The Two Opposing Forces on Stocks, Plus Inflection In Sight for VF Corp.? 4/14/23

0:01Right now on Fast earnings season has begun and banks so far telling investors what they wanted to hear. But why did the rest of the market seem to listen? We're going to dig into the opposing forces hitting stocks today. Plus, it wasn't just the banks out with earnings today. One of the biggest names in the S &P also posting results this morning. And despite the drop, not one, but two of our traders still see upside for the stock. They're going to lay out the case. And inflection in sight. One apparel stock getting a big double upgrade today, sending its shares soaring. But one of our traders is hopeful the name has found support here.

0:35I'm Sarah Eisen in for Melissa Lee. This is Fast Money tonight, live from the Nasdaq market site in the heart of Times Square. On the desk, we've got Tim Seymour, Jeff Mills here in person, Steve Grasso and Julie Beal. We're going to start with the opposing forces in the market today. Big bounce in bank stocks after the first set of earnings reports from the group. JP Morgan, take a look, surging 7.5%. That was its biggest jump since November 2020. That after posting record revenue even in the aftermath of the banking crisis. Citigroup also beating on the top and bottom lines. That stock up nearly 5 percent.

1:07Other big banks coming along for the ride. On the other hand, signs of weakness in the consumer. Retail sales falling more than expected in March, down a full percent from February. The CFO of Wells Fargo, Mike Santamasimo, telling me earlier that he sees signs of weakness in spending. In the card space, you're seeing just a very gradual weakening, which is what you've seen now over the last couple of quarters. So it didn't overplay it. Nothing alarmist, but they're preparing. That weakness seemed to outweigh the strength in banks. If you look at the overall market, the Dow dropping 143 points, NASDAQ down for the fifth time in six sessions, S &P also pulling back.

1:48So what does it tell you that these standout bank earnings weren't enough, Tim, to boost the market? This was supposed to be one of the biggest problems for the market. Well, first of all, you are boosting our spirits by being here today, sir. Thank you. I love joining you guys. And I look at a combination of things for the market on a day when JP Morgan's numbers were great. It's amazing how many people say, oh, I knew they were going to be great. Not everybody knew they were going to have these kind of record numbers. And I get that net interest income up 49 percent is something that may be unsustainable.

2:17I think the market's heaviness today is a function of what the markets had a great week. I think there's been a few mixed signals this week on the data front. I think that CPI number is enough to keep the Fed alive in May. I think the Fed minutes showed you that there are enough voting members without the name Powell that actually are on board for a May hike. And then Fed Waller's comments today were also very much like, you know, May is happening. So I don't know that that should be a huge surprise, but that's a little different than where the market is. I do think, as I say, the the outperformance of the semiconductors and of the triple Q's and the heavyweights in Nasdaq, as long as that continues, I think the markets are moving higher.

2:56I actually see that starting to teeter a little bit. And even though I think a lot of the positioning in some of the semis, like an Intel or something like that, is still very light, I think you have to watch this because we've had a big run. Yeah, I think the question is good data now, bad news for the markets. Bank earnings were better. I get retail sales were a little bit weak, but University of Michigan consumer confidence was strong. Waller's comments, basically, that's the governor. More tightening is needed. He spelled it out. But today, J.P. Morgan, this was good news for J.P. Morgan because the financial crisis, which we both own.

3:31I don't know. I don't know if Jeff owns it. Jeff doesn't like the banks. I don't love them, but we have positions in certain banks, J.P. Morgan being one of them. OK. All right. So that's good enough. We'll take that. We'll roll with that on a day like today. But they were the recipient of deposits. So for them, this latest crisis was actually a tailwind. Yeah. So let's see what happens to Tim's point going forward for that. But think about bigger picture. This is bad for tech, right? If rates are going higher, it's good for banks. It'll be a tailwind for banks. It'll be a headwind for tech. The problem is large cap tech cannot rally in the face of higher rates.

4:07So we had a nice little bounce off the bottom. That's leveled out. What does that mean for the overall market? Probably leveling out too. If you look at the technical levels on the S &P, 4 ,200 is a huge level to overcome. And unless things change significantly with the macro appearance of the market, we're in a range-bound market where we're not as low as everyone thought we were going to be. And we keep bumping our head up against that 4 ,200 level in the S &P. And there's no reason to pop above it, quite frankly. And I think the leadership of the market right now is really important. We were at these levels not too long ago, a couple of months.

4:45But the complexion of the market was very, very different. You had cyclicals leading, you had transports leading, you had small cap leading, high beta leading. So there was a much more risk on tone to the market. Tim, to your point, even though positioning is a little bit light, and I think that could continue to lift the market in the near term, that is all completely reversed out. Look at gold, look at utilities, look at staples versus discretionary. This is a very different market at these levels than it was a number of months ago. And that concerns me a little bit relative to the staying power of where we are.

5:13You know why I think the market didn't rally in the face of better bank numbers? Why is that, Sarah? Because the market didn't sell off when banks were were in crisis, basically. I mean, it took us down for a few days, but the month of March was an up month. Technology stocks rallied. It was only the banks that had a bad first quarter. I agree with that. But I would also say, look at some of the industrials. Look at airlines were treated like bank stocks. A lot of resource companies were treated like bank stocks and they've slowly been working their way back. I haven't the banks haven't. And even after these numbers, I agree.

5:43And even after today's catch up, JP Morgan has still underperformed the S &P by about 8 percent since SVB. And I do think that that's kind of the dynamic here. I think you ultimately still have a case where banks are going to be judged as as, you know, even if the numbers are strong, there's so much more to come for banks that I think they're going to have trouble breaking. Julie, I'm curious your take on on the read through from the bank earnings. Well, I think it's everything with banks right now is going to be a function of the haves and the have nots. And, you know, your large mega cap banks are the haves and your regionals are the have nots.

6:15And I think that's important to keep in mind as we get more and more information on the regional banks who are holding much more of this problematic office and other commercial real estate that I think we all know is probably mispriced and has more credit risk. So I think next week it starts to be really important in terms of understanding what they have. The large banks have done a great job of boosting their rainy day funds, but I think it's going to be much more severe on the regional bank side. Though I will just note that PNC managed to close up after being down most of the day, Jeff. You astutely pointed that out because I thought they closed down.

6:52We were talking about it in the green room. Why'd you point at Jeff? Did you do something wrong with PNC? No, no, we were just talking about it. Listen, hey, I used to work there. I'm staying out of that one. He said they had a terrible day. I said, actually, I think it was so tired. Well, you used to work there, so that's enough said right there. Exactly. So a couple of quick things. One, just relative to the way banks perform today, look at the KBW index, highly concentrated in J.P. Morgan City versus KBE, for example, a little bit more diversified. They moved in completely opposite directions.

7:18So I think that's a read. And to Julie's point, relative to the haves and have-nots, the regionals, where does a lot of credit come from for small businesses, for consumers? It is those smaller banks. So if they do end up being the have-nots, I think that's a really good read on the macro and where we might be going over the next few quarters. But even if they're the have-nots, Julie, are you saying that it's not all priced into the stocks? Because they've had a terrible ride basically since March when SBV failed. So I guess I'm wondering if it's in the price, if you see them bouncing next week on news, or you think there's more bad news to come?

7:54I think it'll be really, really diversified because they all hold very different kinds of credit risk. There are some that are much more exposed to office, and there are others where it's a small business issue for them. So I think it's really going to depend on the mix, and they won't all be the same. But I think what is important to keep in mind is even though they are cheap, they're cheap for a reason. It's a recognition of the risk that they have, not just in terms of credit, but in terms of being able to fund and deposit mismatches that we've seen at SVB. So for me, it's a no-go, no-thank-you.

8:26Got it. And for Jeff, no-go, no-thank-you. And no one owns regionals, right, on the desk? We get a little bit of exposure. But definitely don't want to be overweight there. I think generally speaking, from a cyclical perspective, you don't want to have a ton of exposure. Well, another earnings mover today that we should mention, it was a big one, UnitedHealthcare. Biggest drag on the Dow, the stock slipping about 3 percent despite what was a beat on earnings and also the company upped guidance for the year. Steve, UNH is part of your 2023 acronym. It is. Do you still like it? It's been terrible.

8:57It's been terrible. Can you remind us of the acronym, please? Yeah, just. I had to remind. Oh, there it is right there. Okay. So JP Morgan's doing well. Tesla's doing well. And my two us is not doing so well right now. So STEM is an AI play of, you know, basically getting power off the grid, but in an artificial intelligence way. Is there a theme to just here? I don't know. Oh, okay. If you want to make one, we can. Last week I said I wish I had it as must because I wanted meta as my M there. But anyway, on UNH, they beat, they guided higher, they have new coverage. There's so much to be positive about this stock.

9:39It just can't get out of its own way. But I'm going to stay with it because management seems still positive. And everything about that earnings report was positive to me. And you like it, too. I like it. I'm long it. And I think it's worth noting that I probably was singing its praises going into earnings. We've talked about UNH, and one of the reasons I think it's outperformed even healthcare space is very defensive during this time. I mean, this is one of the greatest charts in the market over the last five years. And the reason why the multiple goes higher is because they're in the highest growth parts of the healthcare business.

10:11They are actually growing 40 % in high margin parts of the healthcare business. So I am one that says you take this weakness. I was one that said going into these numbers, this was a very strong performer and stay there. The bar was extremely high. These were not bad numbers. X2Q moving pieces. I think, you know, the outlook's quite good here. All right. Well, despite today's pullback, S &P did manage to end the week higher, nearly 1%, making it the fourth positive week in five for the index. But where could it be headed as we move deeper into earnings season? We need a chart. Let's get to chart master Carter Worth, who's looking at the S &P.

10:47Sure. We didn't look at anything, but thank you. I mean, And, you know, Grasso, you're making the point that is there any reason, and we can always find one or not, for the market to really press higher? I don't think there is. Right. We're we're up against the February high, 4195 February 2nd. But the sequencing is still intact. We have a high of four January 2021 and each consecutive high is lower. So the only thing that would be incrementally positive from here, from my point of view, you would need to take out that February 2 high. But really, the internals, and you guys were talking about that as well, that's the real issue.

11:21We have a bifurcated market. And a bifurcated market is when you have real winners like SOX, like the tech sector, like more than 20%, or you have others like banks really struggling, consumer. And the thought is that a bifurcated market is resolved by the leaders telling the truth and the weak ones coming to life. It never gets resolved that way. It's the exact opposite. it. What happens, the weak ones are actually telling the real message, and the ones that are strong are where people are hiding, and those ultimately succumb. I just want to throw one bullish technical stat at you. It comes from Tom Lee, of course, who's very bullish, of course.

11:56Of course. But, so he says the S &P has now spent more than 25 weeks above the 200-day moving average. Since 1950, there are zero instances of the S &P doing that, making a new low when it has spent that much time above the 200-day moving average. Sure. There are a lot of these things. I would call it data mining, right? So if you find those, they're typically 20, 40 instances. We talked to a statistician, typically they need about 140 inputs for it to be statistically significant. It's like stock traders, almanac stuff. Doesn't mean it might work, but we can always find that. You know, you can massage the data, get anything you want.

12:29But Carter, how about at least just this uptrend off the CPI low? I mean, the October CPI low really is a profound moment for this market. And I feel like this week and even yesterday, we gave something back today. We got back above that trend line, which was wounded by SVB. Sure. And that's fair. One could say that the market has made progress, basically, that rates peaked in October, market bottomed, dollar, and we've all sort of found our footing. But at the end of the day, remember, it's just the S &P. If you start looking at other aggregates and other parts of the market, the Russell 2000 is making right now new 52-week relative lows to the S &P.

13:04The consumer, the XRT, the equal weighted consumer is literally hovering for GM stocks that are just not progressing. You've got a lot of internals that do not support the quote S &P. The only issue is I think Tim's talking about this, too. We've thrown everything negative at this market. We've had a financial crisis, part two, which wasn't like the first one. We've had we have geopolitical issues. We have China. So everything too much, too much to go through. and the market just continues to absorb. But it won't really go up either. So let's actually consider this. Sounds like a pair of twos.

13:40It might be. So if you look at it, year-to-date performance is arbitrary, right? If it's May, if it's June, right? Okay. But one year or two years. If you look at equities as a broad thrust, equities are unchanged for two years. We had a max gain about 15%, max loss about 15%, and here we are, unch. What is the proposition for real earnings growth or multiple expansion, which is the thing that makes a market go up from here? I just don't see it. And the charts don't really support it. Well, people think that multiple expansion comes when the Fed cuts, which the market is expecting to happen. But remember, interest rates are the same level they were in June a year ago.

14:15We've been stuck at 3.5. It's not the level. It's the direction. But it always is until it isn't. Listen, when we started the year, and here's the funny thing, we know this. The number one most loved thing on Jan 1 was banks and financials. Whoops. Guess what was the most hated? Tech. Don't buy tech. Whoops. It's always this way. Carter. We're going to talk a lot more on options action. We'll see you in the next half hour. Thank you very much for that preview. When we come back here on Fast Money, earnings season kicking off with a bang. Will the results continue to rock? We've got a number of names to talk about.

14:47The trades to watch next week straight ahead. And ready, set, shop. Goldman Sachs getting doubly bullish on one retail stock. We're going to name names when Fast Money comes right back.

15:04Welcome back to Fast Money. Earnings season really kicks into high gear on Monday. More big banks and regional banks on the calendar. We'll also hear from Netflix, Tesla, IBM, plus a slew of transportation companies. So what is on our traders watch list next week? Let's go around the horn. Julie. I'm really interested to hear what the transports have to say. I think you get a good read on the economy. You get a good read on consumer discretionary. But I think even most importantly, you get a better understanding of what's happening and labor prices, labor relations with unions. I think that's actually going to be critical to decisioning for the Fed.

15:38So that's what I'm really paying attention to. Jeff? Yeah, I want to read on regionals, but I want a read on a very specific regional, M &T Bank. And we mentioned real estate. They have a pretty high concentration in commercial real estate. So I'm concerned about credit. Everybody's talking about commercial real estate as potentially the next shoe to drop there. So what do they have to say about office in particular? Do these properties need more investment? Are they getting the capital they need to be competitive? These are all really important read-throughs to understand whether that's going to be a squeeze on credit and therefore a squeeze on small business and the consumer.

16:12I'll throw you a little bonus, Prologis. They're more comfortable. I'll give you a little extra credit. Prologis. More focus on the industrial side of real estate. So not all commercial real estate is bad. But let's see what they have to say relative to banks' overall books, because if they're concentrated in industrial, maybe not so bad. Investors need to make that decision. So just to be clear, you're just watching M &T for that exposure. Correct. You're not buying it. No, I want it as a macro read-through to understand what potentially could transpire in the credit market. I love a good macro read-through.

16:41Who doesn't? I'm looking at Tesla. There's been so much talk about margins with Tesla. There's been so much talk about price cuts. I want to see what that looks like. I want to see what their guidance looks like. I want to see what deliveries look like. There's a host of things. But most importantly, I want to see how the stock reacts coming out of earnings. It was up above 200, slammed down to 180. Let's see what type of pop it can muster up. Yeah, but I like that Jeff and Julie are looking at, you know, transports and banks, because I just think, you know, transports, if you're a doubt theorist, it's actually a pretty interesting time.

17:13Those charts on the rails aren't great. Meanwhile, UPS and FedEx are two of the best charts out there. But I'm watching Bank of America because I think as a follow through from J.P. Morgan, there is a place where banks can outperform. And it gets back to valuation for me on Bank of America, which trades probably 15 percent cheap to JPM. I think the whole group trades about 20 percent cheap to five to 10 year averages on price to tangible book. Again, where J.P. Morgan beat today, it was on net interest income. It was also on fees. And I think Bank of America is in a good spot there. And I think where J.P.

17:41Morgan missed, it was largely on expenses. I think banks have still a lot more room and levers to pull their Netflix just because this is actually a cash flow generator in the midst of a world where I want to own companies that are generating free cash flow. And for Netflix, this hasn't always been the case. But relative to other streaming stories, this is what Netflix has to offer right now. I think the street might be a little aggressive. And if you look at the subs expectation out there, this is a place where they might disappoint a little bit. But I think right now we're less focused on that because we all believe it's going to take a while for this ad supported revenue stream to build itself out.

18:16Nobody chose Schwab. That's I thought you guys were going to go there on on Monday, Schwab reports. And this has been another one that people have been investors have been really worried about. I think maybe the good news is is if no one's really hanging on the edge on this one is that I think there is some sense. And I think the market this week gave you this sense that we're not that worried about about the flight of assets. And I'm not going to make a call on where Schwab is other than I've heard the same things they've told the market. I think a function of the lack of concern is a good thing.

18:46And I think the market traded like that. But you haven't seen them, to your point, you haven't seen these stocks recover. No bounce. They have not had any substantive bounce off those lows. Right. So are they then, if you're not worried, are they a buy? I'm not buying. Yeah. You're not there yet. No. But we'll all be watching, even though none of you chose it. When we come back, should you add this name to your shopping cart? Goldman Sachs giving one retailer double upgrade. The catalyst that could get this stock to rally. It's our call of the day next. You're watching Fast Money live from the Nasdaq market site in Times Square, Manhattan.

19:20We are back right after a quick break.

19:28Welcome back to Fast Money. Call of the day on VF Corp. Shares jumping 3 % after a double upgrade from Goldman to buy from Sell. Analysts saying the apparel company is nearing an inflection point with better inventory management, strengthen the band's product pipeline, and China's reopening among some of the positive catalysts for the stock. Jeff, you have been looking at the stock. We own a small position. Okay. We bought it about a month ago, and we play this game sometimes. It's so bad it's good. I think this might be one of the stocks. At home or just here? Well, both. I try to practice at home.

20:00It's 80 % off the top. Do you dress up for that or you just wear what you're like this? OK, 80 percent off its high, 45 percent below the 200 day moving average. And I think we have this chart. Yeah, it's up on the screen right now. It's right back to those levels before the financial crisis. And it's bounced nicely off of that support. So I think from a risk reward perspective, it's an interesting name given the dividend, given some of the things mentioned by Goldman relative to efficiencies and operations and some of the product development, particularly within Vans. And so I think there are some good things going on, even with all the macro headwinds that we're aware of.

20:33But at 10 times forward, probably reflected in the price here. Do you agree, Julie, with Jeff's turnaround trade here? Woof. No, I think the biggest challenge that they have. Oh, man. Boom. That hurts. You know, if you think if you think about what's happening right now in terms of management turnover, they've replaced their division heads, but they haven't replaced the top dog. And so that person is coming in constrained with their management team that they have in place. and turning around brands, these type of brands is really hard. You can pull back that stock chart where it's near its 08, 09 lows, but it was a different company then and those brands were better, stronger and more relevant.

21:09And distribution was much easier for them. So it's just not where it needs to be. All right. Well, they do have Supreme going for them, which is something. It is time now for final trade and we're going to go around the horn. Julie, starting with you. I like the business. Sorry. Ollie's is a retailer that I do actually like benefiting from trade down customers. Got it. Steve. I'm going to go Tesla. I'm looking for$200 on a pop after earnings. Jeff. AutoZone. This one's breaking out to new highs. I think it goes higher. Tim. Sarah, thank you for joining us. Sky and Connor, you were saying you liked uranium, I believe.