Three Key Trades… And Election Impact On International Markets 6/3/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Three big trades from the drop in oil prices and home builders to the diverging fortunes in the semi stocks. We're digging into the headlines behind the moves and how our traders are playing them. And opportunities abroad, elections in India and Mexico sending those two markets in wildly different directions. Should you book your ticket into these emerging market trades? We'll debate that. Plus, coming to terms, Paramount and Skydance finally agree to a deal. Toyota tumbles as Japan's auto safety scandal widens, and structure therapeutic surges on its latest oral GLP-1 drug trial results.

0:38I'm Melissa Lee. Coming to you live from Studio B at the NASDAQ, on the desk tonight, Courtney Garcia, Karen Feinerman, Dan Nathan, and Guy Adami. And we start off with the three trades on our radar today. Crude crumbling to its lowest price since February. Homebuilders on edge despite a drop in treasury yields today and a seeming divergence in the semi-trade with NVIDIA and AMD moving in opposite directions after their Computex news. We start tonight with oil. Price is falling almost 4 percent. Their worst day since January. The move coming is eight OPEC plus members said they would start phasing out production cuts in October.

1:09That would bring more than 500 ,000 barrels per day back to the market by the end of the year and nearly 2 million by next June. Guy, what do you mean? Yeah, and that's coming on the heels of some of this, the ISM numbers, which haven't been particularly good. So slow down the economy, more crude coming into the market. obviously not a healthy recipe for the underlying commodity, which, again, hasn't traded well. And I've been bullish. That's been wrong. The stocks now concern me a little bit. Throw up an XLE chart. I mean, we recently traded up to a high we made back in 2014, either side of sort of$99 or so, and have sold off pretty dramatically, dramatically in the form of about 10 percent or so.

1:46That ETF is effectively three stocks, 50 percent, ExxonMobil, Conoco and Chevron. I still like all three, but it's very hard to make a compelling argument given what's going on in the underlying commodity and some of the technicals around the names. You know, I think that with some of those companies, the good news is, is their break-even point is so much lower than where oil prices are now. So realistically, oil coming down is a good thing for all the travelers. We're coming on summer, which is like the highest driven season. So it's actually going to be a good thing for consumers with inflation being high.

2:16Hopefully we'll be a benefit to our bottom lines and our wallets at the end of the day. But I do still like these companies. And I also still really like things like pipelines, right, because what's happening is regardless of what's happening with OPEC right now, artificial intelligence and more electrical vehicles means we're just seeing this electrification of the economy. And there's not enough energy to go around. So whether it's we're going toward clean energy, but until we have that, you're going to still need oil. So I think longer term, there's a supply demand, a supply demand. I can't talk supply demand dynamic that's not going away.

2:46Yeah, no, I agree with you. I mean, until we get to that point, which who knows exactly when that is. And you do have this whole sector just getting cheaper and cheaper. And, yeah, you have the top three and then a little further down the services companies. Also, I mean, we've seen the space be very out of favor. I don't know if it's been quite this long without there being some. It's not like the economy is doing terribly. And that would be the reason. So I still like the space that X is the E in my help trade. And it hasn't been a good one of late, but I still really like the trade. I like cheap.

3:20I like value. There is value here. Yeah, you mentioned the economy is not doing that badly. And I think we could say that for the U.S. But if you think about China and demand there, I think that's probably one of the reasons why we just haven't seen crude much over$80 for the better part of this year or so. And then, you know, to your point, Courtney, I mean, listen, the average tank of gas is or gallon of gas in the country right now is like three and a half bucks or something like that. So it's down considerably, I think, year over year and going into the driving season, that sort of thing. I mean, so there's lots of push and pulls on this inflation data that we've seen.

3:50But I think Guy's point about, you know, some of this economic data that we're seeing, whether it's manufacturing or something, it is kind of weakening a little bit. Let's move to our second trade here. Homebuilders heading lower despite the move down in yields today. Karen, we were talking about this on the call about the underperformance and names like a Home Depot despite this pullback in rates. Right. I mean, normally there's just a knee-jerk reaction. Rates move the right way the home builders move up. I don't know if it's that, you know, this big sort of trapped inventory of existing homes that isn't for sale, if a small move in rates just won't do it, that rates are going to have to move a lot.

4:26Whether we do 25 base points or not doesn't really change the calculus there. I don't know if that's it. I don't know why today they were particularly underperformers. Yeah. ITB, specifically the builders, were also weak today. No doubt. So I'll go sort of the retail route. And Home Depot made its all-time high, I think, three years ago. And it has not traded particularly well since. And recently, it sold off pretty considerably given the fact that the broader market's done so well. Lows, on the other hand, which is really interesting, that's actually outperformed. The problem now is if you throw up a long-term lows chart, you'll see now you talk about a two-year double top.

4:59Well, that's it in spades in terms of lows. So where do you think it could be an environment for these stocks to do well, especially at Home Depot, which valuation-wise is probably as cheap as it's been in a while, it's actually going the wrong way, which I think is somewhat concerning. The homebuilders are their own animals. I don't think it's a rate thing, but that's me. I think it's a more employment and or unemployment thing. I think if you start to see a meaningful uptick in the unemployment rate, in other words, from where are we now, 3.9 to 4.5, that's when homebuilders, I think, start to feel it on the downside.

5:27So that basically they won't break until we see a drop in unemployment. That's what I think. I don't think it's a rate story as much as it is an unemployment story. Do you think so? I think there is somewhat of a rate story. And the reason is, is all of the existing homes, people who own homes right now, aren't wanting to sell them while rates are high. So the second rates come down, you have now more inventory that's going to come on. So really, it's the homebuilders are filling in that gap right now, especially the first time homebuyers. There's just no houses to go around. So that means better for homebuilders, which is why they've actually been doing well in a higher interest rate environment.

5:53I think regardless, there's not enough homes to go around. So the housing market's going to look good either way. But that's why you'll see some of these moves on rate changes in the short term. So in other words, you think the trade is safe until we drop on the 10-year to like 3 percent. I mean, it would have to drop significantly to Karen's point in order for anybody to consider moving at all. Correct. Yeah. OK. And finally, unless you have something to add to the note. Look at that face. Yeah, yeah. But this one you will. The chip race, the AI chip race. NVIDIA and AMD moving in very different directions after unveiling their latest AI chips at the Computex conference in Taiwan.

6:26Over the weekend, the latest products coming just months after their last launch, still NVIDIA jumped nearly 5 % to a record close. AMD, though, dropped 2%. First, there's the puzzling aspect of the divergence. But then also NVIDIA just keeps going higher and higher and higher on these new unveils. Yeah, I mean, every time Jensen Wang gets in front of a large audience, the stock goes up$100 billion at least. I mean, that's just a fact. And so, you know, that sort of behavior to me has got antennas up a little bit. But, you know, have a ball. People keep buying it every step of the way because you're getting rich doing it.

6:59I'll just say this. I mean, if you're not paying attention to what's going on in the enterprise software space. And we had some big examples over the last couple of weeks between ServiceNow, Workday, Salesforce. These were some really big moves. And then you could extrapolate it out. You know, the super micro went into the S &P 500 on March 18th. It's down literally like 30 percent since that. It's down 40 percent from its all time highs. This Dell, this was a darling supposedly, you know, making the servers and going to the data centers. Well, the guidance they gave was just wasn't good enough.

7:29And the stock was down 20 percent like that. So some of the stuff that's adjacent to this A.I. trade is kind of coming undone a little bit other than Nvidia. And so to me, I just think that that is a cause for alarm here. And you can say, well, you could have said that at every step of the way. I just we know how this ends. It's not going to be pretty. And I know every time I say that you get massive pushback of that. But, I mean, there's going to come a day in the not so distant future where it's also down 20 percent. But that's going to be off a three trillion dollar market cap. And what else does it draw down with it?

8:00So, Dale, I think, you know, a couple of things. So the expectation of margins on some of the resistance was light. That was part of it. I think also just the enormous run up that it had going into that. Right. On the heels of the Nvidia release, the stock was up, I don't know, maybe 20 bucks, give or take. So I actually like Dell. I would like to buy more. This is a sort of three-day rule. I want to give it a little bit more time. I think that the valuation for a hardware company is definitely not what it was a few months ago. But I think we're still in the early phases here. And I think that we're going to see, we talked about it before, the AI part of their business, the enterprise, which, okay, I understand that might be wicked.

8:47And the PC part of their business. and all the things that go along with the new PC. We have Microsoft ending and a new Microsoft Windows coming up this year. That's always been a good harbor gear of a new cycle for PCs, which I think it will be this time. All of that benefits still, not a crazy price. But all of these companies over at Computex had very bullish things to say about their own AI offerings. Qualcomm saying Snapdragon is going to have a major share of the Windows PC market. Intel is going to speak tonight at 11 o 'clock. AMD unveiled something. nobody had the same reaction or even close to the reaction that NVIDIA had, which makes it very difficult if you are an investor and you are along the stock to either sell it or to say, you know what, I'm going to look for the AI adjacent because I want to look for the quote-unquote value in this trade when all I see is NVIDIA going up, up, and up.

9:39Yeah, I mean, it's secretariat in the Belmont Stakes, however many years ago. I mean, that's NVIDIA and that's the rest of the field. Everybody else is in Afterran right now, and that's a great place to be. But, you know, even the greatest sources of all time get put out to pasture at some point. I'm not suggesting that's going to happen with NVIDIA. However, you know, the bloom is off the rose at a certain point. And my concern, again, unfounded up till now and maybe up until the next few months has been they're out earning their revenue stream. And effectively, that has to reconcile somehow.

10:07On a price to earnings, NVIDIA is fair, if not cheap. On a price to sales, not so much. And when that starts to turn is when things get a little dicey. It clearly wasn't this quarter. But I'll say again, when you see Adele, the dance point moved 23 % over the course of a couple hours. That's concerning. Karen's right to identify you're looking to buy more. By the way, the March prior all-time high was about 122.5 or so. It sold off into April. That's the level. Past resistance becomes support. Yeah, and I think some of the trouble that's happening with these AI-adjacent companies is these companies are buying like$50 billion worth of NVIDIA chips.

10:42You've only seen like$3 billion worth of revenue from all these companies right now. So at what point in time are you actually going to see that? Because the valuations are getting to a point where investors are really going to realize, okay, this is going to be years out in the future. Like, customers want to see it on these devices. They want these companies to have artificial intelligence. But right now, it's nothing more than just an expense to them. So when we see that, I think, is the big question. And that's, like, the next thing that really needs to happen. Yeah, just one last point on Dell versus Hewlett.

11:06Hewlett actually had this huge gap that ran into its results. They're talking about a bottom in the PC sector, talking about an upgrade cycle. The only thing that concerns me there, these are low-gross margin companies. They've always have been. They compete on price. These AI enabled PCs are only going to be on the high end. We know that corporates are very slow to upgrade on this sort of stuff. So to me, I think they're going to be competing on price. And Microsoft, they just held this build conference. They just introduced a bunch of new PCs. Everyone's expecting this hardware cycle, super cycle or whatever.

11:35I'm just not so sure it's going to happen, especially if they start competing on price. Yep. One hedge fund manager sees indicators of an unhealthy market. Mark Yusko is CEO and chief investment officer at Morgan Creek Capital. He managed about$1.5 billion in assets. Mark, great to have you with us. We're just talking about NVIDIA. And I'm just curious what you make of that action, that kind of action, if it signifies anything about this market. I think it signifies a lot about the market. You guys summed it up really well. Look, I am young enough or old enough to remember when Intel went up 20 fold, not 20 percent, 20 fold in a little over a year in 2000 because their chip was going to revolutionize AI.

12:17AI is an 80 year overnight success story. And we're seeing it again. So today, Intel is 40 percent lower than it was 24 years ago. I don't know. So in no accounts, you own NVIDIA? No, we own it. And we have owned it. But we trim into strength. We've owned it for a long time. And look, I think right now the most important thing, Melissa, in all of investing is discipline. Disciplined rebalancing, taking your profits on things that are running, rotating into other things. Now, look, the passive industry is exacerbating the momentum effect. Every single day, the passive indices where the 401k money goes in every two weeks, they don't get a choice to say, hmm, is NVIDIA expensive or cheap?

13:08Doesn't matter. They have to buy it. And the bigger it gets, the more they have to buy. That works until it doesn't. Yeah, Mark, I'm with you on that. We talk about that a lot, and I appreciate you bringing it up. But part and parcel with that is the dampening of volatility to what I think is extraordinary is a little maybe hyperbolic, but interesting levels given everything that's going on in the world. What are your thoughts on that? Look, I think that's a really, really insightful point. That dampening of volatility is normal when everyone's doing the same thing. And everyone's doing the same thing because the capitalization weighting mechanism forces it.

13:50So as the percentage of passive money, and remember, it's not passive. It's slow active. Over the last 30 years, 85 % of the S &P has rolled over. It takes a while, but it does roll over. So I think volatility is interesting in that people fear it, yet volatility is your friend. What you want to do is own volatile assets that are uncorrelated with one another, because all volatility is is disagreement about the future prospects for a company. So one of those assets for you is our digital assets, Mark. I mean, you think digital assets, cash and gold are the way to go for the next 12 months. What does that say about your outlook for the markets?

14:34So, look, I think you guys have done a great job breaking this down. I was in the waiting room last week before the Trump news broke, so they kind of moved me to today. But I was listening to the breakdown of evaluation across the markets. I mean, 27 times trailing earnings we haven't seen very many times in history. So that's why I think discipline is really important. And cash is a choice, right? It's an asset that today yields about 5 % while you wait. It gives you the buying power to buy things when they go on sale. ED HARRISON Human beings do two things really, really well. We buy what we wish we would have bought, and we sell what we're about to need.

15:17Commodities broadly, despite the fact that they're making new highs every day, are at the cheapest price to paper assets they've ever been. And in the kids game, paper beats rock. But in real life, rock beats paper. So we favor commodities. And you know how I feel about digital assets. Digital assets, to me, everyone needs to have some in their portfolio. They add diversification benefits because they're uncorrelated, because they don't derive their value from the same thing as traditional financial assets. And one last question, Mark. Do you think that the volatility in digital assets will be dampened as more and more ETFs are approved?

15:58Again, really, really great point. Absolutely. If you think about$58 billion of mostly retail and advisory money coming into this space, and as they call it, the boomer wrapper, right? So you don't have to deal with hardware. You don't have to deal with software. You don't have to deal with self-custody. You just buy an ETF just like anything else in your portfolio. I think that number goes to$300 billion over the next couple of years from the 58 today. I think that will dampen volatility. I think it will lead to much higher prices. Mark, great to speak with you. Thanks for being patient with us.

16:36Always a pleasure. Mark Yusko, Morgan Creek. I always thought that rock should be paper. It never made any sense to me. Paper covers rock. That doesn't make any sense. No, rock can destroy paper, make a hole in it, tear it to shreds, all that. Remember the old Bounty commercial that we used to see? Bounty really hung in there. That's paper. With a rock, though? Yeah, a rock still. Anyway, we'll take this offline, obviously. Please. But in terms of what he cash, digital assets and gold next 12 months. Yeah. So he also mentioned our conversation the other day about valuations and the like. And again, going back to the concentration thing, Jonathan Golub at UBS had a note out.

17:15And I just think this is from a performance standpoint. NVIDIA has contributed 34 percent of this year's 10 and a half percent gains in the S &P 500. And 26 percent comes from Google, Microsoft, Meta and Amazon. And we've also given some data from Faxat talking about how much of those companies are contributing to the earnings growth in the S &P 500. And then you go back to the other 490 or whatever it is, and they're just not contributing. So to me, from a performance standpoint and an earnings growth standpoint, I think that's really, really important. All right. Meantime, reports that this is an interesting one.

17:47E-Trade is considering kicking Keith Gill, a.k.a. Roaring Kitty, off its platform. the company looking into whether his GameStop trades amount to market manipulation. Kay Rooney's got the details. Kay. Hey, Mel. Yeah, so the Wall Street Journal reporting that E-Trade has been considering kicking Keith Gill off of the brokerage platform due to concerns of market manipulation. Executives at E-Trade, which is owned by Morgan Stanley, have reportedly worried about Gill's purchases of GameStop call options in particular. They started right around when his social media accounts first started posting again.

18:18That was in mid-May a few weeks ago. A screenshot posted to Reddit by Keith Gill's Roaring Kitty, as he's also known, had gone viral over the weekend. The account shows that he owns a stake worth roughly$116 million and then a set of options that expire this month. We could not verify that screenshot, but after the journal's report, that same account posted another screenshot on Reddit showing that he hasn't sold. The journal also reporting that the SEC has been reviewing Gill's trading in GameStop and those call options around the time of his influential posts, which have sparked the recent rally we've seen in GameStop and other names, there have reportedly been internal SEC discussions about whether those moves could be considered market manipulation.

18:59A Morgan Stanley and E-Trade spokesperson saying essentially no comment. We don't publicly discuss the individual activity of our clients. And then the SEC saying it does not comment on the existence or non-existence of a possible investigation. Mel, back over to you. Kate, is there any sense as to whether or not E-Trade tipped off the SEC or were these parallel things, you know, going on? Yeah, it's not clear, Mel. You'd think that this is something that would have gotten the SEC's attention regardless of what was happening at E-Trade and it's something I've been talking to with former SEC commissioners about sort of the liability here for Keith Gill and it's totally uncharted territory that they have been paying attention to this, according to the journal reporting.

19:38And, you know, former regulators are really having a hard time wrapping their head around this because a lot of the posts that Keith Gill has done had nothing to do with GameStop on their face, although they did lead to some of the trading activity. And I think the call option side of this is especially important. If he was posting at the same time buying options, obviously, the SEC would be paying attention to that. Yeah. Kate, thanks. Kate Bruni. I mean, I don't know. Can you interpret, you know, that cartoon of him leaning forward as market manipulation or throw into it Ryan Cohen or anybody else has tweeted a picture which is on the face meaningless, but then leads to unusual trading activity.

20:14Is that manipulation? It's hard to prove. And it's extraordinarily hard to prove. I don't think there's anything illegal going on. I think it's extraordinarily unsavory what's going on. And it makes somewhat of a mockery of the market, I think. And it goes back to some of the things that David Einhorn said a few months ago in terms of the market, I'm paraphrasing, effectively being broken. And it's manifesting itself in a number of different ways. This is one of them. So they're going to investigate it. But quite frankly, I don't see anything illegal about what's going on unless there's something more to the story than I know.

20:44So I think the question you asked, Kate, was an interesting one. Was it the SEC or was it E-Trade? I wonder, this is just I'm asking a question. Was there trading in the E-Trade account that they felt they had a duty to report that trading to the SEC? Right. Right. So he's then showing, okay, I haven't sold any. We don't know what other accounts there might be elsewhere, what activity that was. I'm intrigued by this idea of, can this, just this image of him leaning forward, if you know it's going to have that reaction. Right. And you trade. But how can you prove that you know that that's going to be the reaction?

21:25There's no way. All right. So I just went to perplexity, okay? The AI. So I just asked if this is illegal to collude in the stock market. And it says the United States collusion in the stock market is illegal and primarily regulated under federal antitrust laws and securities laws. And then it actually quotes the Sherman Antitrust Act, which says the Sherman Antitrust prohibits conspiracies that restrain trade, including collusion and the like. So maybe there are laws against it. And, you know, I mean, if you're so good and you're going to commit so much capital, you're probably talking to your friends about it.

21:54I mean, I don't know. I mean, I just think that's kind of interesting. So we're just sitting here opining on something. There's probably laws against it, especially if the SEC is all over it. Coming up, the latest on a media merger. Shares are paramount jumping as the company strikes an agreement with Skydance. But one big name needs to give the thumbs up before a deal gets done. All the details next. Plus, a playlist pop shares of Spotify getting a boost after another round of price increases. The new toll for your tunes ahead. Don't go anywhere. More Fast Money in tune.

22:28Welcome back to Fast 20. We've got some breaking news here. New York is set to restrict social media algorithms for teens. This, according to the Wall Street Journal, the headlines crossing just moments ago. We want to go straight to Julia Boorstin for more on what this all means. Julia. You know, this is part of a broader trend we're seeing where a number of states are looking to really crack down on social media and specifically its impact on kids. We've seen legislation out of here from Florida, also from California. And this is all about sort of preventing social media companies from serving up content to kids that's either manipulative or dangerous or particularly in the case of this New York legislation, addictive.

23:06And so one of the factors in this bill, which is still being finalized but is expected to be voted on this week, is that this would prohibit platforms from sending minors notifications during overnight hours, which is obviously very relevant. Now, we do have to note that there have been questions by various industry groups about the constitutionality of this proposal. And I do have to point out, and people who have kids know this, is that 13 years old is the minimum age for most social media sites. And this is because of the COPA bill, Children's Online Privacy Protection Act. And that basically said that websites were prohibited from collecting information on children younger than age 13.