Trouble Under The Rally’s Surface? Plus Improvements in Office Demand 8/8/24

0:01Live 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. Out of the woods, markets rallying hard on the back of better than expected jobless claims. Did the data really take the recession off the table? And can stocks finally hold on to their upside momentum and love for Lilly? Shares of the GLP One giant soaring after sales of its weight loss drugs trounced expectations. Is there any stopping this red hot trade? Plus, a home renovation for shares of Zillow. Bitcoin bounces back toward the 60 ,000 mark in earnings from Paramount, Capri and Expedia.

0:33The trades and all those moves coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Steve Grasso, Karen Feinemann, Dan Nathan and Guy Adami. We start off with that major market rally. Stocks jumping across the board with every S &P sector closing in the green. The S &P up more than 2 percent. Its best day since November 2022. The Dow jumping nearly 700 points. The NASDAQ leading the gains up nearly 3 percent for its best day since February. The gains coming after weekly jobless claims fell more than expected last week, helping to ease concerns that a weak labor market could push the U.S.

1:07into a recession. But a look under the surface suggests not everything is sunshine and rainbows. Check out the MAG7 names. While all were up today, they were mostly down for the week and far underperformed the broader market. The S &P only down half a percent after today's big rally. So what's holding back the trades that have been working so well this year? The really hot trades that everybody was all geeked up over, as Dan likes to say. Dan? Yeah, no, it's interesting because I think some of the air was coming out of some of those big trades, too. And it's not just Gen AI. I mean, until Lilly had the move that it did today on good fundamental news, I mean, I think people were worried after looking at Novo Nordisk.

1:42And it was also the banks. You know, we saw JP Morgan had a really bad day on Monday and was selling off a little bit into that. So, again, I think that the idea of this rotation, we saw it into small cap banks. We saw it in the Russell 2000. I think you have to think about what sort of investors have been buying this sort of stuff. The fact that the Russell retraced that entire move, the KRE retraced that entire move, and then you have to go back to where is the market if it's going to get back up to the highs? It has to be from the MAG-7. It has to be from that prior leadership. And I'm not sure that some of the things that we heard from these companies in the Q2 and the Q3 guidance are going to justify a move back towards those highs.

2:20But what is so curious is the move in NVIDIA and the relative underperformance of NVIDIA compared to the Sox, compared to the Nasdaq 100, compared to the Nasdaq, compared to the S &P 500. And for NVIDIA, the bottom line is the same. These companies came out during their quarters and said, we are going to spend what we forecasted before or maybe even more. And so for a company like NVIDIA to not get a bid is really curious. A bit of a cautionary tale. You know, you snickered when you said jobless claims. The show's 17 and a half years old. Never talked about jobless. Ever. No. And in a country of 350 million people, when this number is 7 ,000 better than the street was, I mean, there's an absurdity there, but maybe the market was looking for an excuse.

2:57With that said, you know, the reversal from yesterday, I thought that actually did not augur particularly well for today. But here we are. To answer your very specific question, I think valuation is starting to get on people's radar screen. And when you see the numbers out of Supermicro, you see their margins contract, you see a stock that's now at least at its trough a day or so ago was down almost 60 percent from its prior all-time high. I think the market's taking, I think, a warranted look, re-look at things. So I think we're in this information vacuum from NVIDIA, right? And it's going to be this way for, it's not really a long time, three weeks, but in this market, that's an eternity, right?

3:33It's a whole eon of trading. But this jobless claims number, okay, that was fine, good, continuing claims in line. But it just made me really think more about these incredible swings on relatively minor pieces of data, although last week's employment number was a more relevant piece of data. But the more I thought about it, I'm just in hindsight looking that yen carry trade unwind was already happening. And I think that's what was hitting the market and exacerbating the response to the. Yes. And so I didn't think about that at the time. But in hindsight, that to me seems what's happening. And then the wake that that left behind was pretty dramatic.

4:16So I feel like really not that much has changed in the last week. We'll see when we get more what I think of as more relevant data coming up. But NVIDIA just seems to be a wait and see or drift lower and see. So I think we went from, well, you know, Dan pointed out the Russell. So the Russell was a little bit of the Trump trade deregulation and moving into the financials. But they've underperformed and they've lagged for so long. And everyone's really waiting to see when they're going to be a real trade versus just a head fake. It turns out it's another head fake again. but you went from a large cap into Russell, into the end trade, into are we going to another recession?

4:57And we're sort of rinse and repeat. So I think it's in, I'm in the camp of, it was a reason to rally and we wanted to see, okay, maybe the end trade is 75 % over like JP Morgan says, and maybe we have at it again for a little bit. But if you think about where we came from and where we're headed now, we really, to Dan's point, need the MAGA stocks to rally. If we don't have them, this market does not move substantively higher. Nobody's buying this bounce right now because they think we're going to go right back down to those lows. We might not go back down to the lows that we saw on the sell-off, because if a lot of it is technical and it's a yen carry trade, it's mostly unwound, according to a lot of people on Wall Street.

5:41And so there's a finite amount, There's a finite downside if it is caused by that. And the mark on the yen carry trade is much better now than it was three days ago. Both sides have moved in the right direction. And by the way, kudos to Carter Worth because during that day where there was a sell-off, he was on another show on CNBC and said that, yeah, I couldn't believe myself. And he said that he thinks that it was enough of a drawdown for now. So everyone was looking for a little push. He said that it was enough of a drawdown. Well, think about the speed in which it went down nine and a half percent, the S &P 500.

6:15That's basically equivalent to what happened from July 2023 to the lows in October 2023. So it all happened in a very short manner. I just want to make a point. Guys said valuations and folks are starting to look at that probably a little closer. You know, think about it. Fact set consensus for this year, 2024, or for earnings, S &P earnings to be up about 11 percent, 14 percent next year. And so if all this talk about a recession is going to happen, we're going to have an earnings recession first. Right. So you're going to have to see companies start to guide down a little bit. You're going to have to see strategists start to kind of move their estimates down.

6:47I don't mean it has to happen that way, but it's very likely that you see that first. And that's exactly what happened in 2022. And everyone was convinced at the lows in 2022 that we're going to have a recession in 2023. And it never happened. So I want to take it the other way and just say until we see companies starting to guide down meaningfully, I just think you can push out the recession fears, especially with some of the data we're seeing on the consumer that's starting to weaken. It just doesn't feel like the bottom's about to fall out of the economy. It's weird, though, because it's very rosy.

7:18You're not going to even touch on that. That's the most positive I've heard. But part of it is it's like I got it very wrong. And most people got it very wrong what the market was saying in 2022. And if you think about how wrong the Fed, how late they were to the inflation game, and how people think they're about to make another policy mistake, I just think it all augurs for maybe we're all just going to be wrong and just buy the dip. It's what I feel. When you see Wall Street economists trip over themselves to revise what they think the Fed is going to do in terms of rate cuts, revise the probability of a recession based on one data point, and maybe some others, but I mean, you know, all those other data points existed before Friday.

7:54But on Friday, that was the day that they decided to change everything. And it happened across the board. You were in India now. Am I doxing you by saying that? No. You were out of town yesterday. But Leslie Picker was in Kansas City. She sat down with Jamie Dimon. I guarantee Karen watched it. But, you know, he said, and I think he's correct in saying this, that people like us or the market in general puts way too much stock in what not only what the Fed says, but what they do as well. He doesn't think it's as important as the market makes it out to be. And he's probably right. And that assertion flies all over the place.

8:24But with that said, there's no denying that if you read all these reports from all the different retailers and all the different restaurants and a swath of industries, things are slowing down. I mean, it's absolutely undeniable. And to me, rates going lower is not because we won the battle of inflation, which is still being fought. It's because there's been a pretty precipitous decline in things. Yeah. So we had a list. Did you buy anything? I bought a little CrowdStrike, which is sort of a different animal. It wasn't really story-specific. Market-related. Missed Lulu. Uh-huh. That was basically what was on my list.

9:00And I did buy some Citi, actually, before the—not well. Right. And you bought NVIDIA, right? You bought even more. I bought NVIDIA. I'm long two and a half times what I was long prior to it. And that wasn't on purpose. I actually missed the sell at 108 yesterday. And then it just fell out of bed. So I wound up, instead of selling that piece, I bought more yesterday. and then I bought a little bit more this morning. So I'm longer, much longer NVIDIA. I'm much longer that Bitcoin minis. I'm much longer the Ethereum minis. Do you think we're going to look back and say Monday was a time to buy? It was clearly a time to buy things that were just marked down so dramatically.

9:38So, you know, and NVIDIA traded 91 in the opening and it didn't see a downtick for the rest of the day, right? And I think you brought up the point, though, the underperformance, even in the face of what we saw from SMCI, this is a super micro, You know, it's just like I think the bounce in that ecosystem is not particularly exciting. And so to me, I just think if that group can't get going, what I mean by that group, I mean the chips. I mean the servers. I mean the data centers. I mean the memory, you know. So all those sorts of names, they're all down 30, 40, some 50 percent or so. I mean, NVIDIA is only down 25 percent, but it can't really get going here.

10:12So I think it's important to keep an eye on that whole group. Whereas Meta has been outperforming its peers, outperforming the indices, et cetera. And if you look at their quarter of their report, I mean, Karen can speak to this. I mean, it makes sense that they did. I mean, they're seemingly able to monetize or at least get the margins on the back of this whole AI craze better than seemingly anybody we've heard from over the last couple of quarters. And that makes sense. So good on them. But the other side of that equation are, I think, the slowing margins on this entire AI trade manifesting itself.

10:42I mean, look at throw up a micron chart, for example. Tim Seymour talks about this. I mean, we haven't brought it up in a while. I mean, the stock has been cut in half in a very short period of time. AMD has been an abject disaster. I mentioned Supermicro. Dell has not been much better. So some of the pillars of the AI trade, XNVIDIA, which is still down significantly from June 20th or July 20th. June 20th. June 20th. Are still significantly lower. All right. Now to Eli Lilly, soaring 9.5 % for its best stay in a year after Q2 results. The pharma giant reporting a massive beat on the top and the bottom lines.

11:13also raising guidance for the full year by billions of dollars thanks to its GLP-1 weight loss drugs. Angelica Peebles joins us now with all the details. Hey, Angelica. Hey, Melissa. That's right. The story here is all those GLP-1s, Momjaro and Zeppau both beating estimates in the quarter, and Lilly raising its sales outlook for the year by$3 billion thanks to these drugs. And you're starting to see Lilly's manufacturing investments pay off. Just last week, the FDA took trizepatide off its shortage list, And Lilly's CEO today telling us the company is on track to increase production by more than 50 percent from last year.

11:45And remember, Lilly's also preparing for the possible launch of a GLP-1 pill in a few years. If in the end we need to shut down our injectable sites because the pill was so successful, so be it. I mean, our job is to cannibalize ourselves. That's what innovators do. But there's no, you know, the pill is still in testing. So we don't have the final clinical profile. But assuming it hits its marks, I actually think there'll be a place for both. And that's one reason why J.P. Morgan today calling Lilly one of their favorite pharma names. Melissa? Angelica, thanks. Angelica Peebles. For more on Lilly's big quarter and outlook, let's bring in Learink Senior Managing Director David Reisinger.

12:23David, great to have you with us. Thanks so much for having me. A key part of this story is meeting the tremendous demand for these drugs. And as Angelica had mentioned, they are on track to increase production by a significant amount. significant amount. How do you think about that increase in production, given that it seems like that the total addressable market is constantly increasing with every single new application, new ailment that this drug could possibly treat? Well, look, they've been spending dramatic amounts of money. They've been increasing their capital expenditures at a tremendous rate, And that's paying off.

13:01So you see that in the numbers, right? Today, the company reported a blowout quarter. They raised revenue guidance for the year by 7 percent. They raised EPS guidance by 19 percent. And that's paying off. In terms of future investments, they continue to invest very aggressively. They'll be opening another facility in North Carolina at the end of the year. And they're just starting to roll out XUS. So bear in mind that they're literally just getting started XUS. And you can just imagine the global demand for their products. They have approval in China, but it's unclear when they'll be able to launch in China, right?

13:41So lots of runway ahead. Right. And the XUS growth was really sort of, you know, talked about a lot on that conference call in terms of that's where the engine is going to be going forward. David, how do you price that in? And what are you anticipating will be the payer outlook, ex-US, the reimbursement outlook, ex-US? How does that all take shape in your view? Sure. Well, they don't break down their specific guidance in terms of how much of the$3 billion revenue guidance increase for this year was driven by U.S. versus ex-US. But indeed, we expect both regions, U.S. and ex-US, to drive upside to numbers in the future.

14:22With respect to Europe and Asia, certainly prices will be lower than in the U.S., but obviously, you know, there are billions more people in those markets. And so they represent an incredible opportunity for the company. It's Karen. Thanks for being on. If I were CEO Ricks, I would put out what I thought was a conservative revenue growth number. Where are you on that? Well, look, the company has been conservative in the past. We haven't updated our model for today's results yet. But, you know, the fact of the matter is that the world is their oyster, right? So it's tremendous opportunity with injectable Munjaro, with injectable ZepBound.

15:05And as was mentioned earlier, you know, they're looking at a potential oral launch in 2026. How do you model out, David, average selling price going forward as supply comes back online? or increases, I should say, and that there's increased competition out there. Do you expect to see ASPs go down over time? Yeah, that's a good question. So I guess I'd step back and say that Novo Nordisk talked about selling pressure in the U.S. yesterday. One of the issues for Novo Nordisk is that the company's product for obesity is priced at a 20 percent premium to its product for diabetes. So Wegovy is priced at a 20 % premium to Ozempic.

15:49That's not the case for Eli Lilly. And so we're not expecting significant price pressure in the U.S. because it's a duopoly right between these two large companies. And so when we think about the U.S. market, you know, we think prices are going to remain, you know, strong in coming years. Once again, there's greater demand than supply. It wouldn't make sense for Lilly to be cutting prices. with respect to looking further forward. Certainly, when competition enters the market late decade, there could be greater pricing pressure. But we're not going to see meaningful competition enter until possibly 2028, 2029, starting in those years.

16:33With regard to the oral that Lilly has, it's called Orpherglypron. The first phase three results will start to be reported in the spring of next year. that's going to be an oral chemical pill that is far cheaper and easier to manufacture. And we're looking forward to them rolling that out and blanketing the world with it. You mentioned cheaper to manufacture, but in terms of margin, will it actually be a lot better? You know, you think about the pill and he talked about cannibalizing themselves and that's the goal. But in the end, do they actually make less revenue in a pill form if they are, in fact, cannibalizing?

17:10unless it's another way to reach another audience. Yeah. So with respect to the pill pricing, it's possible that they offer it at a slight discount to the injectables. Right. But I would just highlight that with respect to this chemical pill. Right. If it launches in 2026, as we expect, it'll be three years ahead of the next entrant. So the next oral chemical pill would not be launching until 2029. So we wouldn't expect any material discount to the injectables. We think the demand will be off the charts, right? And they'll have that specific market that I described to themselves for three years.

17:50So we're not really worried about, you know, pricing pressure or Lilly undercutting its revenue opportunity with pricing anytime soon. All right. David, thanks so much for joining us. Appreciate it. Thank you for having me. David Reisinger. Two things happened. I think what we learned this week, Lilly separated itself from Novo. I think we can all probably agree on that. And this is one, listen, the whole way up from 800 to 960 completely coughed me off guard in terms of valuation. Lilly's a name we've all liked collectively, but this move lower actually made sense. And if you put up a chart, you'll see that this low we just made two days ago seemingly was the same prior all-time high made in the beginning of March.

18:30And when you have an EPS beat of a magnitude of 40%, I think, in the old days, you would have pre-announced a positive quarter. So this should give the stock some tailwind, I think, to take out that prior all-time high. So David said they have a monopoly basically for four or five years, it sounded like, on this. And then there's another monopoly coming after that with the oral version of it. They've outperformed Novo on a year-to-date basis by 2 to 1. And Novo has outperformed Amgen by 2 to 1. But I was trying to game when I could sell Lily. It sounds like I'm not going to be able to sell Lily.

19:04Other than where you could have sold it for the last month or two, it sounds like they're still going to be the winner in this game. And by the way, they have a whole other pipeline of drugs coming tomorrow. They have an Alzheimer's drug, which is basically the only game in town, with Kisunla, which doesn't exactly roll off the tongue. I don't know who. It's like a letter of jumble. I was told by the chief scientific officer it's pronounced kiss, like you're kissing somebody. sun, like sun is coming out, and then la. Kisunla. Kisunla, yeah. I was like, okay, that makes it a lot easier to think about it that way.

19:34Okay. But they're very positive on that because the FDA was very positive in their discussions about how it's a finite amount of time that you take this. You take this for about 12 months until the plaques are cleared, and then you stop. And so it's not a forever drug, and so it's more likely that it will be reimbursed. That's the billion, multibillion-dollar question. Yeah, exactly. Right. But to me, you know, you were talking, we were talking, you and I were talking about this today. Earlier on. Earlier on. This is what we chat about. When, when, when. Just, you know, just casually chit-chatting.

20:05Yeah. We weren't included. We'll conference you in next time. No, you won't. Yeah. About, okay, one year. We're talking about one year delay of the onset for early stage Alzheimer's. Alzheimer's. I don't know what CMS will say about how much they'll reimburse for that one year. At a cost of$40 ,000, you said. I'm not sure. Don't quote me on that. But yeah, tens of thousands. I thought it was interesting what he mentioned about the premium for obesity versus diabetes. And, you know, we were talking about, I think last week or maybe earlier this week, is that, okay, so if you are of half the scripts are being or not being covered by insurance, I mean, This is a big, heavy load, right, on a consumer that, you know, maybe it's a bit seasonal.

20:47Maybe people are fitting in their bathing suits or this and that or whatever in the summer. But, you know, you might start to see that a little bit, especially with that price differential versus the IBs. Every big pharma CEO, not at Eli Lilly, is looking at this quarter and saying, we need to do something. And we need to do something means we need to make an acquisition. And, you know, Viking is one of those names. I watch over the next month, month and a half. My sense is the calendar is going to fill up really quickly with M &A. Coming up, a huge slate of after hours action on deck. Paramount, Capri, Expedia, all on the move.

21:18We'll dig into the numbers behind those reports. And do not look now, but corporate real estate might be turning a corner. What a new report says about Manhattan's return to work efforts right after this. This is Fast Money with Melissa Lee right here on CNBC.

21:44Welcome back to Fast Money and Earnings Alert on Paramount. Shares higher after the company's direct-to-consumer business reported a profit for the first time. Julia Borson joins us now with the details. Hey, Julia. Well, shares of Paramount are now up about 5 % in after-hours trading. This after the company just announced in its earnings call that it's cutting its workforce by 15%, saying these layoffs will be largely completed by the end of the year. They cut redundant jobs. This is part of the execution of the half a billion dollars in annualized cost cutting that they've previously disclosed.

22:14This comes after Paramount missed on the bottom, missed on the top line, excuse me, beat on the bottom line and took a six billion dollar impairment charge on the value of its cable networks. The company's streaming division did report a surprise profit for the first time, even as it lost two point eight mil lost two point eight million subscribers. And the company said that it would lose money in the third and fourth quarter. So profit this quarter, but it's not going to be consistent until next year. Paramount, like Warner Brothers Discovery, is dragged down by its linear business. The TV division's revenues fell 17 percent on declines in both licensing and ad revenue.

22:51Now, on the earnings call just now, the company's three interim co-CEOs said that it's business as usual until the deal with Skydance closes, which is said to happen in the first half of next year. Melissa? Is it premature, Julia, to think that based on Paramount, based on Warner Brothers, based on Disney and the streaming results specifically, that the streaming business is improving or at least they're able to cut enough to make it look better? Look, across the board, we are seeing progress in the streaming space. All four of those companies that you just mentioned, NBCUniversal, our parent company, as well as Disney, Warner Brothers Discovery and Paramount all showed some growth in streaming.

23:30I have to point out that of those. Warner Brothers Discovery is the one that showed more subscriber additions than expected, though it did lose more money than anticipated. So it's not always sort of a linear line here. But what we are seeing is that they're managing to make more money. We did have that surprise profit for the division in Paramount. But also, this was the first time that all of Disney's streaming assets, that's the D2C division and ESPN Plus, managed to turn a profit as well. So Julia, thanks. Julia Boorstin. What do you think? Skydance,$2 billion they identified in efficiencies, right?