The Most Important Chart in the Market, and Why There’s No Safe Haven in Commercial Real Estate 6/15/23

0:01Right now in fast, rip-roaring rally. Stocks thumbing their nose at the Fed and Chair Powell's plan to keep hiking rates with the mega cab monsters pinging fresh highs and IPO delivering delicious returns on day one. Is this all a recipe for disaster or one for delight? Plus, nowhere to hide a new report on commercial real estate warning. There are no safe havens left at all in the sector and no end in sight to this pain. He's got one name in particular that could fall as much as 40 percent. The man behind this report will join us at the bottom of the hour. And later, clean up in aisle three at Kroger's, a trade alert on Intel and a magical month for investors in Delta.

0:36I'm Melissa Lee. This is Fast Money. We're live with the Nasdaq Market Sight on the desk tonight. Tim Seymour, Courtney Garcia, Bono and Eisen, and Guy Adami. And we start off with what one of our traders calls the dumbfounding moves in the market. The S &P 500 seeming to shake off yesterday's hawkish Fed commentary, closing above the 4 ,400 mark for the first time in more than 13 months. The Dow rallying 430 points for its highest close of the year. The Nasdaq up more than a percent, bringing its gains since January to over 31 percent. And take a look at some of the stocks sitting all time highs today from tech giants like Apple, Microsoft and NVIDIA to old guard names like Oracle, Lennar and Eli Lilly.

1:13Then there's the newest entrant to the market with a banner debut. Shares of Kava nearly doubling from their offering price, the best day one performance of a billion dollar IPO so far this year. So all this bullish action got us wondering, is everything really coming up roses? Shouldn't we be more bullish in this environment? We asked our traders to come up with the charts they think tells the real story of this market. Well, first of all, the other every Courtney, Bono and Tim have been bullish. So I have not. I don't want to be clear. So days like today definitely leaves me scratching my head.

1:47But you look at the market, everything clearly is coming up roses. But then you hear the commentary of the Fed yesterday. Again, we said it last night. If you played the game, you hear these comments, what's the market going to do? I thought the market would crater. It did not. I think the China stimulus, whatever you want to call it, clearly is helping. But that's not the only reason why. But the thing that has me scratching my head, if we're going to go right to it, is this Tuesday's 10s, which inverted to the tune of about 111 basis points, traded back down about 42. Now it's reinverting. That's not bullish.

2:17I mean, what does it speak to? In my opinion, it speaks to the front end of the curve, where inflation is still a problem, as manifesting in the two-year. And the back end, which seemingly is going lower for now, at least, means the economy is slowing down. And that is not a healthy long term recipe for equities, in my opinion. I would agree with that, except that this has been inverted for some time now. And it's the recession that never comes. And so at this point, what do you do? I mean, how much do you take stock in that at this point, since it hasn't been a great indicator so far? It hasn't.

2:48I think there are actually still a lot of positives when you look at the economy. And that's really what people are starting to price in. We're still seeing unemployment really low. And we just saw spending data come out and consumers are still spending like they're really not worried what's going to happen with their jobs. They're really not worried about wages. And that's really what's keeping the economy going. That's like two thirds of GDP right now. And so as long as you're continuing to see that, the recession does continue to get pushed out. And I think when you're looking at the markets here, they did hear the Fed yesterday.

3:12And what they heard was they're pausing right now and they were pretty definitive. They said nothing is on the table yet. So they're probably going to hike. And that's what's getting priced in right now. But the Fed, what, a year and a half ago, was saying, we're not even thinking about thinking about raising interest rates. And now they're saying there's no chance we're going to cut. I think at some point people are saying, well, if the data keeps showing inflation is coming down, aren't you going to follow that? And I think that's why you're seeing the S &P continue to improve despite what the Fed did yesterday.

3:38So your chart is the S &P? The S &P, which has continued to improve despite what some are seeing as a hawkish Fed yesterday. And I think that's just showing the markets are kind of ignoring them at this point, and they're looking past that. I mean, you have to wonder if the Fed has reached peak not credibility. What's the opposite? I mean, loss of credibility. The markets are doing this in spite of 12 of 18 members saying two hikes, three members saying six percent. And we have not talked about anything with a six handle for a while. And yet here it is. Yeah, that's true. I mean, I think on some level, though, you can say that people believe that the Fed is doing what they're going to say, which is they may raise two more.

4:17They're data dependent. And that could mean that they're done. If they're done, if we've peaked on rates, we've peaked on dollar, we've peaked on inflation. There's a lot of reasons why equities have done what they've done. By the way, we've been talking all about music the last couple of nights on this show. I'm surprised we didn't play Everything is Awesome by Sarah Antigua, because that's usually the song we play when the market's going crazy. So our team has some chance to cue that one up for the B block. My chart is ultimately the forward P.E. on the Nasdaq. It could be the forward P.E. on the S &P as well.

4:47But on the Nasdaq, it's a little bit over 30 times based upon today's close. And if you look at where we were going into pre-COVID, we were probably around 20 times forward. Take those companies, take the aforementioned Microsoft, which went to all-time highs today, up 57 percent since January 6th. Why? I mean, I kind of know why, but I don't know why. And I look at that forward P.E., and we say this all the time, and Guy does say this, Dan does say this, and they're right. It's multiple expansion. It's not earnings expansion. So the thing that's the most concerning chart to me is this this market at some point is just absurdly expensive.

5:21And I'm talking about the biggest companies of the world and some of the companies that don't make a lot of money. Of course, they're expensive. They've gotten more expensive on some level. So that that's the chart, the four P.E. But the four P.E. on the S &P is about 19.4 times. And that, again, if you look at where we were in the five years pre covid, we were at 16 and a half. So it's about multiples. But do you think that because this P.E. is so high at this point for the biggest mega cap stocks that that means that the whole market will come down or that this market is set next to to broaden in terms of the participants?

5:53I think the market is broadening. And I think since SVB, that knocked what was broadening that was going on. And if you look at the 11 sectors in the S &P, they've all joined in over the last six days. They've all been higher effectively during that time. So it implies broadening. But but at some point, you know, it does come back to valuation. Yeah. In terms of this market picture, you're worried about inflation and the consumer. And crude. So like you said, first of all, let me turn to Guy and say thank you. I love free stars because I most certainly have not been bullish. I've been bullish certain pockets of the market and that mega cap tech.

6:28So I'm going to take my medicine along with you now that we've got the Tussin out of the way. Yes, I have been concentrated on the consumer. And crude to me is what tells that story. If you look back a year ago, we were at what, 120? Now we're just above 70. And I think we know that that's not in the core inflation numbers, but it definitely speaks to the health of the consumer and their ability to spin. That's ultimately why we're all roses or perceived to be all roses, because the consumer has been extremely resilient despite all the turmoil that's going on. And so when I look at a chart that kind of gives me some insight into where the market is, I think when it comes to input costs or the consume more things of that nature.

7:07The crude tells you a picture. And if that were to turn and pivot, I think we'd be seeing a different tune. Right. I mean, the commodity charts in general have shown charts like, I mean, maybe not exactly, but we've seen lumber prices come down. I mean, really, things have rolled over in terms of those sorts of inputs to inflation. So if you look at the bulks, if we're looking at some of the grains and there's some important stuff that's coming down in price, some of it eventually feeds into lower food prices, although there's some reasons why food prices stay high. I think what's encouraging for commodities is that the dollar, I think, is also kind of in a place where it can't move a lot higher.

7:43Today's one of those days where ECB went. They've indicated they've got a lot more to do. And they don't really seem to care that they have a weaker economy and they may be pushing that over. Those central bank differentials have a lot to do with how the dollar is going to trade. And I don't think the dollar is going to go straight down, but I don't think it's going to go a lot lower. I think that's going to support crude a lot. You know, every every one percent move in the dollar is worth about three or four percent in oil prices and other commodities. And I think it's also very good for international investing.

8:11So commodities, I realize we we you know, today is one of those days China had bad numbers. And suddenly we think they're now going to stimulate and it leads to this. You know, bad news is good news. Yeah. In terms of bad news, good price action guy, I would argue that that yesterday and today is bad news in terms of hawkish message. which is today a rally. Good price action. Fantastic. There's no denying. I mean, the price action is extraordinary. So why don't I just be like, you know what? Throw your hands up. Everything is excellent. It's time to come around. That's fair. And we've been having that conversation, like, when are you being dogmatic?

8:45When are you just sort of fighting too hard against this? Because, you know, I'm still of the belief that I understand the market's going higher. I understand the exuberance around it. But nothing below the surface has changed, in my opinion. You know, below the surface. We're going to talk about commercial real estate. I mean, that is a shoe that will absolutely drop almost by definition. And liquidity, there's going to be a liquidity problem in this market as well. When Treasury needs to raise about a billion, excuse me,$1.4 trillion over the next four months or so, the Fed's not going to monetize that.

9:14Somebody's got to, it's coming from somewhere. So whether it comes out of the equity market or someplace, there's going to be a liquidity drain at some point that's going to have an adverse effect. Obviously, none of this has happened. The market's been great. The lag effect, all this stuff has not manifested itself. But the question is, is it just an inevitable matter of time? I say the answer is yes. Yeah. Courtney, would you continue to ride big cap tech at this point? Or would you say, you know what, I want to go to the other parts of the market that haven't participated and start rotating?

9:41You definitely want to make sure you're rotating. And that being said, you still want to own your mega cap tech. Your mega cap tech. They're not going anywhere. But I just don't think you want to be chasing that. I don't think you want to be overexposed, especially if any clients out there haven't rebounds their portfolios. You'd be surprised if you take a look and see how much larger of your portfolio has taken up right now just because it's had such a run up. So it is a good time. Take some profits. Get into the other areas of the market that are just now starting to take up this run. So even though the markets are doing really well, the general markets, you have not missed out on the upswing yet.

10:10And that's why you want to make sure you're rotating. All right. Meantime, the Fed lowered its forecast for year end unemployment to 4.1 percent from 4.5 percent in its latest economic projections. But is there more to the labor picture than meets the eye? Joining us now is Julia Pollack, chief economist at ZipRecruiter. The company published its Q2 new hire survey this week. Julia, great to have you with us. Thanks, Melissa. One of the things that surprised me from the survey is how easy it is to get a job. I mean, the amount of time that you have to spend looking for a job is not very much. And job seekers feel enough power in this market to actually ghost employers.

10:50Employer ghosting is going up, not down. And that suggests that job seekers are still very confident. The share that are satisfied with their new jobs keeps rising. The share getting signing bonuses, getting proactively recruited by employers, all of those keep going up. We have seen a decline in the share getting wage increases when they are job switching. So we do see a little bit of a pullback, but not that much. Where are you seeing the most strength in terms of industries? So this is still a market very much being propped up by strength in consumer spending and in those consumer services industries.

11:29Americans, especially high-wage Americans, are flooding to those Taylor Swift and Lizzo concerts, to the baseball games, and on vacations still. So those industries are are continuing to buoy us. But industries where we would expect to see much more weakness, like construction and manufacturing, given how high interest rates are, have proven remarkably resilient. And part of that's because of the enormous amount of private investment that's being stimulated by subsidies. Are you surprised that the job market has held up this well, in spite of 10 consecutive rate hikes? Well, I think everyone is surprised.

12:11No one would have expected that raising rates 5 % would cause unemployment to fall or hold steady. Everyone expected that that would hurt the labor market more. It seems now that that may not need to happen, that inflation is coming down quite meaningfully. Many of the real-time private sector indicators suggest that it's actually coming down faster than official statistics show, and that we're closer perhaps to that 2 percent target than than Fed members yesterday suggested. So if if wage growth has been sort of the the fly in the ointment here. And so can we have a situation where wage growth may be slowing, which it has been, but it still remains strong, even though inflation has come down?

13:00And that's OK, because that would imply, I mean, if I'm going to extrapolate onto corporations, that corporations will be feeling the pain in terms of margin compression? Yes. So right now, you know, workers have seen 25 consecutive months of real wage declines. The only workers who've received a real wage boost are the lowest wage workers, but they've also been hardest hit by inflation and have very little disposable income left after essentials have gone up so much in price. And, you know, even though inflation is coming down, consumers are looking at what's happened and they're looking at cumulative inflation.

13:37They're saying prices should have gone up just 6 % since the start of the pandemic. Instead, they've gone up 17%. And my wages haven't kept up. So there will still be a tension between employers and job seekers and workers in those conversations about offers, about raises, about promotions with workers saying, hey, I've been left behind here and you need to catch up. So that will continue to be at attention in the market, and it will keep inflation higher than the Fed would like. But we're seeing so much relief on other fronts that I think the picture is still quite bullish. All right. Julia, great to see you.

14:15Thank you. Julia Pollack. And all that, I mean, if I'm reading between the lines, tells me that the consumer may not be in as strong a position as one might think if you were to think that. I mean, prices are coming down, but prices went up a lot and wage growth hasn't really kept up, Guy. So lots unraveled there. I mean, I think exactly right. I think people are surprised by how resilient the job market is. It's like 1.7 jobs for everybody looking for a job. I mean, that number's been pretty stagnant for a while. It's incredible. Wage growth is still there. But you know what? The gist of this inflation problem comes in services and comes in shelter.

14:48That's not going down. And the comps on this inflation get more difficult moving forward, given what happened this time last year. So there's so many cross currents here. But in terms of what you just said, the consumer now with a trillion dollars ish of credit card debt and rising interest rate environment, it does not paint a particularly rosy picture. And we say it all the time. The U.S. consumer will spend until something scares them and then it stops on a dime. The thing that's going to scare them potentially is the market. But it has not happened yet. All right. Let's turn now to a developing story on Goldman Sachs.

15:18The Wall Street Journal reporting that the Federal Reserve and the SEC are looking into the role the investment bank played during Silicon Valley Bank's final days. Leslie Pickers got the details here. Leslie. Hey, Mel. Yeah, Goldman Sachs disclosed in regulatory filings a few weeks ago that various governmental bodies were in touch with the firm as part of a broader probe into the downfall of Silicon Valley Bank. The Wall Street Journal reporting a short while ago that the Fed and the SEC are investigating and the Justice Department has subpoenaed Goldman as part of its investigation into SBB.

15:48The journal cites people familiar with the matter in its reporting. Now, the crux of Goldman's involvement stems from an attempted capital raise that took place right before the bank failed. The Wall Street Journal said regulators are looking into whether Goldman's investment banking side and trading division were communicating about the portfolio sale. Those are supposed to be separate divisions that have kind of a wall in between them. Now, I haven't been able to confirm specific details about the investigation and which agencies are doing it. But a spokesman for Goldman Sachs said in a statement, quote, As we have publicly disclosed in our 10Q, Goldman Sachs is cooperating with and providing information to various governmental bodies in connection with their investigations and inquiries into SVB, including the firm's business with SVB, in or around March 2023.

16:36The firm told SVB in writing that it would not act as an advisor on the sale and urged SVB to hire a third-party financial advisor. So an SEC spokesman said that they do not comment on the existence or nonexistence of a possible investigation. The DOJ and Fed declined to comment. Melissa. All right, Leslie, thanks. Leslie Picker. I mean, not too much, you know, up 0.4 percent, but we did see an intraday reaction here. This comes a couple of days after The Wall Street Journal had this article about Goldman Sachs, about partners being unhappy with David Solomon because of the money-losing consumer business venture that has to be closed down effectively now.

17:17DJ Soul not spending enough time on the job. Lloyd Blankfein holding sway at a bar at a company retreat with people saying, you know what, he said that he's not, that DJ Soul is not spending enough time in the office. Guy's laughing. No, I'm not laughing. This is serious because - No, it is. Believe me, I think all of this snowballs here and becomes a problem in the boardroom. Well, it may. You know, the regulatory dynamics of actually being a buyer, potentially of securities portfolio and also advising on a cap raise are things I'll let all those people sort through. I mean, I think Goldman has sat in many complex positions many times throughout the years.

17:54By the way, they're the first call for every company. Let's be clear. I mean, who was seen as the one who could do the best job here? I'll say something else. I mean, if I if I look at a year, we just talked about what the market has done. If I look back over the last 12 months, Goldman versus the S &P, it's flat for all this bad news. And for all this and that and for an investment banking market that is completely dried up. I mean, Goldman's performance isn't that bad. So we had the DJ Saul, you know, discussion on this desk. And my guess is, yes, during more difficult times, that becomes a bigger deal.

18:28But the things we all do on our weekends that are around having fun with music, if you could only see me, it would be pretty funny. You guys spend a lot of time in your Spotify playlist. 100%. One that you curate. No, and Tim is, listen, Tim is sort of the Don Henley of the Wall Street community, a drummer that can sing as well. As you know, Melissa Lee. Listen, real quick about, there's clearly a faction that does not like David Solomon out there for whatever reason. He's not a Goldman insider. It came from Bear Stearns, the whole thing. The stock performance under his leadership is actually done rather well, number one.

19:04And listen, they made some missteps without question on the consumer side of things. That's what happens when you take chances. But there's clearly a bullseye on his back. And more and more of these stories coming out, you see what's going on. But in terms of the timeline, you know, he's probably towards the end of his tenure. If you go back historically and look at how long all of the men, by the way, have lasted, he's right up against it. So this is what you start to see as people start to sort of navigate and try to position themselves for the job. All right. Coming up, we are watching Adobe after our shares is on the move after reporting results and details from the quarter next.

19:36And we're driving into Lyft, the company's annual meeting, wrapping up almost as quickly as it started. We've got all the details when Fast Money returns.

19:51Welcome back to Fast Money and Earnings Alert on Adobe. Shares moving higher after a beat on the top and the bottom lines. Let's get straight to Deidre Bosa for the details. Debo. Mel, and a raise as well, not hurting the action in the after hours. Unsurprisingly, the call is still underway, but a lot of talk of Generative AI CEO Shantanu Narayan as saying they're bringing generative AI to life as a co-pilot. That's something we've heard him say before about their new product Firefly that is, he says, getting a lot of adoption. He's saying the strategy focuses on data, models, and interfaces. Investors these days, though, they don't want to just hear about product launches.

20:28They want to hear about monetization as well. So the Adobe team trying to sort of feed that itch for investors, saying that there are new monetization opportunities in a number of places. Generative AI tools are going to drive higher ARPUs and retention. For Firefly, they're going to have a standalone consumer product and an enterprise version. Less detail, though, on those hard numbers. They say that they're going to sort of give more details around pricing once they have some real adoption. Mel, I'm also listening for any details around that Figma acquisition that has faced some regulatory pressures.

21:00Haven't heard that yet, but again, the call is still underway. We're only about 23 minutes into it. While we have you, Dee, I do want to ask you about the Lyft annual meeting. I mean, What was so shocking was it lasted 15 minutes. What were the headlines out of the meeting? I could give them to you in about two seconds, because as you said it, Mel, the meeting lasted less than 15 minutes. There was only two questions. One question, what are you doing about the stock price? It is near record lows. The new CEO, David Risher, he said that it's going to take time. He said it's a lagging indicator, but he's been in this role for a few months.

21:35And I think investors probably wanted more on the strategy here, what he's going to do to turn it around. We haven't heard a lot of detail on that. Still losing ground to Uber, still really struggling at those levels. So it was stunning to me, Mel, as well. It was over so quickly. And I think expectations were a little higher given how it's trading. All right. Deidre, thanks. Deidre Bosa. Tim, you weren't asking that question, were you? Because the L in your lags trade is really dragging you down. It is the L &E lags trade. And look at that again. You know, how happy I would be if I hadn't picked Lyft.

22:10Everything else is really doing quite well. I still believe in the story. I still believe in the fact that it's a clear number, too, in a space that I think needs more than one and a space that some of the macro dynamics in the economy are not the reasons the stock's trading where it is. We'll see. I certainly hope you hear more. I am actually. I mean, I guess you have to hold annual meetings, right? That's a requirement. But for them to stop after two questions and not expect a question about strategy and what they're going to do to help shareholders at an annual meeting is kind of shocking. Well, that and share price, which is why you're tuning in in the first place.