Treasury Auction Sparks Late-Day Sell-Off and a Look Ahead to Big Bank Earnings 10/12/23

21:27It's more about restaurants and and kind of experiences, but not the big ticket items that are now kind of past us and through the system. It's Taylor Swift tickets. I just think that investors don't trust the airlines. And we've had we've had decades to not trust the airlines. So the biggest issue and the reason that they when they were re-rating in 2015 through 2018, it was because we believed in the capital discipline and we believed that they weren't adding to capacity, growing their routes and then ending up with a bunch of empty planes and higher costs. That's the story of airlines. I think if they can show that they're actually running these things better, that's really the story.

22:00Everything else, yes, there's cyclicality in the airline business. We know that. But when their best cycle was moving higher, they weren't. Well, they still think there's a lot of pent-up demand from China, from the international markets that didn't fully open, from business that didn't fully come back. Yeah, I agree with that. Yeah. Sticking with the transports, let's move to Ford. Shares hitting the brakes today as the UAW unexpectedly expanded its strike to the automaker's largest factory. The union telling 8 ,700 workers at Ford's Kentucky truck plant to stop down. That's where the company makes its heavy-duty F-Series pickup.

22:33It's also fun-sized SUVs. Dan, this is painful for Ford, isn't it? Yeah, it is. I mean, it seems like in Ford's response is that they've gone as far as they could. And, you know, again, I think that we should be focused on the fact that these could go much longer than we think, possibly. and at a time where we're focused on fiscal spending as it relates to the potential for a shutdown. I mean, there's lots of things. And again, you could say last week when we were up, or just the other day, up 4 % or this morning, I guess, up 4 % from the recent lows, that the market is climbing. What do you say, Guy?

23:02I've never said it in my life. Okay. So we had all these headwinds here, and the market's trading better into it. But I just see a lot of potential issues here. And bring back these strikes to consumers, it's not good. Full-size SUVs. I said fun size. but both those SECs can be fun. Roberto Duran, you familiar with the boxer? No Moss? No Moss. Great boxer, but they'll only remember one thing. One no Moss. Why do I bring that up? Because at a certain point, people that have been long forward for 30 years are going to say no Moss and it's going to manifest itself in terms of volume and you're going to see a 350, 400 million share day when the stock trades in the middle of the list.

23:39Was Sugar Ray Leonard? That was Sugar Ray Leonard. Yeah, you were a big, the middleweight class, you remember that, Sarah, was really sad. I'm all over that. Stop. There was a bunch of great guys back then. Oh, really? Wilfredo Benitez. Sure. Yeah. More of a Hagler person. I'm more of a Hagler. Yes. Hagler. Stop it. Listen to you. Hagler Hearns. I mean, that Hagler Hearns. She's throwing some Hagler in there. Good for her. Someone told me to say that. Long more to come here on Fast. Here's what's coming up next. Believe in biotech? Analysts giving Amgen a good prognosis. So could this stock be a shot in the arm for your portfolio?

24:14The Traders' Debate. next. Plus, it's that time of the quarter. Bank earnings kicking off tomorrow. And our next guest says there could be some room to rally. The names he's watching ahead. You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.

24:41Welcome back to Fast Money. Wells Fargo getting more bullish on Amgen in our call of the day. Analyst Mohit Bansal raising his price target to$320 per share from$265, writing that the company's emerging pipeline gives him more confidence in the biotech long-term growth. Guy, you've been watching this, Name. Yeah, Steve Grasso is not here, has been talking about it as well. And Amgen, great pipeline now seemingly getting into this world of Eli Lilly and Novor Nordis. Good for them. But this 295 level, which we are fast approaching, was a prior high. We get through that. You've always been able to make a great case for Amgen on valuation.

25:16Now you're going to start talking about it as a stock that has some momentum behind it. So keep that in mind as we get closer. I do think it goes through. Well, I brought up last thing because the Horizon Therapeutics deal is closing. And that's the headline. And that's the headline that allows the analyst then to come out and say, I upgrade based upon the pipeline. And I think there's a lot there. And I think there's a lot there on valuation. And it's also I do think investors are looking for those mega cap biotech or pharma names that certainly can be defensive in an environment where balance sheets might be stressed in other places.

25:45They're not here. And I think they're probably done on the acquisition side, which also means that there's less risk. Right. So the horizon deal, they can boost their long term earnings power. Absolutely. And then according to this analyst, it's not just the obesity pipeline, but some important cancer drugs as well. Yep. And they've talked about the importance of oncology. They've talked about the obesity multiple factor, what this means for where they should trade. I mean, I'm surprised it hasn't done anything for Pfizer, which I'm long. In fact, it seems to trade down every time these guys trade higher.

26:15But again, they have the oral therapy, which I think at some point will be a driver. Chris, how does the sector look to you? So I think overall, I mean, this sector has just been crushed this year. And you look at the earnings backdrop as well. Unless you're at obesity. It's been down like 13 percent. Exactly. So there's been some idiosyncratic events. But overall, you kind of have health care more broadly and biotech suffering in the broader backdrop. And, you know, it's really interesting. It's the one sector that when you look at valuations of the U.S. versus the rest of the world, it is the one that's actually trading at a discount to the rest of the world.

26:44So I think, like, looking at some of the M &A activity, looking at the bigger backdrop, could you see then some rally into 2024? I think absolutely. Well, also, if you're cautious on the economic outlook, it's usually a defensive. It's defensive growth, which is why people really like it for this type of environment. Yeah, not so much these days. When we come back, could banks be about to break out? Tomorrow kicks off the big season for the financial sector of earnings. Our next guest says there could be a bank bump in store. The name's best positioned for that jump. Plus, putting the fast in fast money.

27:16Shares of Fastenal leaving the S &P after reporting this morning. or in the numbers that had investors piling in when Fast Money comes right back. Missed a moment of fast? Catch us anytime on the go. Follow the Fast Money podcast. We're back right after this.

27:38Welcome back to Fast Money. Stocks snapping a four-day win streak as investors digested the latest bond auction and some new inflation data. The Dow falling more than 170 points. S &P and Nasdaq both down six-tenths of a percent off the lows of the session. Shares of Birkenstock falling nearly 7 % in the second day of trading, adding to its initial first-day drop. Stocks now trading around$37. That's down about 18 % from its IPO price. And then shares of Dollar General jumping after hours. The company appointing former CEO Todd Vasos to step back into the role effective today. Dollar General also lowering its full-year earnings outlook.

28:15Well, speaking of earnings, third quarter bank earnings kicking off tomorrow. J.P. Morgan, Wells Fargo and PNC reporting before the bell. Our next guest says reserve building is more important for the group than earnings beats for this quarter, with investors still worried about credit quality and how banks would fare in a potential recession. Christopher Maranak is the director of research and a bank sector analyst at Jannie Montgomery Scott. So you expect banks to put aside more reserves for credit losses, Chris? I do, Sarah. I think that's the right thing for them to do this quarter. And I think it's a better part of valor to miss earnings estimates and build reserves this period.

28:50Is that good? Is that clarity for investors that want to own these stocks for them to do that or not? Sure. Recognizing credit risk is exactly what banks have to do right now. I think the concern is that banks are not investable because of credit concerns and worse economic activity next year. So the solution and the vaccine, if you will, is building reserves, creating new confidence and reminding investors that banks are going to continue to lend and continue to take deposits as they move through these next couple of quarters. What about the banking business this quarter? We saw another quarter of higher interest rates, which should help on some profitability metrics.

29:29But there are clearly reasons to be cautious as well. Well, the higher interest rates are a double edged sword. On the one hand, deposit costs continue to reset higher, and that's squeezing margins. On the other, you have higher rates on loan yields, which will continue to remix and help margins stabilize probably in the first quarter of next year. Higher interest rates are actually very helpful for most banks. We think new loans are going on the books at 8 % to 8.5%, still very materially better than the yields that were around 5 % to 550 from last quarter. So that's going to help as we move forward.

30:04I think the challenge is that the Fed pause can't happen soon enough for deposit rates. So deposit costs will continue to go up again in the fourth, but we think it's going to stabilize sooner versus later as next year develops. Chris, it's Tim. Thanks for joining us. So you've talked about pricing in and provisioning and the recession. And let's let's presume that the market has done a decent job of calling a mild recession into banks right here. But then how about banks, money center banks trading at 50 percent of a multiple of the S &P, which is extreme by any time, any measure, anywhere. Do you think that's warranted?

30:39And it's hard to go out and buy banks. I agree. But that seems to be getting pretty compelling. I agree with you. And it's one of the reasons that I think the KRE and the other benchmarks can really rally this next three to four weeks. There's no reason you can't get a 10 percent move or higher in these stocks. For one thing, I think the market multiple may actually come down and the bank's relative can go up. I've lived my career where banks are hanging out at 75 to 85 percent relative multiples, to your point, Tim. So I think that's extremely possible. The question is timing. We still have to consider that credit gets worse as next year plays out.

31:15I just think the banks will reserve for it and that they have enough earnings and capital to get themselves through. Chris, J.P. Morgan is going to come out with a book value of basically$100, trading at basically$150. I can do the math. So they traded a premium to a lot of the other banks. But at a certain point, when some of these banks are trading 65%, 70 % a book, how does that reconcile itself? I mean, I get they deserve a premium multiple, but does J.P. Morgan's come down or does Citi, Bank of America, Wells go up? I think it's more the latter, that the pricing goes up for the others that are too inexpensive.

31:48JPM is a great franchise. They make a lot of money. They have a lot of confidence with investors that they'll be the leader throughout this cycle. The challenge is that the other stocks should not be ignored in favor of JPM. I think that you should do the opposite and actually bid them up. Book value may grow faster next year as the interest rate mark starts to back away and actually come down. It'll be negative on the marks this quarter. But next year could be a whole different story. Fed doesn't have to cut rates for the rate marks to actually start to help banks. We've got natural amortization, natural payoffs, and then any movement in yields downward and pricing getting stronger on the fixed income world, particularly in the residential mortgage-backed securities, could actually be a big lift for banks' book value.

32:30Is that why you like some of the regionals best? I'm looking at your note. It looks like your best idea is Fifth Third, First Citizens, New York Community, Synovus. These have been the most pressured from higher rates and potential pressure on reserves coming out into money market funds. That's correct. And each of those companies have the ability and the leadership to actually work additional both reserves higher, but also keep lending money. We think there's a market share movement away from certain banks to these regionals. I think the regionals have been completely ignored and they should not be.

33:01Many banks are going to pick up share from each other as you move forward. In fact, I actually think the too big to fail banks may see deposit share leave as the next year or two play out. All right, Chris, thank you for joining us with some of your predictions ahead of bank earnings from Jenny Montgomery Scott. Tim. Well, so back to Guy's point, Chris's point, J.P. Morgan, one and a half price to tens of book values. Citi, 0.5. OK, I mean, it's trading as if they've got a Mexico business like they did years ago that's worth nothing. The Citi's been cheap before. It's been cheap before. This is as cheap as it gets.

33:32And I think it's getting kind of silly. I think the regional bank argument is one. What's the discount put on the regionals is because we never thought money could leave that fast. We live in a world where capital flight and those dynamics. Look, the mark to market on held to maturity securities is going to be even uglier this quarter than it was last quarter. I mean, think about what interest rates have done. Think about all the negative yields on those books. So I think people are prepared for that. I think that's what they priced into them over the last couple of weeks. But I like Citi. I'm Long City.

34:03By the way, we might have a bigger catalyst tomorrow on Citi because Jane Frazier told me two weeks ago that she's going to announce, put numbers on her restructuring plan in this quarterly update. Potential job losses, how much they're looking to cut out of costs in terms of restructuring. I know I can't ask you about Citi, but I can ask you about the banks overall and how they're set up here for earnings. Yeah, I think what's going to happen in this earnings season is going to be a shift from macro conditions. So what's priced in, a lot is priced into the banks from a macro perspective. And I think the focus is going to be more on micro.

34:35It's going to be on net interest income. It's going to be on credit quality, and it's going to be on the capital base. And so there is where I think we can get some positive or negative surprises. We're also looking for, on the back of bank earnings, just the health of the consumer. You get so much data from those earnings reports in terms of whether it's delinquencies, whether it's deterioration of the quality in terms of their loan book. So I think it's a good sign for the broader backdrop going into the end of the year as well. Yeah, or Jamie Dimon commentary just about the environment. Well, I think to your point, I mean, Jamie Dimon's kind of set the stage.

35:07Sentiment's really negative. The stocks have really massively underperformed. They are some of the cheapest in the entire market. So not a great press if you're more of a trader on the short side. But, you know, coming out of Q2 earnings into late July, I mean, the stocks had nice runs. You know, expectations were really low. If they do that again, I probably think that it sets up as a good, I don't know, take profit, resell. I think they're going back to the lows from the March regional banking crisis. And, you know, again, there doesn't seem to be an incremental buyer of these stocks right here until there is more clarity about what the economic outlook looks like.

35:38Remember when everyone said high? We just need higher rates for the banks to rally. Just get those. Well, Moynihan used to say it. But that was the investor mantra. Why are banks underperforming? Because rates are too low. I will say they're high. It's hurting. The trade, though, I think is more on the preferred side as opposed to the equity side. So when you're making a decision about the banks, looking at the yields that you can get in the preferred market, and given the capitalization of these banks, I think there's actually a really excellent place in portfolios for that exposure. All right.

36:05Great call. Don't hear about preferred as an option very much on the show. When we come back, fasten your seatbelts for this one. Shares of Fastenal bouncing higher today. We're going to bring the details and that trade next. Stick around. Much more Fast Money coming back in two minutes.

36:31Welcome back. This next one, putting the fast in fast money. Shares of industrial supply company Fastenal, ticker Fast, F-A-S-T, topping the tape today. The company saying sales rose more than 2 % in the quarter, posted better than expected operating margins as well. The stock hitting a 52-week high and leading the S &P. Dan, you flagged this name. Well, this is going back to that theme of sometimes the markets can be kind of stupid, right? So this stock's breaking out. We're talking about all these stocks that you've never heard of that are trading really poorly. Here's one that you might never heard of, which I think is kind of interesting just to the end markets that they sell into.

37:04Kind of simple, right? Yeah, and having some pretty upbeat things to say. And the results were pretty good. They didn't give a whole lot of guidance. But they did say this, and I think this is interesting. Demand remains sluggish, and weakness in manufacturing markets are intensifying. So, like, to me, that's a kind of interesting thing for a stock that's making 52-week highs, that trades 30 times this year's earnings that are only expected to grow 5 % on 5 % revenue growth and only expected to grow mid to high single digits revenue and sales next year. So it doesn't make any sense to me. I guess I'd more focus on what they had to say about the visibility of their clients and the demand than what the stock is doing.

37:40I know that might sound counterintuitive, but again, earning season is amazing because you get to get all these data points from all these different companies. It's a bit of a mosaic. Why did it go up? It was the best performer today in the S &P. Improving margins are part of it, I think. They're controlling costs. Yeah, which I think the market is championing. But real quick, valuation's got to get in the way at some point. To Dan's point, 30 times earnings with mid-single-digit revenue and EPS growth. Something doesn't equate here. Well, they just had a third quarter beat. And so they've reported numbers.

38:09Their digital business seems to be overcoming some of these macro headwinds. And I think the customer dynamic and the relationships and the branch model is something that's really working for these guys. So I think you stay there. I like it. Yeah, I mean, it's like polar opposite here. What do you mean? What are we doing this show? Yeah, no, it's good. Split them off. Should we split them off? Does it mean anything for the rest of the industrials that are going to report in the coming weeks? I think the industrials have some of the same macro headwinds that these guys have. I think they have a dollar to worry about, your dollar.

38:40I think they have different businesses depending on, I mean, lumping them all together. Industrials have really underperformed here. Let's be clear. And relative to the stuff that is performing and keeping markets higher, You look at an equal weight S &P, and it's now down 3 % or 4 % on the year. And that's where a lot of this stuff lives. So I'm not that encouraged. When we come back, Lights, Camera, Taylor, in your wildest dreams, you won't believe the amount of money Swift is pulling in from her era's tour movie launch. No teardrops on her guitar. That story next.

39:15Welcome back to Fast Money. Some major media storylines today from a bullish call on Spotify to one Hollywood strike picketing on to Tay-Tay coming to a theater near you and to Arrowhead Stadium. Of course, she's going to go see the Chiefs game. Julia Borson joins us now for much more on this trifecta of media stories. Only one we really care about, though. Right, Julia? Well, Sarah, there's a lot of news. And we are going to start off with Spotify because shares gained one percent after Morgan Stanley reiterated its overweight rating on the stock with a one hundred ninety dollar price target.

39:46writing, quote, rising engagement levels and continued product innovation support further market share gains and pricing power. They did also mention Taylor Swift. Meanwhile, media stocks finished lower today after the Screen Actors Guild and Hollywood Studios suspended negotiations. Take a look. Warner Brothers Discovery down nearly six percent. Now, just today, Netflix co-CEO Ted Sarandos saying that SAG-AFTRA demands are, quote, a bridge too far. While the AMPTP says SAG is demanding a viewership bonus that would cost more than$800 million per year, SAG responding that the studios are overstating the cost of their proposal by 60 percent.

40:25And the Guild's chief negotiator tells us that it is the AMPTP that walked away from negotiations, despite SAG-AFTRA offering what they see as a compromise. Now, all of this comes as this weekend, the box office is expected to get a major boost from the debut of Taylor Swift's Eres Tour, the movie version, with$100 million in global pre-sales at AMC, breaking its record for single -day ticket sales revenue. So Swift will also be back at the Chiefs game tonight. So we're going to have to see if she draws the same 2 million additional viewers that she brought to the last Chiefs game that she attended.

41:03Well, Julia, thank you very much. Guy, I do have some news on that. Apparently, ESPN is reporting that Travis's right ankle is well enough for him to play tonight. Thank goodness gracious. Let me ask you a question. Which bodes well for NFL ratings tonight. First of all, we've got a little time. When Sarah hosts, we play Taylor Swift in all the breaks. We do. Which is... Tay-Tay. At my request. Tay-Tay. But prior to this whole, did you ever hear of Travis Kelsey? Be honest. No is the answer. Really? Actually, I did because I knew about the two brothers that played in the Super Bowl. And so the mother was very famous.

41:39How are you feeling now? I'm not as sad as I was. No, I'm not crushing anything. In second derivative pro football. And neither of them on the Bengals. And I still knew. We're catering to it. I mean, you know, maybe I'm a purist. Maybe it's just about the football game, Tim. I don't know what to tell you. Spotify, real quick. Do you have a problem with Taylor Swift? No, I love Taylor Swift. She's a huge fan of fast money. She's watching now ahead of the game. Spotify, it's about time they turn profitable. Morgan Stanley or KeyBank thinks they might do it early next year. That's a big change. So this price target is not out of the realm of possibility.

42:11Tim? You know, this is one where multiple, I think, in a handful of these names has gotten a whole lot better. Not really where I'm going with a marginally new dollar of investment. Yeah, I mean, that's a call, though, on profitability, right, as these companies have been working to try to do that. What kind of multiple is it at right now? Well, I mean, you know, they're unprofitable. They think they're going to be. Exactly. As a multiple of sales a couple of times. And I think that's the thing. If they do become profitable, they do start to improve their margins. Important to note. I mean, you know, Netflix has much higher margins, I think, mid 30s versus their mid 20s.

42:45So like if they could ever get north of 30, this is a stock that could, you know, it could easily get to that one 90. But it's going to take. Well, you are the ultimate. I think you like this stock here. Well, I like a lot of things that they've been doing, integrating podcasting and a whole host of other things. And I know they had to cut costs there. And I think that's been part of it. They kind of overextended themselves. So I think it's fine. Look at the way the stock's traded, too, over the last couple of months. I mean, it's had a huge run up. Yeah, but it's also really consolidated. We've got to get out of here.

43:11All right, we've got to go. That's the music thing. All right, final trade coming up next.

43:19Time for the final trade. Let's go around the horn. Chris. All right. Cybersecurity, long-term trend. It's lagged behind technology. and just thinking of AI, geopolitics, we're long here. Tim. Sarah, great to have you and your football knowledge. Citibank is too cheap. Dan. Yeah, QQQ hit a resistance level if we sell it. Guy. Who is it? Tay-Tay? Tay-Tay. It's embarrassing. I'll be watching you tonight. After they report tomorrow morning. All right. Thank you for watching Fast Money. Thanks for having me, guys. Mad Money with Jim Cramer starts right now.

43:55not reflect the opinions of CNBC, NBC Universal, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information the Fast Money participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Fast Money Disclaimer, please visit CNBC.com forward slash Fast Money Disclaimer.