The tech rally isn’t just about the mega caps and AI, and why Chinese stocks could rise even higher 7/31/23

0:01Right now on fast, the S &P and Nasdaq now riding five month winning streak into August. While the Dow has been up 15 of the last 16 sessions as the rally moves beyond just the biggest of the big tech names, is this a sign the market can keep grinding higher? We'll debate that. Plus, a cooling Chinese economy, not slowing down Chinese stocks. The K-Web, the ETF that tracks internet names, up almost 19 percent in July. And the large cap ETF, the FXI, up close to 12 percent. So does this Beijing bounce have legs? We'll break that down. And later, inside crude summer surge, SoFi's Monster Monday, the ripple effect on the payment stocks, and the options action ahead of Starbucks earnings.

0:38I'm Melissa Lee. This is Fast Money. We're live with the Nasdaq Market site on the desk tonight. Tim Seymour, Dan Nath, and Guy Adami, and Julie Beal. We start off with an under-the-radar rally in the tech sector. Yes, the mega caps, the AI-focused semis have been stealing the spotlight of late, but there are some other pockets of strength that you may not have noticed. Check out the moves in software names like Datadog, Adobe, and Snowflake, all significantly higher today. Media names also on the move. Paramount, Netflix, Warner Brothers, Discovery, all well in the green. And the gig economy stocks on the go.

1:07Uber, DoorDash, Lyft feeling the love. So what does this broadening out of the tech rally tell you about the market? Are you more hopeful, Dan Nathan? I ask sarcastically. You know what's interesting? One thing, the gig ones are really interesting to me because I think those were models that were heavily debated. They saw the pull forward during the pandemic. They rose to crazy heights in 2020 into 2021. There were some of the first ones that started to sell off. And obviously, Uber is a little different. They had some different dynamics going on between ride share and delivery. But if you look at Airbnb and if you look at Uber, that's going to report.

1:39I know we're going to talk about it later. Those stocks are both 100 billion dollar market cap companies right now. They've had massive rallies over the last few months and they've gone from, you know, probably decent market size to very large. If you think about it in the, you know, just in the context of the NASDAQ 100. So those and how they react to their earnings and guidance, I think are going to be really important. You know, the valuations are kind of getting a little stretched up here. I do think it's interesting, though, if we look at the semis. And today, you know, we had that Intel move.

2:05It was up 6.5 % on Friday after its results in guidance. Give half of that back today. And Taiwan Semi, which guided a few weeks ago, has also been kind of stuck in the mud a little bit. That's why I think that AMD report and guide is going to be really interesting. But we have seen a rotation out of semis into these other names. And I think that is bullish if you're thinking about it is bullish. I'm not saying I'm bullish. I heard that. It is bullish. I mean, there's no way to say it otherwise. No way to say it otherwise. Hi, Mel. Oh, hi, Guy. Tim looks great. His hair looks a little bit different, but equally good.

2:39I'm just going to say it's a fresh shower, which doesn't mean I don't usually shower, but there's a lot of information for the folks at home. It's wet, not gel. Okay, now we can move on. Appreciate we got that out of there. So Snowflake is interesting, right? It's obviously rallied significantly from the lows that we saw. It was ridiculously overvalued at its peak. We talked about it. Dan mentioned it. Now it's approaching close to 18 times revenue again. They report in a couple weeks. It's one of these names that will probably levitate into earnings, and it's going to have to prove itself. When I say levitate, 197 was sort of a breakdown level a couple years ago.

3:08But Oracle, on the other hand, reasonable valuation, which is within a whisper of its all-time high. I mean, that's a stock you could actually sort of wrap your arms around in terms of valuation, in terms of what they're doing. if you recall, Mel, which you do, Oracle was one of the O's, the only O in my hope trade way back when. It has acquitted itself extraordinarily well. Not Dawn? Dawn was a different one. Dawn has no O in it. Dawn, yeah. I mean, unless you spell it sort of fugazi, I don't know. We are so distracted tonight. Sorry about that. Getting back to this rally, because it does seem like there's a churn, at least even within the tech sector, into some of the more sort of value pockets, if you want to call it that.

3:47Well, and then there's also the high multiple ones like a CrowdStrike and a Snowflake and a Datadog. And what we've learned out of the AI hype that's hung over the industry and the question, the first question was, was this going to trigger some kind of an AI CapEx spend within mega cap tech? Is that a reason to go buy it? And I think we're getting some follow through on that. If you're going to follow through on AI spend, if there's always room for AI spend, maybe at the expense of CPU or people like Intel, there's also room for cyber. There's also room for some of these high end software names.

4:16That's what this has told me, and that's what we're seeing on the follow-through here. And Guy's Adobe. I mean, you look at a couple of these names, and it is Guy's Adobe because he's often talking about a company that he's often right about, is usually trading at a higher multiple, and it continues to re-rate. If you look at the other parts of the market, though, look at energy coming back. Look at, in other words, so the parts of the market that are the other side of the growth barbell, you're actually seeing commodities come back. You're actually seeing some of these industrial names that involve some cyclicality.

4:45And then the media rally today, I don't know that you think media's fortunes have changed overnight, but listening to Facebook, listening to Google, we're getting an understanding about what's going on with ad spending. It all leads up to that recession in name only is is what it is now. I just think it's pushing it all out. That's what everybody's now doing. I think there's still a big cry for recession. It's now at the second half of 24 instead of the first half of 24. And that's what's going on for the market. Julie, how do you feel about this rally, seeing the broadening that we've seen in recent weeks and months, but also the churn within the tech sector?

5:19Yeah, I think the broadening is important and it is a positive indication. But at the end of the day, the things that we pay the most attention to are still the fundamentals. And they're uneven, right? You see in high quality software, you still see that deal cycles, sales cycles are pretty long. There's still hesitation. And I think that until that gets resolved, it's hard to get super enthusiastic because that's, you know, at the end of the day, the fundamentals really do have to matter. And so what I worry about is, you know, when we get Snowflake trading at 20 times revenue, it starts to just be narrative.

5:51And eventually narrative has to be backed up with fundamentals. So I'm a little concerned here. You know, it's interesting what Tim just said. So this recession in name only that's been pushed out to the back half of 2024. We're all trying to push that. No, but there's a lot of acronyms out there. There was Tina, there's Rhino. The guy's got them all down. He writes them down on the little scratch pad there. But I just think it's interesting that if you think about how much value has been accrued to this AI story, let's call it a couple trillion across some of these big mega caps, and then these other ones are coming and joining the party now.

6:21A lot of them are going to tell us in their guidance over this quarter or next quarter that they're not going to actually really see a meaningful impact to their earnings until the back half of 2024. You know what I mean? So right now, we've had this multiple expansion. We've seen this market that does feel uneven, but we're talking about the broadening out that's happening right now. We're seeing some pretty decent locations to Tim's point in some more cyclical sort of areas. But if things do start to slow, and let's just say the pull forward was on the valuation front, not as much on the fundamental front, then you have a disconnect, and then you have a little bit of a problem.

6:51So to me, just as tidy as the sell-off was in 2022, it seems to be we might be in for the same sort of thing where we had a down 20-some percent move in the S &P 500 last year. We have an up 20-some percent move this year. And who knows what next year? Maybe next year is the year of a 20-point VIX, not a 14-VIX. You know what I mean? Because right now, no one's pricing in any volatility on a week like this with all these big earnings. We have Apple and Amazon on Thursday. Got a payroll number on Friday. Yeah, 1 % applied move in the S &P for the week. That's it. There's just no fear anywhere. Yeah.

7:23We got that from Microsoft, actually, right? A later ramp than expected in terms of revenue attributed to AI. But, you know, to Tim's point, doesn't there have to be some place that gives up because of the spend on AI? If you're an enterprise and you've got a budget. You can't spend money on everything. You can't spend. Yeah. Well, Intel kind of said that, right? I mean, they and even though their numbers were better and they actually showed some strength in data centers in places they've been getting destroyed. There's no question. And there's not an unlimited CapEx supply for spend right now.

7:50And I think it has to give somewhere. I just I do think that there are parts of the spend now that are a lot sexier, a lot more relevant and a lot more necessary. I think back to the market we have right now, though, I almost feel like you are kind of closing the book on this run. I mean, we're we're we're really back to all time highs again. We pretty much capped the Fed out. The Fed has one or two, probably just one more hikes, maybe not even one more. And I think at this point it's safe to say, look, there was no recession. The consumer is better. The cycles and the way this is unfolding is taking a lot longer, as it probably should.

8:24It's really easy to see in hindsight. The question is now what do you do when you look at, you know, there's some data out this morning in terms of the National Association of Active Money Managers. We're basically at November 21 levels in terms of positioning of active managers. It means people have chased. They've chased a lot back in. We're at levels now that feel actually a little uncomfortable to me because I think you've gotten this move where so many people were offside. So I'm not saying that the world isn't a better place. But after this move we've had and after positioning has changed so much and sentiment has changed so much, it's hard to get really bullish here.

8:56You know, the pain trade was to the upside for a year to date. And it almost feels like, well, when is that pain trade to the downside? I mean, it almost feels like we are in that place. Whenever you hear somebody saying, you know what, soft landing or no landing, it sort of makes you think. You love that term. How can everybody? No landing. What? You say that to me. Again, everybody tries to aggravate me on a month. You can't do it. I'm in such a great mood. We have to wait for October for that. Are you really in a good mood? Tremendous. I really am. You see me. The trade deadline's coming up.

9:24I mean, a lot of things happen. Oh, man. Here we go. Getting back. Yes. No, you're right about that. I mean, the pain trade was to the upside, without question. Why do I know that? Because I've been fighting it the entire year since December, clearly trying to find the bearish narrative, which is there. But the market doesn't seem to acknowledge it. When's it going to sort of grab hold? I don't know, into the fall makes sense. And I do think there's going to be this reacceleration of inflation. A lot of people are writing about that now, which is one of the reasons I think the Fed is as hawkish as they are.

9:52A lot of this move over the last couple of months, I think it's been predicated on this somewhat misguided belief that in the beginning of next year, there are going to be rate cuts. I just don't see that happening. Yeah, I mean, the so-called base effects start to wear off, Julie, so inflation won't necessarily keep going down into the back half. We've got consumers having to pay off student loan bills in the fall. all these other pressures entering the picture. Great. And we don't have the whatever it is, $200 billion benefit of lower oil prices. That's going to also be pretty impactful. And it's very psychologically meaningful to people when that starts to hit them hard.

10:27So I do worry a lot about the consumer. And I think back to December, January, it was just a foregone conclusion that there was going to be a recession. Literally, my art school teacher was telling me as much. And I think now the fact that everyone is starting to capitulate and say, you know what, maybe no recession. You know what, maybe everything's just going to be fine. That is actually what makes me worry a little bit more, that we are all feeling pretty sanguine about things. Our next guest sees cracks in this summer rally. Julian Emanuel is the senior managing director at Evercore ISI. Julian, always good to see you.

11:00You just recently raised your price target rate on the S &P 500 to basically a little bit below where we are right now. So what kind of cracks are you seeing? Well, look, so and again, Guy alluded to this. This market has squeezed a lot of people. And frankly, in a momentum market like this, and we have to acknowledge this is actually one of the greatest momentum markets of our lifetime. The Nasdaq has annualized at 100 percent since the bank crisis bottom in March. So from our point of view, look, this is very much about the fact that the market's bifurcating into fear and greed. OK, greed, we know.

11:42Actually, when we think about it, the technology names that have run as far as they have been are sort of in the throes of rational exuberance. OK, rational exuberance, meaning that when you look out, particularly into 24 and 25, the spend is going to be there for AI. Corporates have told us as much. But you still got to get from here to there. And these stocks have moved, whereas other areas like energy, health care have really been more beset by fear. Until recently, now energy has started to rally. China has started to rally. And the incredible thing about this market is that once price momentum starts moving, it takes on a life of its own.

12:25So we want to sort of be cognizant of that coming into August and September. Why does the market go down every September? It's really kind of hard to say. It's perhaps as much a mood thing as anything else. And I would only point out this, is that we should be careful what we wish for. If we don't want or don't think the market goes down in September, the last two years where the market didn't go down in September, 2018 where you had a massive bear market in the fourth quarter, and 2007, I don't need to tell you what happened those next two years. So to position yourself for that crack that you think is going to happen sometime in the next few months, do you want to be in the fear part of the market or in the greed part of the market?

13:09So we actually want to be in both because you have to differentiate between the short and the long term here. Again, the part where there's been fear, we do think there's a very viable long term thesis, particularly in energy and in health care. But at the same time, we do like those call it quote unquote AI type names. But you need to hedge the perfect example. The summer of 1999, the Nasdaq fell 14 percent. And the stock that is the highest market cap stock in 2023 fell 29 percent to a split adjusted price of 51.3 cents. And it's 190 something now. That's why you have to figure out how to be a long-term holder when there's going to be volatility.

13:58You're recommending using the Qs as a hedge, right? I mean, because basically when you're betting on AI, you're betting on the NASDAQ. Absolutely. And lo and behold, Chair Powell has given us an opportunity to hedge because the higher interest rates move, the more attractive selling calls against your position becomes, and the more attractive it is to finance downside puts. And that's what looks interesting to us, particularly into October, which, again, has the seasonals. And we're not even saying you need to decline. If this position were static, you would just need to annualize, call it below 30 percent, to not lose money on that kind of hedge.

14:44At the beginning of the year, you started out, or towards the beginning of the year, You started with the price target on the S &P. That was 41. 41.50. 41.50. We're talking about the pain trade higher. What do you think you missed about the moves that we've seen year to date? It was, you know, Bruce Springsteen. We were waiting for the moment to just don't come. And that was the recession. That's nice work, by the way. Well, you know. Pulling some badlands. We talked about Led Zeppelin in the green room. It's what we do here. But you really came to the table with something big there. Well, you know, look, and frankly, again, this is one of these things.

15:19What we underestimated was the fact that money supply increased so profoundly in 2020, 2021, and the Fed was still buying bonds in the first half of 2022, that all of this tightening that we've had has not been enough to counteract it. There's still a pandemic stimulus savings pool there. The labor market's good. You don't have a recession with those conditions. So walk me through that when you raise your price target to 44 and change, finally, what was sort of the worry that went through your head about, I don't want to say throwing in the towel because it is still downside from where we are currently, but about boosting your outlook?

15:57No, the worry was that valuation might have been too extreme. But what we found is something that we found in the 90s, that you can actually still make money in the stock market with interest rates at 5 % or 6%. Right. Julian, it's always great to speak with you. Thank you. Thank you. Julian Emanuel, Evercore ISI. What are you laughing at? No, because he's dropping Bruce. I mean, it's fantastic. You're just like, la, la, la, la, la. I don't know these things. Badlands, by the way, top ten Bruce song. I mean, I don't know where Tim comes down. Top three. Yeah, I mean, like, born in the USA, we can put it at the bottom of the list.

16:36So let's just do that, right? I think it's what we wanted. Isn't that what we wanted to establish here? Val's so done with this. I don't even know. It's already, it's the A block. Oh, the greener from Asbury Park. I mean, growing up. I think you got Born to Run. You got Born to Road. Spirits in the night. Backstreets is the greatest Bruce song of all time. Coming up, a potential, I'm talking, a potential plot twist for Disney's corner office pushing shares higher. We dive into whether it could be a fairy tale for the stock. Plus, July's biggest sector gainer, energy surging to its highest level since mid-April.

17:04A look inside this high-octane trade. Fast Money will be right back.

17:18Welcome back to Fast Money. Disney shares jumping 3 % today on a report that CEO Bob Iger is bringing back two former execs as consultants for the media giant. Tom Staggs and Kevin Mayer, who are at one time considered as Iger's successors, now run the Blackstone-backed Candle Media, have been hired by Disney to advise on the direction of its legacy TV business and ESPN. The move also coming just weeks after Disney's board extended Iger's contract for two years, renewing questions about the company's succession plan. And of course, remember that interview that David Faber had with Bob Iger. He basically said everything was open to, I mean, the legacy TV business may not be the core anymore, which is really, you know, revolutionary sort of in the minds of Disney investors.

18:00August 9th, they reported. So that's next Wednesday, I believe, right? So the question is what's going to happen to that? You figured maybe they already did the kitchen sink thing, or maybe this could be the one where they just put it all out on the table. The fact that we traded down and effectively held the levels we saw in the throes of 2020 is encouraging. The question you have to ask yourself is, what's your upside here? Is your upside maybe 98 to 100, where other stocks have more beta? So I think it's good that we traded down there and held. I think they're going to kitchen sink it on the ninth.

18:30Julie, what do you think? Yeah, I think there's definitely the potential for them to really pull back and think about how they're spending their capital. It's been a huge benefit to them to have this writer's strike, because I think everyone is starting to wake up and realize that streaming is incredibly, painfully expensive to do and super competitive. So in a way, they've bought a little bit of time with this strike. And I think Iger's comments reflect that a little bit. But looking forward, I think, how do you think about a business that how can this business get back to the structural margins that achieved 25 % operating margins?

19:06There's nowhere near that. And I think until there's clarity on the profitability, the stock is a little bit stuck. I know it seems crazy to say like old friends, new tricks. How about old friends, old tricks? But I feel like the old tricks are why you want to own Disney right now. I feel like you're looking at theme parks. You're looking at what's actually working. I realize pricing probably can't go a whole lot higher. I realize you had a pent up demand dynamic that's going to change. But I think Disney's studio, whenever it does reemerge, and it will. I mean, this strike has been painful for a lot of people, and it's going to continue to be, but it's going to end.

19:40And Disney's studio is one of those money. Basically, it's a machine that keeps delivering for the entire flywheel of Disney. So selling Disney here, guys, right, I think the performance of stock on the downside, someone who's long and someone who's been one of the worst charts and worst performers. Look, relative to Netflix, relative to the S &P, maybe not relative to Warner Brothers, but that's not Disney's yardstick. This is one of the best run companies historically in the world. So it's great that you got the old crew back together again. But frankly, they're going to need to do something different, even though Disney's old playbook is what should save the company right now.

20:14Yeah. And if you know Kevin Mayer, the guy's a stud. And if you think about what he has done since he's left Disney, right? So he was the CEO for a bit at TikTok. He's been involved in private equity. He's been involved in Smash Capital, which is also VC. He took a company public on a board via SPAC. So I think there's some new tricks there. You know what I mean? So I think it makes sense to bring in some old blood with some new views on how to do this, because ESPN is a gem, right, of this whole, you know, operation here. And they're probably going to come up with some creative ways to better monetize it.

20:44I mean, he could also be the next CEO. Yeah. He left because he was not going to be the CEO. And so did Tom Staggs. And here we are, two potential people. Bob Iger has to sign on for two more years because there isn't anybody in sight. Maybe these two are potentials. But again, Tom Rogers was here a couple of weeks ago saying that the fixes for Disney are going to take anywhere from 18 months to two years at least, right? So do you get ahead of it in terms of the stock? Again, the fact that we traded down to those levels and held is a good sign, but how much upside in the short term, I'm not sure.

21:16All right. There's a lot more fast money to come. Here's what's coming up next. Starbucks earnings on deck. Will investors get a jolt or burn? The options action on that name ahead. Plus, are you looking for an energizing rally? Oil prices at their highest level in over three months, and it's taking energy stocks with it. We'll drill down on that sector next. You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.

21:56We've got a news alert for you related to Jeffrey Epstein. Contessa Brewer has that story. Contessa. Melissa, lawyers for the U.S. Virgin Islands told a federal judge that J.P. Morgan Chase handled more than$1 million in payments from Jeffrey Epstein to what they described as girls or women after the bank terminated Epstein as a client. In a new letter filed this afternoon, lawyers from the Office of the U.S. Virgin Islands Attorney General detailed more than 9 ,000 transactions paid out to Epstein-related accounts between 2005 and 2019 that were not disclosed during the court-mandated evidence exchange window.