The True Tale of the Market, and Digging in on Nike Earnings 6/29/23

0:01Right now on Fast, 90 shares heading sharply lower after its latest earnings report. The stock is now down 3%. We're dialed into the call. We'll bring you all the details and the trade. Plus, a micron meltdown just 24 hours ago. Investors were cheering a more than 5 % post-earnings pop. But the stock gave up those gains and then some during today's session. What the reversal says about the state of this stock. And later, Fidelity jumps on the Bitcoin bandwagon. Disney tries to find some magic, and Apple closes in on$3 trillion. I'm Melissa Lee. This is Fast Money live from the Nasdaq MarketSite.

0:31On the desk tonight, Karen Feinerman, Dan Nathan, Guy Adami, and Tim Seymour. We're going to get to Nike in just a moment. But first, on a day where the Dow outperformed big tech and rates hit levels not seen since the SVB collapsed, we thought we'd ask our traders one simple question. What chart tells the true tale of what is going on in the markets? Dan, which chart did you choose? All right. So I have a friend, Liz Young. You know, she's on the Halftime Report. Well, she's actually our friend. Collectively. Brilliant strategist over there at the SoFi. And she tweeted this out. I'm not on Twitter anymore.

1:05Someone actually had forwarded it over email, but she tweeted out a chart the other day of the S &P 500 versus where real rates are. So that would be the interest rates relative to inflation. I thought this was really interesting because you see that divergence. And Guy Adami has been talking about this a lot. He's seen a lot of the performance in the S &P 500 this year is really multiple expansion. And so we've often quoted where the S &P 500 is trading about 19 times on a forward basis, which I think per fact set is above the 5 and 10 year averages is down there near 18. So something's got to give between where the Fed is bringing interest rates relative to inflation expectations and where valuations the S &P 500 are trading.

1:47So I think this is a really interesting chart. And I think it could actually be the key to how stocks perform in the second half of the year when we have better clarity on inflation, better clarity on where interest rates are going to go or stay. And really, something's got to give with the stock market. Yeah, something's got to give, meaning stocks have to come down. Or you just see like, yes, I mean, I think that's probably has to happen. Yeah. Tim, do you think that's that's how something gives in this scenario? I do. And I would point to a chart that's all about rates as well. And I agree that real rates are way too low.

2:21S &P should not be trading at a forward multiple above where it was trading pre-COVID. So Dan's chart, Liz Young's chart, all great stuff. I would show that the two-year chart is one that we're within 15 bps of the high for this period, but we're within essentially 15 bps of a 16-year high in two-year rates, another 25 bps or so on that. And you're back to 2006 or 2007. So you're at an extraordinary place here for the consumer. And we saw jobless claims this morning. We saw GDP upward revisions this morning that were probably consumer based. In other words, they were better than people had expected in terms of consumption level.

2:58But I'm looking at disposable income as a percentage debt levels as a percentage of disposable income, almost 10 percent. I'm looking at debt coverage ratios at 17 year highs. I'm looking at consumer credit that's up 12 and a half percent over the last 12 months to one point two three trillion or so. It's just, you know, at some point, this is the problem, that rates haven't been this high and they're going up off of zero. So equity valuations are reflected from the long end, which is what I think Dan and Liz are talking about. And I would just put the pressure on the consumer here. I think the consumer is under a lot of pressure.

3:34And I think it means, and we'll talk about retail later in the show with Jerry Storch, but this has a lot of implications for retail stocks and even hard lines, soft lines and other places that have been defensive. I feel like it's sort of a companion chart because Guy has the tenure. It's interesting that Tim and I would be companions. We went to school together. And remember the other night when we couldn't hear Tim? Remember how nice I was to him? He had good hair. He had steely. We could have gone all the way. He's the whole real deal. Thank you. Sorry. Your chart? Oh, I didn't realize you were going to come to me.

4:10My chart is, again, it is a companion to Tim's, and it's two tens, which is now either side of a 1 % inversion. And I think six of the last, well, basically, since Fed tightening cycles have occurred, it's predicted six basically recessions out of seven. A magnitude that we're seeing now, 100 % inversion since the 1950s, has led to a recession, I think, 80-something percent of the time. And with the steepness of it now, we haven't seen that in the last, I don't know, 40-something years. and typically the range is 15 months from when it started. And we're right there. I think August, September, October puts you right in the window.

4:49So, again, I'm not an economist, but I think people are sort of not looking at this closely enough to indicate what it's going to mean in the months to come, Milms. There's no shot in your head that the markets see or are pricing in a recession at this point? If the market is pricing in a recession at the multiple we're trading at. Or that we had priced in a recession? Yeah. Listen, is there going to be a soft landing? Have they been able to navigate this? Does this inversion mean nothing? The fact that we've been inverted for about 13, 14 months, 100 basis points, probably headed at this point to 125.

5:23Could that be an anomaly? Absolutely. The market says that right now. I just don't believe that's going to be the case. Karen, what's your chart? Yeah, so I had sort of a different take on the question. And my chart is just a very long look back at the S &P. and to me that you know what does that tell you that you want to be in the s &p over time and when you step back i mean sure there's dips in it there's the s &l crisis there's the uh the bubble of the first dot-com bubble there's the great financial crisis there's the pandemic and i am long in into every single crisis i'm always long and i just think you can see from this chart just the power of compounding it just you want to be in the market so to me that's sort of the I don't know the squigglies, how they're going to work.

6:10I just want to stay long. So that's the chart that I sort of. I think what you're saying is the most important thing about anybody who wants to invest a dollar in the market. I've heard you say it on her podcast, actually, the other day. And honestly, it was great. I know we talked. But you guys did talk about this. And I actually think it's really important. OK, so the show is called Fast Money here. And a lot of us grew up as traders. Some people grew up as investors. But your point is an amazing one. Let's just look at the last three years, right? The S &P topped out in February of 2020 at$3 ,600.

6:41It went down 35 % in a black swan event to$2 ,200 or whatever the heck it is. And here we are now at$4 ,400. We were$4 ,800. If you just invested the same dollar amount every month, every quarter, you'd be doing fantastic. And that's the squiggly that you're talking about. But the fast money component of this is like if you're tuning into this, you like the day-to-day. You like the action. You like the different stories. And sometimes we get in the weeds a little bit about that. And I always say to people that if you are invested in the long term, you take advantage of that compounding nature.

7:09But sometimes it's like a portion of your investable assets is you like the action, right? You like the stories like that. The trading part about it is like that's where you're YOLOing stuff, whether it's crypto, whether it's this or whatever. And so I agree with you. I think that is the most important takeaway, though, of your chart, too, is like you always have to be in the market. Yes, you always. Right. I can't figure out when to sell and then when to get back in and have it wake up for taxes. I mean, there's no shot of my getting that right both ways. But in terms of your take on what the squiggly does next, it is what?

7:39I don't know. And I don't think it's a monolith. But you don't care, you know, if the consumer is weak, right? That impacts a lot of your trades in terms of the retail component of your trades, like a Lowe's, for instance, or, I mean, TK Max, you know, all of these. Right. Also, though, the market is a forward-looking mechanism, right? And so it shouldn't be shocked every time that sometimes you get in these markets where the same news makes it go down again and again and again. And sometimes the market looks through. And I think generally the market kind of looks through. May I ask you a question?

8:15It's your show. You typically ask questions. Will you give me this one? Yes. Maybe I missed it. I wasn't here yesterday. So maybe you discussed it yesterday. I'm not quite sure. But is squiggly something? Is that in some new financial term that I'm not aware of? You've used it a few times now. I didn't personally. I wasn't the first to bring up the squigglies. The squigglies. The squigglies. It's like the lower term trajectory. The market is higher. So it's squigglies. But sometimes there are little squigglies. But there's a really important point, though. But Mel, this is one thing that's really important, is that a lot of investors make a lot of decisions, like bad decisions, at highs and at lows.

8:52And I think that that's one of the reasons why we try to figure out where the next squiggly is going to be, because you don't want to be buying. You didn't call the squiggly of the end of 21. But you don't want to be buying into a mania right before you know that that thing might kind of deflate a little bit, despite the fact that the long term is bottom left, upper right for the whole thing. Right. And that's why we talk about a lot of these rotations and everything. When you use that expression, I love to get Tim's kind of take on this really quickly, too, is like when you think about all of the charts that we started with.

9:22OK, if we know over history, like the 15 months from the time that the 210 inverse that we're likely to have, you know, like, you know, recession or this. Well, we're kind of there for all that sort of stuff. So sometimes you throw out the forward looking sort of thing. I don't know, because I know that he agreed with me. That's why I wanted to get taken away. Like, I think that. Yeah. But if you think that the October lows discounted the recession that hasn't happened yet, well, then that's you're doing that wrong a little bit, too, in my opinion. All right. Well, our next guest has his own tale of what is happening in the markets today and how to play it going into the second half of the year.

9:57Tony Dwyer is the chief market strategist at Canaccord Genuity. Tony, always good to see you. I'm squiggly. What's the next squiggly, Tony? That's the question. So I love the conversation. First, you know, I was looking before I came on at what is getting priced into as a recession. So 54 % of the S &P 500 is trading more than 20 % below its 52-week high. So there's still been a lot of weakness in the market despite the 14 % move in the S &P 500. And just, Mel, speaking to the panel's discussion about earnings yield or two-year yield versus the earnings yield, think about this. When you look at the$220 earnings estimate for 2023 operating earnings, that's a consensus estimate.

10:44I'm at 210. If that$220 number, your earnings yield, which for the viewers is the inverse of the PE, so that way you can compare it directly to interest rates, riskless rate of return, the six-month T-bill has given you a 542. You're getting a 5 % using the 220 number on an earnings yield, again, E versus P. And on my number of 210, which may prove a little bit optimistic because I'm still in the recession camp, that'd give you a 475. So you have a riskless rate of return that's at least 42 basis points above a consensus number that's higher than my number. And my number is probably a little bit too high.

11:20So we're in this squiggly environment where a lot of stocks have already come down quite a bit from their peak and they're sitting there. The average stock is only up or not average stock. The median stock in the S &P in the NYSE this year so far is up three percent. So it's frustrating. A lot of fund managers I talked to, myself included. So, Tony, it's Tim. So let me try to synthesize the previous conversation and what you just said, because I think what you're saying is that that actually a, you know, an equal weighted S &P is not up that much. And maybe that's interesting. And the last conversation was really about how can you be a long term investor?

11:57which we all recognize you want to be in terms of empirical results over time at a market top, at a time when Apple, the biggest stock in the world in the market, is up 51 percent since January 4th. So how do you bring those two concepts together? And it's bigger than the entire market cap of the Russell 2000. So tying that in, it doesn't take a lot of selling or a lot of profit taking in those mega cap stocks to give a bid to the broad market. The broad market is nowhere near where that S &P 500 is where you've got that 19 multiple. I'd call it a 20 multiple on my number. And still, I know it's not real popular.

12:37So here's an interesting thing, guys. We keep hearing that we've been talking about a recession for the last X number of months. It's actually been about a year. The median duration between the initial inversion of the six-month to 10-year Treasury curve and the onset of a recession is 11 months. So this is the most talked about recession of all time. How about the 21-month lead time going into the great financial crisis? I think one of the issues that we're seeing here is everybody's waiting for this kind of SVB moment, this catastrophe or this Lehman moment. How about we just get an old-school money contraction?

13:13There's three ways you can get money for the next leg of growth. You can earn it. We're already past peak earnings. That's the whole story of why the Fed is going to be able to cut rates down the road, less labor inflation. You can get it from a bank, and we know they're not lending. After the SVB and the regulatory fear, lending standards are pretty, pretty tight. Or you can get it from your investments, and even on the gain of the S &P 500, you're still pretty well below where you were from an all-time high. So again, I don't have a problem with – you don't have to bet against it. The question is, do you want to bet with it when I can't find the money that's going to fund the next level of growth And I got a riskless rate of return that's at least 42 basis points above the earnings yield on the S &P.

13:59Tony, always good to see you. Thank you. Thanks for having me, Mel. Good to see everybody. Have a happy four. You too. Tony Dwyer, Canaccord Genuity. I mean, it's a good point on the six-month riskless. Five and a half percent guy. Tony always makes good points, number one. And I think what he's saying is don't get fooled. The fact that nothing's happened yet, don't be fooled by it, because back in the day, it took 21 months to get to a level that we all remember. And I don't think he's suggesting we're going back there, but it's something to take into consideration. I'm guilty of this all this time.

14:30I think things should happen a lot faster than they have. But the fact that it hasn't happened yet doesn't mean that it won't. And again, in my opinion, it's almost a foregone conclusion that the market, the stock markets, can start to take into consideration 500 basis points of hikes and a yield curve where we're currently trading at. So just in terms of soft landing, hard landing, I know you're going to hate this, but the landing, I think, Guy, is a Carrie Strug landing. Oh, where she fakes the injury and gets a hold off. I don't think she faked it. I think it's a hard landing, but she stuck it.

15:00Yeah. Yeah. We can agree to disagree. She's a fan of the show, by the way. Of course. Sorry, Carrie. Is she? Huge. Not anymore. She had some sort of knee injury or something. Ankle. Ankle injury and then still, you know, competing. She got a perfect 10, right? No, stop it. I don't know. She got good enough. Good enough. She was, that was her. Tim, you think she faked it? Because now Tim's trying to curry favor with all the gymnasts out there. I think we're going, we're about to go to July 4th weekend and celebrate our country's birthday and feel, you know, a lot of pride about all our achievements.

15:32And we're going after one of the most decorated Olympic athletes of our time. I'm not going after him. What's going on here? On the, you know, cereal box. Come on, you can't go after. But in terms of what Karen is saying about sticking the landing, that implies that Jerome Powell, he deserves a gold medal. Yes. Yeah. Well done there. Tying all the metaphors together. And I think the presumption here is that the Fed has done just enough to get us back to be tight enough on policy to get us back to 2 percent without causing a recession. There's no way that's happened. It's never happened. And the Fed, who admittedly is is waiting for data and is always behind the curve, They won't say that, but everybody else will.

16:13So, no, you can't have it both ways here. We either have more to go and there's pain still to be had. But to say that we've done just enough to execute the perfect landing without limping off the mat, I don't think so. All right. Let's take a check on shares of Nike. Volatile after hours, the athletic wear company reporting a beat on the top line but missing earnings. The stock is on three and a quarter percent. Company's conference call is underway. CNBC's Mike Santoli is following all the action there. Mike, what's the latest? Yeah, Melissa, first earnings missed for Nike in three years or so.

16:45Buy a penny, 66 cents versus 67. Worth noting, the estimate for this quarter that was just reported was 81 cents as of the end of February. So it's two quarters in a row where they've had a really downscale expectation still. The stock taking it a little bit tough. Now, below the surface, there's progress on some of the problem areas investors have been worried about. That would be China and inventories. A big comeback in Chinese revenue growth, 16%. year over year in the quarter. That was better than anticipated. You also did see inventories flat on a one-year basis, down sequentially, down in terms of volumes.

17:19Basically, Nike on the call, John Donahue, the CEO, saying we're back to health when it comes to where we are in inventories. Also highlighting things that they always do, like digital and direct sales, very fast growth. They're digital up 26 percent. It's also 23 percent of the overall revenue base, Probably still some squeezing of the wholesale channel going on right there as well. So it seems as if, you know, they're trying to make the case out there that the inflection point has been passed in terms of improvement on inventory and some of the global sales. Mid-30s percent growth on the top line for Jordan brand, both in North America and internationally.

17:58So clearly they're saying the franchise is well intact, even if it's a little bit sloppy on the financial side. Gross margin down 140 basis points in the quarter. And that accounts for the earnings miss, Bill. All right. Mike, thank you. Mike Santoli. They had to make it done to the inventory somehow, Karen, and that was through a lot of discounting. Right. Although, you know, Fort Lager had that disastrous quarter, which I'm quite familiar with because I've owned it for a long time. But Nike went down in sympathy with that. Inventory was the problem there. And so I think this is somewhat digested.

18:32This shouldn't be surprising at all. And I think it's not so surprising. Tim had a good call on this one. Like, yeah, it's a great company, but a little overbought. Yeah, we just spent a few minutes talking about the S &P at 19 or 20 times. Here's a stock that, you know, is growing earnings in the teens on a percentage basis. I think that gross margin trend you want to obviously keep a close eye on because this is something that, given the inflationary environments and all the like, we've kind of been very in tune with over the last couple of years or so. But at 29 times, I mean, it's expensive for a company that's maybe executing OK.

19:04hey, you know, there's a company that is always trading a premium in the market and many of its peers. But I don't think there's anything in this environment where you want to run out and go buy a stock like this right now after that quarter. Yeah. Tim, your call into the quarter was your long puts into the quarter, correct? You're closing that out? No, I'm short the stock. You're short the stock. I've been short the stock for for for for, you know, eight weeks or so after it shot up into the near one thirties. And the view was valuation. The view was like everything Foot Locker told us. They're not the tail and Nike the dog, but but they certainly are a canary when they're 55 to 60 percent of their mix is Nike.

19:38Look, again, I get back to where I think we are with with soft lines, even soft lines in premium brands like Nike, where you just aren't going to see the consumer continue to have the ability to buy here. They warned that we were here. They've done a great job of turning around the inventory story. But back to that 28 and a half times the four buck a share or 24 the street has. What are you willing to pay? You shouldn't be paying a premium. It's kind of in line with its long term history. I think you should be paying a discount. It's not a broken company. I don't stay here forever, but I think it goes back to 100.

20:11All right. Coming up, a chip change of heart. Shares of Micron reversing course after yesterday's upbeat outlook. So why did the semi-stock end the day deep in the red? The traders dig into that next. Plus, cryptos come one, come all. Fidelity joining the rush of firms looking to launch a Bitcoin ETF. But with the SEC still blocking the gates, do any of these funds have a future? We'll debate that when Fast Money returns.

20:37Welcome back to Fast Money. A major reversal for Micron today. The chipmaker, which had been up as much as 5.3 percent after its earnings report last night, ended the day down more than 4 percent. Micron is up almost 30 percent this year, but has been underperforming the broader chip space over the past month or so. Guy, you were talking about this on the call. 55 % year-over-year decline in revenue. I was actually paying attention to this. It's the cheapest thing you can do yesterday. I'm saying, I'm looking at the numbers. What the hell's, Mike? Why is it higher? It made no sense to me. I mean, most things don't, as you know.

21:08And now this actually does make sense to me. Then you layer on top of it, obviously, what's going on in China. The headwind's there. And now it starts to make a little more sense. And then you look at this company, which we talk about all the time. As much as we'd like to say they're through the commoditization phase of their company, they're not. And you're seeing it play out right before your very eyes. So it's not surprising that it's lower. It should actually be lower than it currently is. There'll be a level to buy it, but this was not a particularly strong quarter. What about the earnings?

21:35Because yesterday the reaction immediately was good. Is that the revenues came in better and the guidance wasn't lifting enough? That's what I was, maybe it was a guidance thing. I don't know. Because I'm telling you, I was actually watching in real time and I'm like, this doesn't make any sense. I don't know what people are looking at necessarily. I think the proper reaction is the reaction we're seeing now. Yeah. Tim? Well, you know, the bottom may be in in terms of both destocking and inventories and maybe starting to see some stabilization and demand. But how excited are you at the top or for the top is my point.

22:06And I guess, you know, I don't think I don't think my crown really has underperformed that massively. The semis, which have outperformed. I mean, it's underperformed by about seven percent. If you look at the stocks over the last six months. And I just don't think that there's a lot to be excited about. I think there's margin pressure, too, that I think that's what the street's responding to. And I think you're seeing folks, you know, follow through and worry that margins continue to get worse. So I think that's the reaction here. It's that things are probably better. But this is a glass half empty, not full.

22:37Yeah. Significant headwind from China is what the CEO said. And I'm surprised at that time that the stock didn't have more of a reaction to that. Yeah. You know, it's interesting. And Tim mentioned this yesterday or the other day on the show. And Carter's been talking about the semis on their relative performance to the S &P 500. And they have not been able to make a new high. And when you look at the SMH, the ETF, the tracks, the Philadelphia Semiconductor Index, you see that right now, I mean, NVIDIA, which we know is up, you know, 200 percent or something on the year. It's gained, you know, a half a trillion dollars in market cap is 18, 19 percent of the weight of that index in Taiwan Semiconductor.