The Nasdaq’s Best Run Since 2021 and Why the Energy Sector is Ripe for Some M&A 11/7/23

0:00Morgan, indeed it does and thank you very much live from the Nasdaq market site in the heart of New York City's Times Square this is fast money and here's what's on tap today. crude crumble WTI dropping nearly 4 % back below 80 bucks a barrel is this move a warning sign about a coming global slowdown we will debate that one plus travel confusion Expedia TripAdvisor roaring higher while the airlines are in a holding pattern what's behind this booking bifurcation that's that's a phrase right there you'll take that one home and later inside Rivian's results We're going to break down the EV trade, what Robinhood's numbers are saying about the retail investor and Disney on deck.

0:41You just saw Igo be on tomorrow. The options action ahead of their earnings. I'm Tyler Matheson in for Melissa Lee. Coming to you live from Studio B at the NASDAQ on the desk tonight, Tim Seymour, Karen Finerman, Dan Nathan and Steve Grasso. Welcome to all of you and we're glad you're here. We're going to get to the drop in oil later this hour. But first, a market move we hadn't seen in two years. The Nasdaq rising another percent today, bringing its win streak now to eight days in a row. That is the longest since November of 2021. The S &P and Dow now each posting seven-day runs of their own.

1:19Those two indexes now within 5 % of their highs for the year, almost erasing that summer swoon. Let's check out the moves in the mega caps today. Amazon, highest close since September. Microsoft, Record, Apple, Meta, Alphabet, all higher as well. Meanwhile, the equal-weighted S &P far underperforming the benchmark again. It is back in negative territory for the year. So does this divergence, Tim, give you reason to pause? I assume you would be more comforted if all stocks were taking part, not just a few. Well, we've been debating this over the last couple of days. Do you want the breadth in the market?

1:56Do you want to see the equal weighted S &P outperform the market weighted, which we know has been? Look, if you own market weighted, owning the market, you've been successful. And if you think about today's close, you talked about the Nasdaq. It's within one and a half percent of the all time highs. If we look at the triple Q's, the Nasdaq 100, it's made a relative cycle high to the S &P. So this move off of the last October lows, I mean, and I believe that market leadership coming from the Nasdaq 100 And then really that being led by the semiconductors is what investors should want to see to take the market higher.

2:28But we want to see breadth here. And we've talked about that underperformance. If you look at the the RSP ETF or just equal weighted, you know, we're talking about underperforming by almost 14 percent. And really, although you had some good news last week for that outperformance, it really hasn't. And so that's probably a negative tell. I'm sure Dan's got a view on this. We've talked about this over the years when Nasdaq stocks have outperformed. It's been narrow. Isn't this the market? Yeah, 39 % on the QQQs so far this year. But it's all of these 10 stocks. I mean, if you look at the NASDAQ 100, those top 10 stocks make up more than 40 % of the weight of it.

2:58And so, again, you know, it's interesting to me today. I think this is a new closing all-time high for Microsoft today. It was a little higher in July intraday. And we were talking about that. You talk about cycle highs. I mean, for the entire bit of enthusiasm that was, like, being demonstrated in these top 10 names and a lot of other smaller cap names in the summer in and around AI, high the day that Microsoft came out with that co-pilot pricing, right? And they just started charging for it on November 1st. It was kind of an interesting bookend, right? So it topped out then, sold off 15%. The results were better than expected with, I think, expectations had come down.

3:30So the stock's been moving higher. It's literally dragging up a bunch of other names in the space. Adobe closed at a new 52-week high today. Look at Meta, which has been trading really well over the last couple of quarters. People didn't love that guidance over the last few months. It's been consolidating, and that's very near its 52-week high. So again, I think if you are, to Tim's point about the market cap weight, they're doing all the lifting again, because I can look at no shortage of sectors that act really poorly. And I think that's what they're going to continue doing. They're the most widely held.

4:00So this was about positioning. It was about rates. It was about issuance. So everyone got so negative. So they had to run everything back, short covering. Issuance, less than we had thought the market was going to deliver. Rates, we're closer to cuts than we are to the next rate rising period. All of that is a tailwind. And where does the money go? To the largest cap stocks. To what's worked. To what's worked. And every ETF, the passive investing is people own ETFs. They don't own individual names. Those top holders of those big, large cap names will continue to buy those dips. So, unfortunately, we're looking for an outperformance of equal weight.

4:40I just don't see it ever being longer lasting than a couple of days. Karen, one of the things that was interesting to me last week, correct me if I'm wrong here, the Russell had a good one. That's what I tell JoJo every evening. Let's talk a little bit about smaller cap stocks. Where are they in this? I mean, they're off the mat. But not. Right. It's really they haven't come remotely close. and the persistence of the underperformance has been so long. That's sort of surprising to me. So I own a lot of the, you know, the Magnificent Seven, but then I own a lot of stuff that's sort of in that S &P underweight that really hasn't, it's just been getting cheaper and cheaper.

5:21You know, we've talked about things like Kellogg's or what, Kelanova, things like that, where I hate the name, but there is. Rolls off your tongue. What? Rolls off your tongue. Easy, yeah. I don't know where they came up with that. But anyway, I think that there is some value out there. Nobody seems to care where value is right now. So I'm sticking with this sort of barbell. You know, it's very interesting. I would guess that most people who are in the market in an index fund in an S &P 500 are buying the market cap weighted one because those are the most popular ones. And it's the most liquid.

5:52It's the most liquid. Then you have to buy all of the underlying stocks. Is there new money going into the market here? I mean, I don't get the sense I got the sense this is more about positioning and short covering and people that were over bearish. And look, there's always money flowing into the market. But but I think what's interesting about what we've seen during those periods where the equal the market weighted is outperformed, as we've said, that's really been the move this year. That's been the move off of the lows last October is you start to see that broaden. So you see like what you see today, you saw that software companies and there was a reason for it.

6:24I mean, you had a couple of big numbers, Datadog and some other folks. Snowflake has had good numbers. So you have this dynamic where you start to see it broaden into software. You start to see it broaden into some of the more high multiple tech. If we get some help from interest rates, I think it expands. But it is disappointing for someone that also owns a lot of real economy stocks, a lot of industrials, and certainly some banks. No, I mean, there's nothing there. And we've talked about those are bear markets. Real economy equals cyclical, in my opinion, right? So if you think about some of the data that we've had just over the last week or so, that jobs data, that manufacturing data, and you think about, OK, fine, rates came.

6:59Rates were only at 5 % in the 10-year for what, like a couple weeks. So they're back to where they were a month ago. So the hire for longer narrative is still intact, and especially if you're running a business. And I think one of the through lines that I take away from Q3 earnings was really about Q4 guidance and beyond and the lack of visibility that companies are going to have in a very volatile macro environment. And so to me, if you start thinking about 2024, which we all are, what are the estimates for S &P 500 earnings? Where are input costs, commodities and the like? It looks like despite the fact that some of the inflationary readings have come down, you know, margins have peaked.

7:36Like that's it. And so if earnings estimates are a bit too high right now for 2024, there probably needs to be a bigger reset for stocks at some point. So to me, I'm not chasing this right here, right now. And it's also a point of relative. It's a point of reference, too. So when you talk about where the 10-year was, it's where it was a couple of weeks ago, but where is it now? And where is it going to be? And it's probably going to be lower in the next couple of weeks slash months. But if you look at going down that curve, the Russell 2000, 40 % is unprofitable companies. The Russell 3000, 60 % is unprofitable companies.

8:10So to Tim and Dan's point, when you look cyclical and you look at real economy stocks, if you think the economy is getting worse, those earnings are going to get worse. So you're not you'd rather go back to safety, large cap tech, or just balance sheets. I mean, I guess the question you have to ask about the real economy is when I look at at Ford and GM, we know what's going on in auto. But I look at some of the staples. I look at health care. I look at real economy that tends to be defensive during times like this. energy, health care, staples. The market already priced in that we know that they were probably at peak margins and the pricing power that was coming out of COVID.

8:45So it's a very interesting time because there's nothing that tells me that it's going to get better on margin for staples. But I want to own staples and utilities here. I do. I want to own health care. Our next guest is going to talk a little bit about bonds. And later in the program, we're going to talk about oil. Is oil telling you anything right here going back below 80? Well, I think oil, Tim said before that they already priced in, when you talk about cyclicals, if they already priced in the negative, I think oil priced in the negative of supply chain disruptions, geopolitical issues. We had Russia, Ukraine.

9:19Now we have Israel and Gaza. And a lot of that was front loaded. So what commodities do is they price in the worst and then they back off of that. So I think supply chain disruptions were probably overly priced in. And that's why you saw it back off. All right. Let's move to our next guest, top bond strategist, warning that the mega cap rally may be on borrowed time. He cites demand issues tied to tomorrow's 10-year Treasury note auction. Ben Emmons is the head of fixed income and a senior portfolio manager at New Edge Wealth. Ben, welcome. Talk us through this auction that is coming tomorrow on the 10 years.

9:55What you expect to see. There's going to be a lot of supply in the pipeline. Where's demand? Yeah, that's the big question, Tyler. You know, we know that China and Japan and other foreign investors have been not active in those auctions anymore for the last sort of two years. And now the banks, too, are not as active anymore. You know, they continue to sell treasuries. So who's going to step in here to buy it? You know, it probably is us, like private sector or mutual funds. Now, we've been down in yield now about over 55 base points over the past week. So there's a pretty good move. And to Steve's point, there probably was a lot of short covering.

10:31There was news out that right before the Treasury announced the supply, the hedge funds took even more short positions than before. And right as that supply number came out, all the covering probably has happened. So the setup for tomorrow is not that great, and the demand is unclear. So I think it's going to be a challenging auction. So I think I heard Steve just say that you think rates are going to be lower, right, four months from now, five months from now. Do you see it that way or not? It could be. I mean, you know, we have an economy that's from 5 percent slowing down in this quarter. And if that continues, ultimately rates should adjust to that path of growth down.

11:08I don't think, though, that we're going to go all the way back to 3 percent. I mean, for that, you have to see inflation really start to decline. That has not yet been the case. And that's what we know from the Fed, too. They're hesitant to pull the trigger yet on any kind of rate cut. So I think we need to see somewhat more data before we can actually say we're a real trend down rate. I guess there's a lot of supply coming, right? One way or another, there's a lot of supply coming. We don't know where the demand is, and some of the big players that have been supplying the demand are not going to be there.

11:38That would argue that rates could resume a rise upward, right? Well, so if you look at the technical picture, Tyler, that's what it's indicating to me. So we're sitting right at the 50-day moving average, and we're sort of building this support. We're staying in this really nice uptrend in the 10-year. If you zoom out, you look from since 2007 to now, you take Fibonacci retracements. We actually should retrace all the way to 100 % if we're going to stick here around this level. And if you believe in the technicals, you should actually see higher. Now, if you tie that to the demand supply picture in the Treasury market, not really resolved, then that leads you to that conclusion.

12:14Only, I think, as a last point, what we saw recently, we popped over 5%. There were buyers there. And I do think that if you're getting a bit of an overshoot of rates, there will be new buyers. It's just at this point, this is not a good setup at four and a half. Tim? Well, I think it must be an interesting time for you, though. For the first time in probably 15 years, you're right in the spotlight of investors coming to you, really excited about yield opportunities. And I bet there's as much anxiety that yields are going to go down and they're not going to be able to lock in these juicy yields.

12:44This is the conversation I have with clients all the time. And what I'm hearing from you is that the technical picture says, don't worry about it. You're going to get your spot. And if anything, you do not need to be locking in long term here. And that the yield curve actually may be a place to stay a little bit nimble and at the shorter end right now. Yeah, I would fully agree with that view. I mean, in fact, it's actually we have now more or less like a flat curve close to flat. And so why would you take all this 30-year risk and just get paid in the two to five, seven-year part of the curve for the same return?

13:17If anything, there's actually an even better opportunity, say, like munis, which we'll get there in a minute. You know, these yields are really indeed attractive. So to your point, like, yes, we have clients, too, that are anxious. Like, I don't want to miss this moment, right? On the other hand, there's anxious about, well, this supply picture is still pretty troubling. You know, we could get a little higher here. But if it does get higher, it's a real buy opportunity. Karen? So let me ask you, just for the auction tomorrow, what are you looking for? And what would be an outcome that would really move the markets?

13:47So I think, Karen, like, one, you look overnight what's going on in the data. So we got CPI from China and we got CPI from Germany. So that's interesting to watch because rates are reacting to that. And then let's kind of see if it rallies a lot into that auction, then it could be this really difficult setup, right? Because if things rally too much, it tends to be a poorly bid auction. If it is, say, 40-bit, I would think that you're going to get a bit of a pop in rates and a bit of a different picture than we had the last few days. I can't say if it's all completely turned immediately, but I find this 50-day moving average holding so strongly the last couple of sessions kind of telling.

14:24It means that markets are waiting for, is this supply going to be digested well? If not, then you see maybe a move higher. Dan, and then I want to squeeze in one on music. So, Ben, talk to me. I have a chart in front of me right here, 25 years, Fed funds rate. OK, so the last few times we've had aggressive rate hikes. Right. And into 2000, it capped out at six and a half percent. When they started going lower, it went to one percent. OK, then we had rising up to five and a quarter percent stopped going up in 2006. When they went down, they went to zero. OK, in 2000, in 17, they started going up in 18.

14:56They went from two and a quarter, two and a half percent to zero again. So here we are now. We're at five and a half on the upper. Tell me why it's a great idea to buy stocks. stocks. If you're just looking over the last, see what I'm doing here, Karen, the last 24 years after really aggressive rate hikes, when they start to lower, they lower aggressively. It's elevator up, right? You know what I mean? You know, the escalator up, elevator down. I mean, like that's it. And it's not good for stocks. Yeah, that's the recession story, really. You know, if actually the Fed gets to the point that it's not going to moderate the rate hike cycle to hold longer and then maybe one step down and easing.

15:35But what you're saying, we really flip and we start cutting aggressively. And we're talking about a 200, 300 base point rate cutting in a matter of six to nine months. That's a big recession period, I think. So it doesn't look like it right now. But what I think what we can take cue from is our central banks in emerging markets that have risen rates pretty high and restrictive and inflation starts to decline. And that's what the Fed story now is, too. OK, if that continues, we can at least moderate interest rates to an extent, otherwise they become even more restrictive. I think that's a positive for stock markets.

16:09And that may be what the stock market is saying. It's like this is going to be a moderate rate cutting cycle, which indicates a if anything, a mild downturn or no downturn, as opposed to this slashing down to the zero bound. And then, yeah. But of course, that's the intent. That's where they are right there. They were there in 06. They were there in 2000. I'm sure they were there in 2018. but it's not the way it worked out in principle, right? And if you think of all of the headwinds that we have right now, I just don't know how they're going to land the plane. This goes back to what we were debating, no landing, soft landing, hard landing.

16:41You know what I mean? Like the idea of the stock market right here is pricing a very soft landing. It very much is. And that's, again, based upon the way, I guess, simply employment and inflation is behaving. You know, we've seen inflation nicely moderating and an employment rate goes up, but it's all very gentle. You know, if that starts to change, you get a big drop in inflation, big move in unemployment rate up. That's a totally different game. And then, yeah, the Fed will be back to zero really quick. All right, Ben Emmons, thanks very much. We appreciate your time today. We didn't get to the muni question.

17:11We will next time because munis are sexy right now. They're very sexy. Sexy for the first time in a long time. Ben Emmons, New Edge Wealth. We appreciate it. All right, let's trade this whole kit and caboodle here. Steve, thoughts? The headwind to the market has been rising rate environment. If the market can see through rising rates and looks for lower rates, that's going to be a positive. That's where the bulls win. I'm more worried. I'm not worried about them cutting with a recession. I'm worried about rates getting out of control and popping above five again. I don't care. You see that scenario as a possibility?

17:44Well, I see, to Ben's point, if you look on a retracement. Five on the 10-year you're talking about. Yeah. You look on a retracement, we can probably moderate between four and three-quarters and five again. I don't think rates are going to have a blow off top here. I think rates are probably going to cascade lower from here. Anybody want to put a button on it? Well, I get going once, going twice. I'll say that the economy we have right now is is not giving the Fed any reason to think about aggressive cuts. I agree with the history Dan's talking about is at some point it's going to be too late.

18:16We know the lag effects here. I think the the the reality is that right now we're in a place where interest rates are probably staying higher for longer. for as much related to technical reasons and financing a deficit than we've ever seen in the last 15 years. All right. That'll be the final thought here. Coming up, though, you have heard that the devil is in the details. But you know who else is? Our own Karen Feinerman. She is digging into the nitty-gritty of the luxury merger between Tapestry and Capri Holdings, and she's got some concerns. Her retail report is ahead. But first, two EV makers on the move after hours, Rivian and Lucid.

18:52both reporting results. We will dig into those numbers when Fast Money returns in two.

19:04All right, welcome back to Fast Money. We've got a double earnings alert for you. Rivian slightly higher on a top and bottom line beat, while Lucid charging lower after a miss on revenue and revising its production outlook lower. Phil LeBeau has all the numbers. Hey, Phil. So, Tyler, a tale of two EV companies going in different directions right now. In part, you see that with the guidance. We'll talk about both in just a bit. By the way, I'm listening to the Rivian conference call. It's clear RJ Skirinj believes that they're in the sweet spot right now in terms of increased production while lowering their costs.

19:39Let me give you the highlights from the third quarter. Better than expected. They lowered the losses to$1.19 a share versus$1.32 estimate. Revenue slightly better than expected. their loss per vehicle. And this is important. They've brought it down almost$2 ,000 per vehicle, still losing more than$30 ,000 per vehicle. They were losing about$140 ,000 per vehicle third quarter of last year. So they continue to bring that down. And they have also announced that Rivian and Amazon jointly have decided to end their exclusive arrangement with Rivian building electric delivery vehicles. They're still going to do it for Amazon, but they can now open this up and pursue business with other commercial entities.

20:18Now for the important part, the change in guidance. And there are three important ones here. Most important,$54 ,000 is the new production guidance, was$52 ,000. By the way, the previous guidance was all given at the end of Q2. So this is an update in just one quarter. The EBITDA loss will be$4 billion instead of$4.2 billion. CapEx has been coming down to$1.1 billion from$1.7 billion. All stuff that we are going to be discussing tomorrow morning on Squawk Box. First on CNBC, we will talk with RJ Skirinj, founder and CEO of Rivian. And we're going to be talking about what he's seeing with demand and the demand profile in this market.

20:54He's just discussed that on the conference call. Let's switch gears and quickly talk about Lucid because it's going in the opposite direction as the company reported a Q3 loss of, what do we have here, 28 cents a share and the revenue coming in weaker than expected, but it's the guidance. That's what's weighing on this stock right now. The company cutting its plan of building 10 ,000 vehicles this year. It's now planning to build between 8 ,000 and 8 ,500 vehicles this year. And they're also going to be, as they do this, trying to conserve their capital. I just got off the phone within the last hour with Peter Rawlinson, CEO of Lucid.

21:34A couple of things he said to me. First of all, we are adjusting to challenging conditions. Obviously, in the higher end of the EV market, it's tough studying because there's so many competitors in there and Lucid has struggled to get as much traction as they would like to get. He says we need to be prudent to preserve capital. So we'll be on the Lucid call, which starts in about five minutes. Bottom line is this, Tyler, you got two EV companies here. Rivian clearly sees that it has traction, continues to grow. Lucid still trying to find the key point here where they lower production and they can lower their losses.

22:10All right, Phil. Spirit Aerosystem is also dropping after hours. Now it's the plan to raise some capital. What do we know? Raising at least$400 million. Actually, I think it's$430 million. $200 million through shares being sold,$200 million through debt being auctioned off into the market. Bottom line is this. They just got$100 million in capital infusion from Boeing a couple of weeks ago. They're trying to stabilize their production system. This is what the market's looking at and going, you need another$400 million? Where is the bottom here? New CEO Pat Shanahan has his work cut out trying to convince everyone.