The Strength In The Consumer… And Election Proxy Trades 10/28/24

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. Consumer comeback from retail stocks to airlines. We are seeing strength today across consumer facing sectors. Is this a sign that spending will stay strong through year end and banking on gains? Financials getting a bump today as interest rates hit more than three month highs. Is there more room to run for these names? Plus, a Ford flop after the legacy automakers disappointing guidance. Taiwan semi slides as the chips are found somewhere they shouldn't be. And back on the menu, McDonald's brings back the quarter pounder as it gets ready to release results tomorrow.

0:36I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Dan Nathan, Guy Dami, and Julie Beal. And we start off with the holiday that seems to come earlier with every year. That is right. We are counting down to Christmas. Forget about Halloween. We're looking forward. 57 days left in the holiday shopping season. And a wide range of consumer-facing stocks are already feeling the Christmas cheer. The XRT retail ETF gaining more than a percent today. Bellwether names across the group like Walmart, Dollar Gen, Lululemon, Home Depot closing firmly in the green.

1:09Even luxury names are back in vogue with investors, at least today. Caring leading the pack up 3 percent. Elsewhere, the travel trade continuing to grind higher. Delta and United Airlines hitting their highest levels since before the start of the pandemic, while American Southwest, Alaska Air each gained between 3 and 4 percent. So all these gains are signs of consumer resilience heading into the ho, ho, ho holiday shopping season. Guy. Who was that? Who was that? Was that Sandy? That was Santa. No, really? Yes. Hi, Santa. You're nervous a little bit, too. No, I don't want to get on Santa's back.

1:47No, not the bad list. Naughty list, I think. Tim talks about the airlines being trading vehicles. He's been right. Now it looks like they're trading from the long side vehicles because a lot of these are broken out to the upside. And Delta, which the resistance level has been sort of 52, 53 for a while, we're clearly through it, through earnings. If you look at the Jets ETF, we're at multi-year high. So, yeah, it looks like especially at Delta, which I think the all-time high is 62, I think you continue to play from the long side here. And I think it's out of that range. But does it make a commentary about the consumer?

2:16Not necessarily. I think it's more commentary about some momentum right now. I think at Delta and the broader airline space, part of this really is finally working off of COVID. I mean, I think you've got a November investor day for Delta that I think they're saving some goodies for because you can't have an investor day without some good news. But if you look at the stock, we've had a number of different updates, including capacity dynamics, which I think remain relatively constrained. And I think that's good. So call it some type of discipline in terms of capacity in the airline sector is very important.

2:45And if you look at pricing, their pricing, they're holding up. You've had some relief in the trade over the last couple of days from oil prices. But I really do think it is about investors understanding the earnings ability of this airline, which is trading cheap relative to itself. And if you look back, this was on a five-year upswing or so. If you look at the chart going into COVID, we know what happened during COVID. Delta was the one airline that didn't torch their balance sheet. And I actually think it's being rewarded now for that. I think it's going higher. Are we only doing airlines or can we go there?

3:10I don't know. We seem heavy in the airlines here. Tim already said they're good trading vehicles. All right. Let's look at this one. Guys talking about e-commerce at Walmart, how it accelerated in that last quarter, they reported 21%, I think. I think you've got to look at Amazon then if we're going into the holiday season. So if you think about on a multiple basis, when's the last time Walmart and Amazon on a price to earnings have traded anywhere in the same neighborhood? So right now you have Amazon in the out year, so that would be next year, trading at 32 times, double-digit expected earnings growth and sales growth, versus a Walmart that trades at 30 times and you're getting mid-single digits growth.

3:43So if you like what Walmart has been able to do, I think you're going to like Amazon in retail. Now, granted, this week when they report, it's going to trade on AWS. That's it. But you might get an opportunity to kind of get it lower and then think about it until the end of the year. I guess the bigger, broader – why are you laughing? Because our director just texted Nancy something, and Nancy texted me something. It was very funny. Way too much. Well, yeah, you asked me a question. You want me to lie? I mean, that's why I'm like. I'm like a Cheshire cat here. Anyway, the bigger question is, is the consumer actually in a better place?

4:16This morning I was watching a local newscast here in New York City, and they were talking about how the turkey dinner, Thanksgiving dinner, has come down in price. Come down in price significantly this year versus last year, Julie. I'm a consumer sitting at home. I'm thinking, you know what? Prices are coming down. I'm feeling better, right? The Fed is cutting. There's a little bit more election uncertainty, you know, as each passing day goes on. So maybe things are not so bad. I think everyone is going to have a major sigh of relief on the other side of this election. And I think consumers are the same.

4:46And they are withholding a lot of their decisions, even though it's probably not going to make a difference either way. What I think is really important to bear in mind is that we still have a cumulative impact of inflation, right? Even though we can have incremental places where there is deflation, it still has been really pretty challenging, particularly for the low-end consumer. And so I think the place that I'm really interested in is absolutely Walmart, but also, you know, the dollar stores and anything that is targeting the low end consumer to get a better sense of how they're feeling and how they're stacking up.

5:16They all have jobs, which is great. But it's important to know is that savings are not where they need to be. And we're still not sure exactly what kind of holiday season it's going to be. Have we been naughty or nice? I don't know. I mean, I know what I am. It's not it's not nice. That's for sure. Well, I mean, that's another show. It's got to be the other thing. Tell you what. We don't have time for that. Dan mentioned Walmart. So Goldman Sachs just reiterated their buy, despite the fact this stock, I mean, if you put a chart for the last year, I mean, it's a parabolic move in a stock that doesn't move that way.

5:46And, yes, it's an expensive stock. But I got to tell you something. It's Walmart's world as well without a question. And I think it can continue to sort of levitate their through earnings. And it feels as though this thing just wants to continue its rise to the mid-90s. And then we'll have a conversation about whether or not it deserves it. But the comparison between Amazon and Walmart at these levels in terms of valuation, I think it's a fair one for sure. Think of the customer base that Walmart has gained during this time of high inflation. They've gained households that make$100 ,000 or more.

6:15And the question is, you know, can they hold on to that? Because if they can hold on to that during this period, you know, period going forward, that's a huge gain, right? I don't know why they wouldn't. And I think a lot of people have determined where they want to spend an extra dollar, where they don't. And when it comes to groceries, going into a place where you know you're going to at least have the same, at least as cheap of an offering as possible. But the overall general merchandise mix at Walmart is getting better for Walmart. And I think about the investments that they've made in technology and in loyalty and dynamics that I think are really helping the multiple right now.

6:47I think you can still know Walmart here, too. I would just say this about Amazon reports on Halloween guy. Boom. Yeah, and I think the operating income number going into that number, I think there's a negative sentiment there that I think could be a surprise. I actually think the AWS story is fine, but I think from the e-commerce perspective, and you look across the entire space, as you said, same store sales, third quarter, I think are better. And I think that's something that the market is not priced in. Yeah, so going to the macro a little bit, I know we're going to get some data over the next couple of weeks.

7:16We look at the unemployment rate. You remember everyone was talking about that SOM rule, bottomed out, what was it, 3.5 % at the 55-year low. here we are at 4.1%. But to Julie's point about inflation, yeah, it's come down. There's still that cumulative aspect of it, you know. And so I think there's a lot of, like, interesting stuff going on. But the one monkey wrench is this 10-year yield going to from 3.6 % to 4.3%. And so I don't know it really matters who wins this election, because I think the yield trap is the yield trap. And Guy's been talking about this for a long time. I mean, if we have increased deficits, you're going to have a higher yield than we've bottomed out in in last cycle.

7:54So it's going to be an interesting time for the consumer, definitely, but also businesses are waiting to kind of see where all this shakes out before they make decisions, which brings me back to the unemployment rate. So I think there's a lot of stuff that needs to be answered. I think it's about as clear as mud right now. I will say this. I think as much as we're all appropriately concerned about the deficit and the technical dynamics of issuance and why yields can go higher, I think yields are going higher because the economy is better. I think right here and now, what we're talking about is possibly a one to three to five year story.

8:23We've been talking about some of these dynamics. I realize they are getting worse. As we go into election, we can talk about both parties not being terribly focused on the deficit and talking about cutting revenue sources. But I think this is all about the strength of the economy. I think this is about the strength of the consumer. I think this is a dynamic. We're going into that Fed meeting and then the 50 basis point cut had everybody believing that the consumer was in a place they were not. and everything we're getting from jobless claims data, which I realize is lumpy and noisy and whatnot, but it is coincident, and there's no correlation between that and the labor market falling apart.

8:54So I think the move in yields is really a function of where we overshot to the downside, less about the things we should all be worried about, and I agree with these guys about what's going on with the deficit, but I think this is about the economy. We've been here, though, before in terms of yields. So as long as it stays below, I don't know, 5 % or so, 5.25, right? Equities don't care right now. No, they don't. We've been on the way up, on the way back down, on the way up. So you're right to point that out. Carter points that out as well. I mean, effectively, we're nowhere now for the last year and a half or so with a lot of volatility.

9:21But I think it's the speed of the move. And to Tim's point, it comes down to, is it rates moving higher because the economy's on firm footing? We get GDP on Wednesday, I think, anticipated 3.1 percent. Or is it more so because of all the issuance and the debt problems? Listen, obviously, the answer is it's always a combination of the two. Which one's more important? I lean towards the issuance and the debt problems while yields are going high. Lastly, I'll say next meeting for the Fed, November 7th. I can't remember a meeting in the recent history where it could be. I mean, who knows what the heck's going to happen here?

9:53The election might not be settled by then. And when you think about what yields have done in the face of that 50 basis point cut, I mean, this is going to be there might be extreme volatility in around that November 7th. All right. Well, rates continuing their march higher today with the 10 year touching a 4.3 percent level for the first time since mid-July. That is, markets increasingly expect the Fed will soon pause its rate cuts. CNBC's Steve Leisman's got the details. Dan was mentioning the timing of this in terms of the proximity of the election. And perhaps we go into this Fed meeting not knowing what the administration will be.

10:26But I guess the Fed's not political, so that aside. I think that's right, Melissa. It's going to be an unknown, and we have a little bit of data between them. But, you know, rate cuts, we hardly knew yet. No sooner had the market dialed in more and deeper rate cuts from the Fed than is now betting on an actual January pause. Here are the probabilities. 95 % probability for a cut. That's where the market is priced right now for 25. Another 25, 70 % probability in December. And then if those two things happen, remember that one is dependent on the next, there it is, a pause, 46 % probability of a rate cut, which is to say a 54 % probability that 50 basis points of cuts later, the Fed would pause in January.

11:06And the cuts in the cuts, well, they extend beyond January. Take a look. Back in September, when fast-falling Fed funds fever was at its peak, futures market expected a funds rate a year from now of 284 or 200 lower. Now the expectation, just 363. So the market still sees 100 basis points of cuts, but it's dialed out almost 80 basis points from that expectation. That expected change of heart from the Fed, as you guys were just talking about, I would say linked to stronger growth. We get GDP this week, maybe north of 3%. percent firmer inflation. We do get a PCE report on Thursday, and it comes with a lot of uncertainty around the election.

11:41You're just talking about that related to the spending and tax policy of the two candidates. So if we have weaker growth, a resumption in inflation's decline, and some sense of fiscal sanity from either candidate, it could restore some of those expectations. But as you know, Melissa, those are three very big ifs. Yeah. Steve, in terms of the climb and rights we've seen since the last Fed meeting. What's your take on what is fueling this? I mean, just based on who you talk to and your own sort of gut feeling, so many years of experience doing this. Because if it is because the economy is actually better, then there is no basis for a 95 % chance for a 25 basis point cut.

12:18I wouldn't say that, Melissa. I tend to think there is the ability, the Fed does have the ability to lower interest rates because the rates were set to deal with essentially 9 % inflation and stubborn inflation. We are likely to print, Melissa, a 2.1 or a 2 % headline PCE number on Thursday. What is that? Well, that's the Fed's target. So we're going to hit that target. There is no reason for rates to be quite as high above neutral. I do think the market has the argument right. I don't think it has the number right. I believe it has the argument right, which is the debate is not about, will the Fed cut really near term, but really how much the Fed will cut over the longer or medium term?

13:05And I think this debate about what happens a year from now is really the bigger question. I could see the Fed pausing, but look, I just read a report. We're going to, you know, Pantheon Economics sees 3.5 % growth being printed on Thursday, but then they see a sharper decline down into 1.5%. If that happens, rate cuts are back on. Steve, Tim, based upon the move we've seen in some of the macro data, and forget what the interest rate markets have done, but do you think the Fed, if they could go 25 at that last meeting, they would at this point? Do you think anybody feel like they wish they hadn't gone 50?

13:38And I apologize. That should have been part of my response to Melissa, which is I think that some of the rhetoric from some of the Fed officials has a little bit of a regret on the morning after in the sense that they thought they might have should have done 25 and then they would be freer to sort of do more 25s in the future. But that big 50, I think, if some Fed officials additional pause, given that firmer inflation number we had, given those firmer jobs, jobs and growth numbers we've seen. Thank you, Steve. Great to see you, Steve Leisman. Our next guest sees a high risk market environment for the next 10 days.

14:16Stuart Kaiser, City's head of equity trading strategy, joins us here on set. Stu, great to have you with us. Obviously, the election is a big part of that. So how are investors positioning themselves? Yeah, look, you know, I think the last couple of weeks, we've definitely seen investors lightening up on some risk kind of going into the election, not just the election, as we've talked about, FOMC, payrolls, et cetera. But, yeah, you know, I think it's considered a big enough event. I know odds and polling moved in one direction the last couple of weeks, but our view is this is basically a 50-50 event.

14:42And for that reason, I think you are seeing people kind of take down risk a bit. If you look at put skew on the S &P has risen, The price of call options on the VIX has risen. So you are seeing people either reducing position or overlaying some hedges with the big event calendar ahead of us. The risk is not necessarily who wins or who loses. The risk is not knowing. Is that right? Yeah, I think the risk is not knowing. And I think generally speaking, if you talk to investors, they'd like to avoid a sweep scenario. I think both candidates have some policies that the market doesn't love. And if you get a split government, I think that's where most people kind of want to end up at this point.

15:15So we had the conversation. Tim thinks yields are going higher because I think it's a combination. But, you know, where do you come down on this higher? I mean, they moved 60 basis points into 10 years from the low to where we are now. I think they continue to go higher. Market doesn't seem to care right now. The market doesn't care. I'd say it's probably 70 percent of the move is, I would say, coming from the growth data and maybe an ancillary part from the election. But, again, intelligent people have got to disagree on what that is. And that's why markets don't care. I mean, our view on yields for the last couple of years, it's the why that matters.

15:42And I think we saw that for 18 months before July, which is if you get strong economic data, positive growth surprise, rate cuts get pushed out. This rolling recession risk gets rolled into the future again. Equities are fine in that environment. I think that's why you're seeing the performance we are. So it's actually a pretty benign environment, in your view, after 10 days from now. Yeah. Look, if it wasn't for the election, I think you'd look at the payrolls report, the GDP numbers. Inflation, I know, was an upside surprise the last couple months. But frankly, the Fed would tell you we're on a gradually slowing trend on that side of things.

16:13So, yeah, I think if it wasn't for the election, you'd probably have rescue put on. If the election resolves itself in a relatively orderly fashion, and that might be a big if, you know, as Steve said before. But, you know, I think there is risk to be added. And the macro backdrop is supportive of that. So it's a good setup into year end once we get past the election. Stuart, let's talk about positioning then. What's fascinating to me is, first of all, that financials have probably one of their largest overweights in a long time. And they're breaking out. But I would go back even just to tech.

16:39It seems to me one of your competitors out there saying underweight is the widest levels in five years at minus 4.3, driven by a lot of below benchmark positions in semis and hardware. That seems extraordinary to me. And the fact the market's doing what it's doing. So comment either on the positioning or is this great news for the markets? You know, I would agree with the sentiment. I'm not sure if they're underweight. But definitely I think the sentiment on tech or the bar for tech is lower this quarter than it probably has been in at least a year. We're definitely seeing renewed interest, I think, in the software and Internet side of things at the expense of kind of hardware and semi.

17:12So the way you describe that data is, I think, how we're feeling flows go through the system. And look, that's a positive. If you remember last quarter, you know, you had NVIDIA put up$30 billion on 75 % revenues or 75 % margins. That was considered a miss, right? So I do think the bar is set a little lower this time, and I think that's healthy, you know, going into earnings. We were talking with Steve about probabilities of Fed cuts. Does that, obviously it matters, but does it really matter if it's 25 now, 25 later, pause now, 25, I mean, in the grand scheme of things? In the grand scheme of things, it might not.

17:45Six months. In the grand scheme of things, it might not, but next week it definitely will matter. So, look, you know, would the Fed take back 50? I think in their view they probably wouldn't. You know, their view, I think, is they're very restrictive to begin with. They are convinced inflation is trending the way they want it to, and I think they want to gradually get themselves back to neutral. And there's no way they're going to admit they made a mistake either way. But, yeah, so I think, look, a 25 basis point, you know, cut here or there, I don't think is as big an issue. I think to Steve's point, it's the cumulative number of cuts that are priced in over an extended period of time.

18:15But, look, the market's expecting 25 next week. The market's probably going to get 25 next week unless something really outlandish happens in the labor market data. And, look, this labor market print's tricky. You know, our economists are only at 90K. You've got strike impact. You've got weather impact. You had a very low response rate to the last payrolls report. So that$254 from last month is going to get maybe not as much attention, but a significant amount of attention as well this time. So volatility. Yeah, definitely. Stuart, thank you. Good to see you, Stuart Kaiser. Julie Beal, what's your take on rates and when we should start carrying?

18:46Well, what I think is so interesting, right, is that if you had paid only attention to what the Fed was doing, and that's really what the market was doing, you would actually forget how strong the U.S. consumer has been and how it has just powered right over the top of anything that Jerome Powell can do. And I think the same will be true both directions, right, going up and going down. What really matters genuinely is just the health and strength of the consumer. The thing that I wonder about with rate cuts is that I know that there is so much pent-up demand in housing, and that is the place where the consumer has most of their wealth tied up.

19:18If they think that rate cuts are really on the horizon, they're going to wait. They're going to wait even longer. If they think that it's going to take them longer, they may allow themselves to make the move ahead of time and wait to refinance. So I think that's a dynamic that's a little uncertain. I'm going to say a name to you, Melissa. Tim, please help her if she doesn't know. Maureen McGovern. Tim? There's got to be a morning after. I believe it was the song, right? There's got to be a morning after. This is live. This wasn't planned. No, it was not planned. But Steve mentioned the regret the morning after.

19:51Is that something that you want to talk about? I've never experienced it, Tim. You brought it up. Is this related to a trade? I thought you were going to talk about the election. No, the regret of 50 basis points is related to a trade because I think they've pigeonholed themselves. And I think if they don't move or if they do move regardless, I think 10-year yields are going higher. So they painted themselves in a corner for 25. I believe so, yeah. You know, it's interesting. Maybe they can pull up a chart versus the 10-year yield versus S &P 500. So last time, you know, I don't know, in the spring it was 4.6%.

20:19The S &P was just above 5 ,000. Here we are. It's at 5 ,800-ish or something like that. And obviously, folks were convinced that they were going to go on this rate-cutting cycle. Well, if rates are going up and they can't help themselves with what's going on here, I think the S &P is probably too expensive right now, especially like, yeah, you can point to some of that growth, but it's really kind of leveling off here. So if rates go higher, it's going to be a headwind to that growth also. Coming up, we're driving into a big week of earnings with all the details on Ford's latest quarter, what the automaker had to say and what is moving the stock next.

20:50And China trade breached shares of Taiwan Semi falling after halting shipments to the country. What they found in a competitor's phone that could be cause for concern. Those details on Fast Money Returns back in two. This is Fast Money with Melissa Lee right here on CNBC.