Three Bad Omens for the Market? And Big Tech and Hollywood Tackle U.S./China Tensions 4/5/23

0:01Right now on Fast House Speaker Kevin McCarthy meeting with Taiwan's president of the Reagan library This is other members of Congress meet with entertainment and tech execs to talk about U.S.-China relations. We'll break down what kind of blowback could be coming from Beijing. Plus, one of our traders is all charged up about a name we rarely mention on the desk. Maybe we've never mentioned, in fact. We'll find out what it is and why he thinks this stock could power higher, even as it sits close to all-time highs. And later, inside the cost cuts at FedEx, Tesla's rough three-day slide and stunted growth in some of the tech names.

0:33I'm Melissa Lee. This is Fast Money. We're live at the NASDAQ MarketSite. On the desk tonight, Karen Feinerman, Dan Nathan, Julie Veal, and Guy Adami. We start off with the three big omens in the market right now. First, there is gold, the seminal safety trade. Prices touching their highest level since March of last year in early trade. As fears of a recession grow, gold miners at their highest since May. And then there's rates dropping across the board with the yield in the 10-year at its lowest level since September. The spread against the three-month T-bill is wide as it's been in at least 40 years.

1:04And finally, banks continuing their slide lower, the KRE Regional Bank ETF, taking out its lowest close of the year and now at levels not seen since November 2020. So what are all these moves telling us about the strength of the market and the economy? Dan? Well, the strength of the market, the stock market, it really just defies everything that you just laid out there when you're talking about 40-year levels at that sort of differential. And, you know, Jim Bianco was on last night. He was talking about the move index, right? So the volatility of the bond market here. And it's just notable that the spread between that and the stock market measured by the VIX.

1:38So the VIX is like pinned here at 19. And a day like today, when you see what you saw in the regional banks, you saw weakness across the board in the NASDAQ, you know, really underperforming the S &P 500. And then there were dozens of stocks that were down 5, 6, 7, 8 percent or so. The sorts of stocks that actually should benefit when yields are coming in. And they were the ones that started getting killed when rates started going higher in late 2021. So to me, I think warning bells are screaming in silence right here. And for some reason, the equity market has not gotten the memo. Yeah. I mean, not just the moves in tech, but also industrials.

2:13Yeah. So many names just being taken three, four. No, one of my absolute favorites, United Rentals, just absolutely getting annihilated on, you know, fears of the slowdown, any construction spending slowdown. I think to me it seems way overblown. But to be honest, I thought that, I mean, 30, 40 points ago or more. So, I mean, I still like the name. I feel like the infrastructure bill is still really important to them. Their backlog of business is great. Their balance sheet is in great shape. And this is, I mean, it is a cyclical business. It does have a cyclical kind of P.E., but there's no mercy there.

2:51I mean, you know, I feel like, you know, Wallflower standing alone at the dance and everybody else is having a good time. And there I am just, you know, drinking my URI drink. But I don't know. I still like it. It seems overdone to me. It's a lot of crosswinds about what's happening in the economy, what's happening to rates, and then the giant bank question, which we're not going to have more clarity. We got that odd Western alliance. Right. We're going to release data, except we won't release anything about deposits until the market cries. And then we will release things about deposits so the markets feel better.

3:25That was insane. I don't know what happened there. why they withheld the probably single most important piece of data and then later came out with it. But that's going to be hopefully some clarity for us because the KRE is looking terrible. Right. So you have all of these sort of, you know, patches out there. And together it makes a quilt and, you know, just sort of an arrangially that indicates trouble ahead. And yet you have the markets holding up. And that's probably basically because Apple and Microsoft are 13 percent of the S &P 500. So how do you how do you think about positioning yourself in this sort of environment?

3:59Well, I still think I don't want to go 100 % defensive, right? I don't want to buy gold. I literally don't know anything about gold because I like things like cash flow. So I think all you have to be focused on are durable business models. I like things that are really nice and boring, like a Cooper companies that sells contact lenses where you have secular growth that can still probably power you through a softer kind of recession. that's the type of business I would be more interested in right now than anything that's hyper cyclical or hyper defensive. Yeah. Guy. Contact lenses. I mean, I, you know, I wore contacts in high school, not that you care.

4:38And I was playing basketball outside. One of them fell out and that was it. I'd never wore them again. I'm like, I won't use the vernacular, but you can imagine. So how do you know? I had my eyes zapped. I had my eyes zapped years ago. I mean, I mean, that's probably more information than anybody wants to hear at the top of the show. It's a lot of information five minutes into the show. But anyway, back to the markets. Well, what you mentioned at the top of the show, I mean, that's a pretty unholy troioka there, as they say. And you talk about gold. Central banks bought gold to the tune of 1 ,137 tons last year,$70 billion.

5:11I think it's the most in record. And gold demand in the entirety was like 4 ,170 tons. and that was up like 16 % year over year. Central banks and Rick Santelli is coming on. I hope he hears what I'm about to say. They're hedging their own ineptitude. And you know what? Good for them because I think gold's got a lot left. And I'll say this, the market might be bullish of gold and that's an homage to Dennis Gartman, but it's not long of gold. And I think once those circuits kick in, once those basically levels kick in for the hedge funds, you can see another round of buying. So gold going higher, yes.

5:47Banks trading miserably, absolutely, and bond yields out of control, something that this show's been talking about, not for the last week, Melms, but literally for the last couple of years. Yeah, I mean, Bank of America had a really interesting note. It's mostly technical, but saying that gold against all the different currencies, euro and yen, as well as the U.S. dollar, hitting new levels, high levels. Gold against oil, gold against bonds. All these charts look positive for gold. I mean, you, like Julie, have never really gone into gold, never got gold, never bought gold. But in this environment, is it starting to look attractive?

6:21Well, I do have Bitcoin, right? And it directionally is sort of going the same way to the extent that people think, all right, well, the Fed is done and, you know, they're not going to be disciplined anymore. That's helped both stories. But also this, you know, the bank thing hasn't hurt Bitcoin either. Right. That's been helpful. So sticking with that, even though it's a really small position. Yeah, so gold, the GLD is the ETF that I look at that attracts it. And I guess there's a lot of other instruments that are kind of more tied to the physical and the like here. But I look at this thing and I say 2020, it had this spike just above 180.

6:57And then it came down really hard. And then in the start of last year when we had the Russian invasion of Ukraine and we had a whole host of kind of macro issues that seemed, you know, like where there was not a whole heck of a lot of uncertainty. We saw a new back above 180. And here we are. We just went from 150 at the end of last year to where we are right now. I just think chasing it up here doesn't make a whole heck of a lot of sense. If you just think about the last few years, we've had all this volatility. And granted, it's been upward volatility. You know, in 2018, the GLD was at 110 or so, right?

7:28So we're almost at 190. I just feel like if you're coming to the trade now, it's probably not going to do you a whole heck of a lot of good. I know Guy feels differently. I know friends of ours like Peter Bookvar who come on the show. But these are things that these are narratives that you should maybe always be exposed to, 3 % to gold. I think that's kind of the gold buggy sort of thing. I just have never subscribed to it. I just don't know what a 2 % or 3 % position holding it all the time is going to do for me as a hedge. All right. Well, despite gold basically finishing flat on the day, it is still at more than 11 % this year.

7:58And chart master Carter Braxton-Worth sees more gold in gains ahead. So, Carter, walk us through the charts. Sure. I mean, one thing to note, look, there are three types of people when it comes to gold. You fall into one of three categories. There are people who never own it, never want to own it, never will own it. They're the opposite, people who will always own it, will never let it go, gold bugs. And then there are people who want to own it from time to time, want to hedge. The latter two are fine. I mean, obviously, you don't want to have 80 % of your net worth or burying this stuff in your lawn.

8:32But having a lifelong position in precious metals makes sense. And also using precious metals as a timing tool makes sense. But let's look at some charts and data and see what we can divine together. The first is just this is an inconvenient table for the first group, people who never want to own it, can't own it, won't own it. This is, well, inconvenient. Gold and the S &P or even money going back to December 1996, they have returned the exact same. It's annualizing. You can see there it's 6.8%. Now, the first response of the critic would say, well, what about total return? You just go to back 1997.

9:14Gold has done its job on a long-term basis. You can see the chart right here. There it is. Now, one could say one's more volatile, one's less volatile. They're even money for basically 22, 23 years and with total return about 20. So it's something to note for those who never want to talk about it or own it. Right now, that's important. this is the ratio chart, gold to the S &P. It's simply one divided by the other, and it depicts a relative strength line. This has been bottoming for the past two years. Gold has been outperforming equities as an asset class. Now, in terms of what's the potential, you see a long-term chart of gold here.

9:58The low, and this is the irony, of course, gold's down 200 ounce or thereabouts. it's in the year 2000. Cisco is worth more than any company in the world. And people love dotcom and they hate gold. We all know how the story ends. That's why it's a great story. And then GDX. We think it bottoms, has bottomed, and we're headed to around $42 a share. We closed at$34 and changed today. So, Carter, I know you're taking a look specifically at gold, but in terms of silver, Do the charts look similar? I mean, we've seen the chart going higher as well. Sure. Silver is a very small affair relative to gold, often called poor man's gold.

10:42That's sort of pejorative. But silver is fine if you want to own the SLV, that or individual equities. There are all sorts of ones that are bottoming here, and we like it a lot. Carter, it's Karen. It's interesting when you say the S &P versus gold is almost exactly the same. Do gold bugs get disappointed when you point that out, as I was surprised when you pointed that out? Well, I don't know. Meaning, I know it's the first group, people who never want to own it, are sort of like, how can that be? I do all this work. I do all my DCF. And gold has kept up with the S &P since 1996. That annoys them.

11:21The gold bugs, I suppose that makes them feel quite proud. Oh, I was wondering if it annoyed them. See all this, you know, fiscal irresponsibility going nuts and yet. Oh, I see. Well, yeah, maybe they think they should have had beaten the S &P. Who's to say? But it is remarkable. And even forgetting with total return, gold and the S &P since basically early 1998 are even money. That's with dividends reinvested. That's a shocking thing. That definitely surprised me. Carter, thank you. Always bring in the charts. Carter Braxton, worth of worth charting. Guy Adami, what do you make of that? I mean, in some ways you think, oh, well, then gold's a good bet.

12:04But then you're like, well, then just keep it in the S &P 500. If it's even money, what makes a difference? Yeah, it is interesting, though. I would surmise that if you pulled 100 people in Times Square, nobody would have come up with the answer that Carter just gave in terms of the returns. over that period of time. And listen, I get why people are reticent. I understand what Dan is saying. But I'm telling you, if you think about what's going on globally with the moves we've seen in currencies and bonds and all the different things and all the gyrations with these central bankers, gold's going to win to this.

12:37And it's on the verge of breaking out. And quickly about silver, since you brought it up, Melms, gold's within a whisper of its all-time high. Silver's still about 50 % below its all-time high. So silver's got some catching up to do, as they say. And the right way to play this, I believe, and I think Dan alluded to it, is through the PHYS, something that Danny Moses talks about. And we are right up against the level we last saw, I think, in the summer of 2011-ish. Did you say PHYS? Oh, Sprott physical gold. Got it. That's what I said. That's what I said. PHYS. All right. Let's get to the drop in rates now and the signal that it's sending to the markets.

13:15Let's bring in Rick Santelli for more on this. Rick, the 10-year yield, what, lowest close in seven months? Yes, lowest yield close in seven months. And the two-year note is just right there, very close. A few base points away from the same thing. Let's start at the beginning. We all know all the data we've seen this week, and it hasn't been pretty. On Monday, what, you had ISM headline, a whisker above 46. That was the lowest level since May of 2020. Yesterday, jolts. I brought the number out at 10 o 'clock Eastern. Under 10 million, worst levels since May of 21. This morning, we saw the producer, excuse me, prices paid for the service sector at the lowest level since July of 20.

13:57So let's look at the two year. You can see that it looks like it came back towards the end. Nay, nay. Let's look at a two and 10 on top of each other for two days. All maturities closed under yesterday's low yields. And if you look at twos and tens together on the September chart you were just referencing, you could clearly see they're all moving fairly together, highly correlated. And three months to tens, the real recession spread is at minus 153, the most inverted of my 40-year data bank. And what are central banks doing? I like your conversation about gold. I just have one little fly in the ointment.

14:34Well, guy, I was in the pits in 1980. I think it was Jan or February. in Chicago, which led in gold before COMEX, before we destroyed the contract in Chicago. And I remember trading around 840, 850 in the lead futures contracts. And if I do my math correctly, adjusted for inflation, the current price of gold is nowhere near where it should be. And I think that is the biggest thing to focus on. Yeah. Di? You know I feel about Rick Santelli. I mean, he's a Mount Rushmore of just badasses out there in terms of what he talks about. And he's unwavering in some of the things that he talks about, the same things I talk about, his dislike for central banks and all the stuff that they've done.

15:19And I'm with him. I mean, he's probably right. Gold should be significantly higher. And I would just submit I think we're just a matter of time from seeing that, Rick. Yeah. Yeah, you know, I'm not sure I love gold, too, and I wish I could go back to the heyday of trading gold. I just don't see it. And if you look at the charts, it's hard to really get a GPS with inflation. It's a sterile commodity. It has negative carry. And when interest rates going up, you got to really be careful. And by the way, Fed fund futures. And I'm always nervous to even get into a discussion there because basically it's just another T-bill contract that people think is magic.

15:54And it isn't. But right now, if you do look at it the way the CME advertises it with a percentage, we don't even have the quarter point for the next meeting priced in yet. All right. Rick, always good to see you. Thank you. Rick Santelli. Julie, what do you mean? Because we've had an inversion. We've had all the, you know, these sort of flashing warning signals about the recession for quite some time. So why now? Is it just because all the other things around it, all the other data points are sort of moving in that direction? You know, I think what was lacking was something akin to a financial crisis.

16:29And I think that's where you start to get the breaks in both consumer and business confidence. And that's where you get meaningful changes in the abilities for businesses to continue to spend, to continue to hire. You know, ISM continues to be very soft. The ADP numbers, I think, were kind of interesting in terms of construction being solid, but continued ISM weakness in the manufacturing sector. I think that starts to bleed out. And I think it's just a matter of time now where we start to these warning signs start to really materialize. It's interesting, though, when you think about ways to kind of express views in the market.

17:04So if you look at the SPY, that's ETF that tracks the S &P 500. We just talked about the VIX at 19. If you look at the implied volatility, the SPY, that's the price of options on a short dated basis. They are equivalent to the price of options in the GLD. That is not something that you see too frequently. So the 30-day implied for both is about 17 or so. So after gold's had this big move, okay, if you were looking to express a bullish view, would you rather pay 17 vol for GLD or would you rather pay 17 vol for spy puts? And really, they're the same trade for all intents and purposes. So that's kind of the lens that I look at this through.

17:38And that's why I wouldn't be chasing gold here. I see what Carter sees in the charts. I see what Guy has mentioned on a long-term basis. And if a lot of this stuff is all going to come together at one time, when we've seen major dislocations on almost every other risk asset market that we track, except for equities, I get why you would want gold. I just think that just lean into the S &P right here. Coming up, FedEx delivering on its cost-cutting plans. We'll break down its strategy to see if it'll help drive profits higher. But first, powering up, Con Ed trading near all-time highs as investors flip the switch to safety.

18:09The surge in utilities and other defensive sectors when Fast Money returns.

18:18Welcome back to Fast Money. Con Ed heading to all-time highs today, jumping more than 2 % as investors flock to the safety of the utilities trade. The stock is up nearly 31 % in the past two years. Utilities are, in fact, the top-performing sector in the S &P today, with names like Evergy and XL leading the way. So is a defensive trade for real? Guy, you brought up Con Ed. I don't think we may not have ever talked about this stock ever on this show, maybe once in the history of fast money? Well, people in the tri-state area, I'm sure, are not huge fans of the utility. But I will tell you, in terms of a stock, you talk about lower left, upper right since the mid-1980s.

18:56And we had that huge sell-off a few months ago. But this stock has come back like a champ. Argus just upgraded the stock. I think they have$102 price target. And Con Edison just announced, I think a month or so ago, a billion-dollar accelerated stock repurchase plan. Now, It's not cheap, which is a bit of a concern. But I'll tell you something. There seems to be this flight in the form of safety and now in utilities. And when you start to see that understanding, a lot of it has to do with yields coming down. But I don't think that augurs particularly well for the broader market. So I do think Con Edison continues to go higher here.

19:30But I also think it's something to watch in the form of what's really happening below the surface. Karen mentions HYG all the time. That did not trade particularly well today. But on the flip side of that equation is watch the utilities, Melms. Yeah, you were just saying that it's starting to show cracks. Yeah. HYG. Yeah. In terms of how you think about defensive, you go health care, more health care? Yes, more health care, which actually today had a very good day. Very good day. Across the board. Little rotation there. Out of URI. Everything out of URI into Pfizer. They all went everywhere else you were.

20:02You know, it's interesting, though, when you talk about the defensives and you talk about staples, you talk about utilities, you talk about health care, they're all down in the year, which I think is really interesting. when you think about that, right? So it's kind of like the opposite trade of what we had in January. It was kind of the YOLO thing, get into all the crap that got the hardest hit last year. But so when you look at these sectors and then all of a sudden, and this goes back to what we were just talking about a few minutes ago in the last block, and you see the sort of interest in them on a day where you see a lot of stocks getting murdered, you see some stress in the financial sector, that sort of thing.

20:31It doesn't make me feel better about owning like the broad market right here, especially as we've been talking about what we've seen in small caps over the last couple weeks, the underperformance there. So I don't know. I think it's really important. You were talking about a mosaic or a stitching or something like that. A pastiche. A pastiche or something. A pastiche. A pastiche. A pastiche. Yes, thanks, guy. It's not a great looking quilt. It feels like it's got like it's kind of being held at like some really weak seams together. Yeah. Probably the sort of sewing that you might do. I'm a very good sewer, by the way.

20:59I'm extremely precise stitching for my part. Coming up, FedEx driving higher today as it lays out a plan to cut costs and boost profits. But can the trade keep its momentum? We'll get you the details, break down the trade. Plus, U.S.-China tensions in focus. Why, our next guest says things could go from bad to worse. The geopolitical risks for the market ahead. You're watching Fast Money Live from the Nasdaq Market Side in Times Square. We're back right after this.

21:31welcome back to fast money fedex shares ending the day higher if the company announced a 10 dividend hike the delivery giant also saying it will combine almost all of its ground air and other operations by next year as part of a four billion dollar cost savings plan a guy you've been watching this one how does it look versus ups well it's cheap i mean karen can speak to this. I think it probably trades a little less than 13 times next year's numbers. I mean, you probably, I think you have maybe 20 % EPS growth, maybe a hair more. It's always traded at a discount because quite frankly, I hope somebody from FedEx is watching, they haven't run their business particularly well.

22:08Now, I think they have their arms around things now. This drive program, which you mentioned,$4 billion saving goes right to the bottom line by 2025. And if you look at the last quarter, that was actually surprisingly good. So I understand that one quarter does not a trend make. But if they continue to operate the way they did the last quarter, this stock is just too cheap here at 13 times. So yeah, I like FedEx here. I think UPS is fine, but I think FedEx is finer. Julie, what do you say? Is FedEx finer? Kids at home, don't use that word finer. I think the big challenge for FedEx here is that they're trying to combine their express and their ground groups.

22:52And the thing is, is that they've been able to avoid unionization by strict categorization of these two groups, one under the Railway Labor Act, the other under the National Labor Relations Act. And so the thing about that is if they are not able to maintain those, they're suddenly going to be under much more pressure for union organization. And so these$4 billion in savings will not happen if that happens. Karen, you made your choice a while ago. So a while ago, they were priced very differently. That gap has closed a lot. I'm long UPS. I'm not long FedEx. They're within, I don't know, one or two multiple, maybe two multiple points of PE.