not sure if I know reception. No recession is now consensus, not recession. Whereas we were in the consensus recession camp one year ago. Talk about positioning against that view. Well, I think the one thing that caught people off sides that were in the recession camp, and I'm included in that for this year, was the belief that the short rise in interest rates would have a more broader, immediate impact on the economy.

16:51What I think we've learned is that it's more of a slow-moving train that's coming down the tracks rather than affecting everybody at once. But the train is still coming down the tracks. I think we look at commercial real estate, for example. If your loan's not coming due until July 2024, well, you're okay up to this point. But that train is still coming towards you. So I think that that is sort of what's made this tricky, is that the economic slowdown is in what I see is metastasizing. But just because it's slow doesn't mean it's not happening. But I think the slowness of it has gotten people complacent, thinking it's not going to happen.

17:31Peter, always great to speak with you. Thank you. Peter Buchvar of Bleakley Advisory. Peter mentioned slower economy along with higher rates. That's a problem. We've got a lot of auction. We've got a lot of supply still coming on. We've got a lot of funding needs still that need to be fulfilled, Mike Cohen. So rising rates seem almost to be a foregone conclusion unless there's massive demand for our treasuries. I don't know where that demand is supposed to come from. I mean, that's you know, we the supply right now is is going to be so tremendous that, you know, it doesn't even really matter whether the regular buyers still want to own them.

18:10I mean, we're just printing so much, essentially, U.S. Treasury debt that it's really getting a little bit overwhelming. You know, one quick point I would make is that when we take a look at rate bets, and we do see them in the options markets fairly frequently, we usually talk about equities, but we can see rate bets and things like SOFR futures. And, you know, what we are seeing, essentially, is anticipation over the course of the next four to six months of rate cuts and fairly aggressive ones. There's actually been quite a lot of flow in that area. And, you know, looking at that, and this goes back to Dan's chart that we were talking about earlier.

18:46This is it's not a positive. Dan won the chart. I mean, really, I mean, you should get a trophy. Call it what it is. And a lot of the regular viewers will know I hate to sound this cautious, but like I kind of feel like I did at this time in late 2021. Right. When the Fed was about to embark on this rate, you know, like cycle. Right. So we're going to start raising rates aggressively. And so parts of the market were telling you that this was not going to be good for the stock market. And it took a little bit for the S &P to get the memo. And then it finally did. And then I just feel like 2022 was like a mirror opposite of 2023.

19:24And I think 2024 is going to get a lot harder because we don't know. The market right now is pricing aggressive rate cuts. And I think that if everyone's on one side of the boat thinking that we're just going to rally into that, It brings me back to 2021 because I think it probably goes the other way. Coming up, we're watching Lululemon and RH after hours. Shares of both lower after reporting results will bring in the numbers from the quarters next. Plus, a juiced-up Jets trade. Mike is digging into the options on the airline's ETF. The name's taking off and how to play the group ahead. Don't go anywhere.

19:54Fast Money's back in two.

20:02Welcome back to Fast Money. We've got an earnings alert on Lululemon. Shares lower despite beating expectations on revenues and posting an adjusted EPS of$2.53 a share. Kate Rooney's got the details. Kate. Hey, Melissa. So Lululemon's outlook for the holiday quarter, that's really what's weighing on the stock. After hours, the athleisure maker didn't beat estimates for its third quarter. Sales jumped more than 26 percent. Coming in above forecast, their revenue grew 19 percent. International revenue saw a 49 percent jump, while North American sales were up 12 percent. total comparable sales. Meanwhile, we're up 13 percent.

20:35That was better than expected. Outlook for the current quarter, though, that is dampening some of investor enthusiasm. The company looking for 12 percent earnings growth in Q4. That was below estimates. Then fourth quarter revenue estimates also came up short of what the street was looking for. It did lift its full year guidance on revenue. CEO Calvin McDonald, though, on the earnings call that's going on right now, talked about billion dollar buyback. He said that reflects optimism in the growth trajectory of that business. And then on holiday spending, he said, we're pleased with the trends we've seen the start of the holiday season.

21:05That being said, the majority of the quarter remains in front of us. He said, we remain aware of the uncertainties in the macro environment, and we continue to plan that business for multiple scenarios. A little bit of caution there at the end, Melissa. Back to you. Kate, thank you. Kate Rooney. Evercore points out that usually this company gives conservative guidance for the fourth quarter. So maybe it's not entirely a surprise that they're sort of pulling in expectations? Look, this quarter was very good, I think, given, you know, the North American numbers up 12, international down 49. We know how choppy that is.

21:36And I know it's an international growth story, but it's still really about what's going on in North America. And again, it's still about margins. And, you know, that's it. The gross margin to me is something to think about. The bleak outlook, the conservative outlook, less of a concern. They're buying back a billion dollars of stock. I just don't think you're paying a premium for this stock going forward. It's best of breed. Let's be clear. But everything we've said tonight on this show is the reason why I actually have a small short in Lula. 33 times next year's numbers with this guide. If our crack staff can pull up a longer term chart, you will see that the level we just traded up to was the same level of the all time high, I think, in November 2021.

22:11Two analysts, I think, on December 4th and December 5th, Wells and Raymond James or VC Vicey, downgraded the stock ahead of this. I will tell you this, inventory down four and a half percent year over year, that's a great number against sales growth of 18 % or so, which means margins did do better. And operating margins, 19.8%. All this is great, except the run in the stock and the valuation of the stock. And I don't know what VC Vicey, why they downgraded the stock. No, that's not an analyst. Who are they? Raymond Jameson. That's a great name. Basically, it was the run in the stock. Yeah. That was why they downgraded.