Trading the First Half Winners & Losers, and What ANOTHER Hollywood Strike Means for Netflix 6/30/23

0:01Right now on Fast, 40 years in the making. The Nasdaq officially closing out its best start to the year since 1983. Apple ending the day as a$3 trillion company. For the first time, it's up nearly 50 % already this year. But it wasn't just big tech on the tear in the first half. We take a look at the winners and losers so far in 2023 and which ones have the legs to run in the second half. Plus, we're just hours away from the possibility of a second worker strike in Hollywood. But if actors join writers on the picket line, what's it mean for the companies creating all the content? And later points for a pop.

0:33This beaten down stock has seen some positive momentum in recent weeks. And the chartmaster says the good vibes are only just beginning. We'll tell you what it is in just a few. I'm Melissa Lee. This is Fast Money. We're live at the Nasdaq MarketSite. On the desk tonight, Karen Feiderman, Bono & Eisen, and Tim Seymour. And we start off with a winning end to a banner first half. The Nasdaq and S &P 500 jumping more than 1 % today. Both indices at their highest closes since April of last year. The Dow up 283 points, just shy of its high of the year. The Nasdaq locking in its best first half since 1983, rallying nearly 32 percent since January 1st.

1:09Mega Cap Tech driving a big portion of the gains. 2023 is Nasdaq 100 leaders so far. Chipmaker NVIDIA surging nearly 190 percent. Meta platforms up almost 140 percent. And Tesla also more than doubling. And then, of course, there's Apple, the iPhone maker hitting a record high for a seventh day in a row and closing with a market cap of over$3 trillion for the first time. Shares are up almost 50 % so far this year. So as we gear up for the second half, how much juice is left in this market rally, Karen? I think this is sort of the rally that defied many, many, many people's expectations given the concerns about a recession, rising rates, and, of course, the bank crisis that we saw in March.

1:50Right. It is sort of amazing if you had known that, okay, we're going to start rising and we're going to be really aggressive a year ago if they said that, and we're going to be higher than you think, higher than the expectations are. And by the way, we're also going to have the Ukraine situation and we're going to have all this other stuff, SVB. I would have thought the chance of us being here is pretty, pretty low. So, but this is where we are. So it actually, I find this kind of market a little bit harder, right? I feel like some of the, a lot of the easy money has been made now. And these are kind of like champagne cork popping kind of numbers for the first half.

2:24So that actually makes me a little bit nervous. Nevertheless, I always am long. That's just the way it goes. So I'm going to stay with what's working. I think even if things are getting to fair value or maybe a little bit expensive, pendulums don't stop at fair value. They usually keep going. So you think there's a shot the markets right now are at or close to fair value? Some parts of the market, I think, are fair. Some are a little ahead of themselves. Yeah. Bonwin? Yeah, I tend to agree. particularly some of like the AI-related tech names, right? Like there is definitely a disparity between where you can kind of find intrinsic value and where the stock price is trading.

3:02But I think there's a good reason, a recently explained explanation for that. It's essentially somewhat of a flight to quality because if what we saw, Karen went back and said, listen, if you thought that the Fed was going to continue tightening, we would have thought interest rates would mean that tech was going to be the laggard. And we already saw that rotation out of tech into value. You would have expected that trade to continue. But where are the largest cash balances? Where are the lowest debt levels? Where do you continue to find growth? It's in tech. So the question is, is this rate story now behind us?

3:33I don't think so. But I also understand that the companies that are the most separated from their intrinsic value also offer you the largest margin of safety. And to me, that's the conundrum. So but you're long in video, right? And you're going to stay long. And I've trimmed it. You've trimmed it. Right. I will stay long. Right. But in terms of the right story, Tim, can we say that maybe it is behind us in a way because we know that majority of Fed members want at least two rate increases going forward. We know that it's going to be higher for longer. I mean, there's a lot that we do know about the trajectory of the path, although we don't know the exact, you know, step by step mechanism.

4:15Well, we just haven't felt the squeezing of higher rates for longer. So no, rates aren't going to go a lot higher. You can see where Fed funds are. The interesting thing is we're now, we've got 25 basis points higher between now and year end if you look at Fed fund futures. And that was not the case when we started the year. In fact, it was certainly calling for cuts. And as we got into March, it's also interesting that rates are closing the first half near the highs. And essentially, we talked about the two-year note yesterday near 16-year highs. We talk about the 10-year, you know, somewhere around 385 is right where we started the year.

4:49Remember, a lot of the equity rally was driven almost by a crisis, a banking crisis. And essentially, overcoming that has been part of this catalyst for equity. You add in some AI and you get some of the spending that I think people think mega cap tech is certainly going to see. But, But, you know, the rates higher for longer are eventually going to squeeze this consumer. And we've had a lot of anecdotal loan data, credit data, household savings data or lack thereof. And it tells me that rates are still a major factor, even if the Fed is largely done. The Fed is going nowhere. And what we've seen every time over the years, at least when the Fed has been in a rate hiking cycle, real rates have been significantly higher than where they are now.

5:30I don't think rates are going to move a lot higher. It means inflation has to come down and CPI is stuck at least core at 5.3 percent. I just think that rates are a factor. And I think equities aren't worth as much when when rates are 500 basis points higher. And if you think about roughly where the S &P was going into COVID on a forward multiple and where we are now, we're higher on a forward multiple. We're 500 basis points higher. So, yeah, I get the fact that near the end of the most aggressive Fed cycle has been positive for equities. I agree that it's positive for equities. Peak Fed, peak rates, peak dollar, peak inflation.

6:10That's the equity story. But this is all playing out slower than we expected. And I think the consumer is going to be the story of the second half. And I don't think it's going to be positive. Well, one thing that I wouldn't have expected with all of this is a GDP number like we just got. Right. We were talking about recession, recession. We haven't seen that at all. In fact, it's sort of significantly higher than I thought it would have been. So I guess that's sort of the path of least resistance, maybe, is the no recession, which would have seemed unimaginable a year ago in April. Right. Well, it wasn't just tech that had a big first half of the year.

6:43There are plenty of others. Carnival Cruise Lines, for one, are surging more than 130 percent, the third best S &P 500 performer so far this year. Pulte Homes getting in on the builder boom, soaring 70 percent. And General Electric and Chipotle, each putting in gains of more than 50 percent. But not everything has come up come up roses this year. Advance Auto Parts, the worst S &P performer since January, down 50 percent. Health care also lagging. Moderna dropping 30 percent. Retailer VF Corp putting in similar losses. And Energy also underperforming. Chevron, the third biggest drag on the Dow.

7:15So it got us thinking, how would our traders play this year's biggest winners and losers heading into the second half? We were just talking about NVIDIA, Bono. And that's one of your winners. What do you do with that? It is. So, yeah, I'm glad we're continuing this line of reasoning here. So NVIDIA has been, I mean, it's up, what, 200%, 190%, something extraordinary. And I think, for me, this really is at the crux of the argument around AI. And the difference here between some of the other names is, yes, you have gotten multiple expansion, no debate about that, but you've also gotten earnings growth.

7:46And that is a big differentiating factor between other names that have just seen their multiple grow on speculation around what might happen in the future. The loser that you're watching, KRE? Yeah, I mean, listen, I think in some instances here, you just have a rebalancing. You have, you know, an ETF here as opposed to a single name. So some of the idiosyncratic risks that you're worried about with the SVB and regional banking and commercial estate crisis is going to be siphoned out. And so there, when you just look at laggard pockets of the market that really just haven't participated, I think there is a bit of baby being thrown out with the bathwater.

8:21And I would expect there to be somewhat of a catch up trade, particularly in the REIT space where essentially they can move the losers off balance sheet and still retain those those runners on balance. Tim, what's your pair, your winner and your loser? So winner that I think will be a loser are home builders. I think there's reasons why they traded higher, including just lack of supply and the home builders actually underwriting significant mortgage costs. I look at gross margins that actually came down almost 10 percentage points for the group. I look at ASPs that actually were, again, subsidized and are down.

8:54And I think these multiples are now at a place where they're far from cheap. I just think it's not a healthy environment, even though the industry specific fundamentals are certainly favor the housing market. demand. On the loser goes winner, it's energy. And energy, which actually XLE being your conduit proxy, outperformed crude or Brent by about four or five percent in the first half of the year. And I think, look, I think we're sideways on oil prices. I still think there's a supply issue. I still think that there's a dynamic around demand that is actually supported around India and China reopening.

9:29But I look at the energy sector as a place to invest, to find companies with with free cash flow. And I look at an underperformance of 20 percent to the S &P in the first half. And I think that's an opportunity in second half. Yeah. Karen, you went to within your own portfolio. Yes. And I got to say, I didn't understand the assignment a little bit, which was winners turning into losers and vice versa. It could be however you trade a big winner and the loser from the first half. I just made that up. Oh, OK. So my one of the winners had a few, thankfully, was in this market, you'd hope more than a few United Rentals.

10:02And actually, in the last six weeks, United Rentals is up 36 percent for no reason, basically. So I'm sticking with that because for no reason isn't a great theory. And then the other one, Foot Locker, which has really, really been terribly disappointing. You know, they had this exciting March investor day that was interesting. And then that quarter right after that, terrible. I'm giving Mary Dillon more time, though. I think, you know, it's going to take her some time and I want to give her some rope. Hopefully, you know, it'll work out well, because I think if she's remotely close on her plan, there's a lot of upside.

10:36We do have some breaking news here on the banks making some dividend changes post-stress test. Let's get to Leslie Picker for all the details. Leslie. Hey, Mel. Yes, the latest is Goldman Sachs, which just announced that it boosted its dividend from$2.75, or from$2.50 a share to$2.75 a share. That's beginning July 1st, subject to board approval, but a 10 % increase in that per share dividend price. Now, that's complemented by their previously announced$30 billion share repurchase program. So the buybacks stay at the same level. That's kind of similar to the trajectory of Morgan Stanley. They hiked their dividend by about 9.7 % to$0.85 a share and then reauthorized a repurchase program up to$20 billion.

11:19That's without an expiration date beginning in the third quarter. J.P. Morgan, kind of that trend with the bigger banks, Wells Fargo, both of those also increasing their quarterly dividend in the third quarter. And they both, well, with J.P. Morgan, they continue to repurchase shares under an existing program. Wells Fargo basically left that door open saying that the company has the capacity to repurchase stock. They will routinely assess that idea. Now, if you look at some of these larger regional banks that were subjected to the Fed stress test on Wednesday, a little bit more muted in their capital return plans.

11:55Capital One announced its so-called stress capital buffer. That's basically a number that results from the stress test that took place earlier in the week, but they didn't in their release mention any changes to the dividend or buyback. And Truist said it was maintaining its current dividend of 52 cents per share. So, Mel, we're still waiting on some more bank announcements to come. Some banks may choose to make those announcements on Monday, but we'll be monitoring to see if anyone else does announce this evening and we'll bring that to you when they cross. All right, Leslie, thank you. Leslie Picker.

12:30Of course, Capital One, a citizen's financial scene is the weakest in the stress test takers, I guess, the results. Karen, we were talking about this in the green room. I was kind of surprised that banks would go ahead and announce moves at this point. Right, because we still have more capital requirement news to come. So, yeah, I mean, it was Wells Fargo, did Leslie say, that said, you know, we're just going to watch for a little bit. That seems OK, I guess. I mean, the JP Morgan's of the world must feel pretty comfortable. I mean, the dividend payout ratio is often in the 30 percent range. So the buyback is the thing that has been more mobile.

13:07You don't want to change your dividend except to the upside if you're a bank. So I think for the bank stocks, the uncertainty has been worse than whatever the capital requirements may be. But I probably would have waited a little bit as well. I know you can suspend a buyback or slow it, but I don't know. I would have waited. All right. Coming up, the plot thickens in Hollywood with a writer's strike deadline hours away. What's at stake for the big entertainment stocks? And later on Options Action, there's a big divergence happening between two major market benchmarks. What that move is telling us and how you should play it.

13:37Fast Money is back in two.

13:46Welcome back to Fast Money. A full-blown Hollywood shutdown could take effect as soon as midnight if major studios fail to make a deal with the Screen Actors Guild, putting more pressure on the industry as the writer's strike rounds out its second month. For more on the impact of the media industry, let's bring in Julia Borson. Julia. Well, Melissa, that's right. The Screen Actors Guild contract with the Alliance of the Movie Studios expires at midnight, with actors pushing for higher wages and higher compensation for streaming, plus protections around artificial intelligence, fairly similar to the demands of the writers who are now on strike.

14:21Now, sources tell me that the studios and the actors might negotiate an extension so the actors can keep working while the negotiations are underway. Now, that's what happened in two of the last times that the Gills contract expired. It's also very possible that SAG won't strike. Despite them having strike authorization, the Guild has not had a strike since the year 2000. But tensions are indeed high after two months of a writer's strike in which all new productions have been halted, and an actor's strike would halt all remaining production currently underway. Now, all the studios are being impacted by the writer's strike, and they would all be impacted by an actor's strike.

15:00Netflix, though, may be better position than most because it has so much production overseas, where, of course, actors and writers are not members of these U.S.-based guilds. Now, all of this, though, comes as Disney opens its Indiana Jones sequel at the box office this weekend. The Thursday box office opening numbers was better than anticipated, but the pressure is on for Disney to deliver a big hit after a number of film disappointments. Now, the summer box office is worth noting, though up slightly from last year is down nearly 15 percent from 2019 levels. Melissa? Julia, just quickly, when do we begin to see that dearth of content because of the writer's strike and potentially an actor's strike?

15:45You know, it's interesting is we're already seeing in terms of the late night shows and there is actually a connection between that and what's happening at the box office. There's some speculation that the fact that the late night shows are on hiatus because the writers are on strike means that the actors are not out there promoting their films as much. So maybe if people saw movie stars out there talking up their films, they'd be more eager to rush to the box office and to see those movies. So we're already seeing an impact now. The real question is how much it starts to impact the fall TV season.

16:15I've been hearing from a lot of sources, there's sort of a consensus that the writer's strike will be over by the end of the summer, by the end of August. I think if it drags out longer than that, then we could start to see it really having broad impact, not just on TV, but also on film. Julia, thank you. Julia Boorstin. So, Tim, Netflix still wins. It's still the winner out of this. Yeah. Yeah, it does. I mean, it sounds like more Brady Bunch and F Troop reruns. And therefore, I think Netflix does win. And I think Netflix wins because it's proven that they also have been cutting costs and generating more free cash flow.

16:50And that's something that after a lot of investment into both their technology and their content is something investors were waiting for. And so obviously it's been about the ad tier, et cetera. But this is one of those first half winners. I think you let it run a little bit. All right. More on the stress test. Back to Leslie Picker for the latest. Leslie. Hey, Mel, yes. This one from Citigroup. They did plan to increase their common dividend by about two cents a share to 53 cents per share for the third quarter of 2023. But Citigroup is kind of a standout among its larger banking peers in that its stress capital buffer.

17:27This is the amount of capital it needs to hold above the Fed's minimum in order to return capital to shareholders. That actually went higher. You want to see that go lower year over year. For Citi, that went higher. It went up to 4.3 percent, up from 4 percent. But I think the market's still happy that they were able to boost the dividend even just a little bit, sending shares up about 0.3 percent in after hours trading, Melissa. All right, Leslie, thanks. Leslie Picker coming up after the red hot start to the year for the markets. What should you expect from stocks in the second half? The chart master is here to dive in on the major indices and has the one stock he thinks is poised to rally through year end.

18:05The name when Fast Money returns.

18:11Welcome back to Fast Money. The S &P is up nearly 16 percent already this year off to its best start since 2019. But can it keep its momentum in the second half. The chartmaster Carter Worth of Worth Charting says the answer lies in the past. Carter, what does that mean? What does that mean? Well, it's always in the past. You learn from the past, of course. What we know is if you have a bad first half, it typically means a subpar second half. If you have a good first half, momentum is a powerful thing. But if it's too good, you cannibalize some of the prospective gains in the second half.

18:47So And if you look at the performance of the top 10 years, the second half, actually, it's somewhere between, depending on the average or the median, between plus and minus 2 percent. So very muted returns if you have a particularly robust first half. Now, in terms of the chart of the S &P, and we can pull that up, we are now basically some 10 percent above the 150-day moving average. You'll see it on the next chart. It annotates that. And typically, you get to a point where, at a minimum, you get something in the way of a countertrend move or an uptrend. And so a countertrend move is at 3, is at 5, is at 9, is at 10, but something that corrects what is otherwise an incorrect circumstance, steep and uncorrected.

19:33But in terms of picks, listen, I think the thing to do is if you have great gains in some of these very extended names, Double back and look for something like a charter that is at bottom the same day as the S &P, October 13th. And it's up basically the same amount as the S &P, but its upside is so asymmetrical. So we like charter. We like Comcast, things like this that are bombed out. But they've also kept up with the market. You can see the move above the downtrend line. We favor things like this versus the things that are so loved. So basically for the S &P 500, if I'm hearing you right, you think you expect some sort of a check back.

20:09And we don't know if it's back to the 150 day or if it's just a little bit. But by the end of the year, so there will be in theory, if there's a huge check back, like back down to the 150, then you can see a huge. Well, so let's say what the sequence is. Let's say it does that. Let's say it goes for another month and then it gives back that eight or 10 or five or seven and then has to recover back to the level from which it sold. Could we end up about here? That's a pretty good bet if you're bullish. I just don't think it's going to be this great runaway thing that is now consensus. So the risk reward is just not there.

20:41I don't like it. Or I like it better for small cap. Oh, so you still like the small cap. Yeah, Tim, how about you? Well, positioning is so different than it was six months ago, and sentiment is so different than where it was six months ago. So, look, I believe the market's ahead of itself here. I believe that this is a great time to take some profits and some names and put some powder aside. I think there's also a lot of money that wants to buy this market lower. And therefore, because EPS has recovered a bit. Look, July is one of the best seasonal months of the year. So I don't think it's time to pack it in.

21:12All right. Carter, see you in a few on options action. Final trade time. Let's go around the horn. Tim Beck, over to you. Enjoy the barbecue, Mel and everybody. And God bless America. I think Schlumberger is another one of those names in the energy space. It's best of breed. It has international exposure. Your rate counts have gone down. That's counterintuitive. I actually think there's demand coming, and I like the balance sheet. Schlumberger. Bonoan. Yeah, we've often said the best time to buy things are when they go from awful to not so bad. And I think that's really the regional banking situation.

21:45Carrie. All right, Karen. We have to say charter, of course, like charter. But anyway, I like Louis Vuitton. I think it's expensive, but it's worth it. All right. That does it for us here on Fast Money. But do not go anywhere. Options Action is coming up next.

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