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Podcast Notes: CNBC's "Fast Money" - Episode Summary (12/5/2023)
Episode Overview Title: Two Financial CEOs Offer Opposing Views on the Consumer, and the Latest on Rising Tensions With China Host: Melissa Lee Air Date: December 5, 2023 Description: Shares of American Express dive as CEO warns of a cautious consumer, while Bank of America’s CEO suggests spending remains stable. The episode also covers escalating tensions between the U.S. and China regarding export controls and scrutiny of a Chinese IPO.
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Key Topics
- Divergent Economic Views from Financial CEOs
- American Express (Amex):
- CEO Stephen Squarey highlights a "skittish" consumer affecting billings, leading to a drop in Amex shares by 4%.
- Concerns over consumer spending and credit quality noted.
- Bank of America (BofA):
- CEO Brian Moynihan believes consumer spending is holding up, attributing this to employment stability and increased earnings.
- November consumer spending on entertainment rose by 7% year-over-year.
- Discussion:
- Possible interpretations of both CEOs' statements suggest they may reflect different customer demographics and economic insights.
- Market implications of these competing narratives are significant, indicating potential volatility.
- Consumer Credit and Employment Trends
- Concerns:
- Discussions on bank credit contraction and rising unemployment rates are seen as warning signs for consumer spending.
- JOLTS data indicates declining job openings and resignations, reflecting reduced confidence in job security.
- Implications:
- Insights suggest consumers are hesitant on large purchases, indicating a potential slowdown in retail growth.
- Economic Outlook
- Federal Reserve Influence:
- Discussion on the effects of lower interest rates on consumer behaviors and market perceptions.
- Rates are seen as having dropped, which could either help consumers or signal deeper economic issues.
- Market Sentiment:
- Contradicting perspectives in market analysis reveal potential confusion in interpreting economic data.
- Geopolitical Tensions: U.S. and China
- Export Controls:
- The U.S. Commerce Secretary's comments on further export controls result in a strong backlash from China, reflecting escalating economic tensions.
- Scrutiny of Chinese IPO:
- A Chinese company, Shein, faces heightened scrutiny as it prepares for an IPO amidst concerns about labor practices and ties to the Chinese government.
- Impact on Markets:
- The discussion surrounding Shein indicates a broader concern over U.S.-China relations and their potential influence on market dynamics.
- Corporate Developments
- Starbucks:
- The company faces a 12-day stock decline amidst concerns over the recovery of its business in China.
- ExxonMobil:
- Plans for ambitious capital spending and production goals are outlined amid an antitrust probe regarding its acquisition of Pioneer Natural Resources.
- Final Trades and Predictions
- Traders express mixed sentiments on various stocks with emphasis on:
- Citibank for its dividends.
- Shorting the TLT (long-term Treasury bond ETF) due to perceived overextensions in the equity market.
- Potential opportunities in sectors affected by interest rate changes.
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Key Takeaways
- The contrasting views from Amex and BofA highlight the complexity of consumer sentiment and economic indicators.
- Job market trends and consumer credit are critical areas to monitor as they may significantly impact spending and economic stability.
- The geopolitical landscape, particularly with U.S.-China relations, is increasingly influential on market dynamics, with potential ramifications for international companies.
- Corporate earnings reports and strategic plans will continue to shape investor sentiment moving forward.
Closing Thoughts The episode underscores the ongoing balancing act faced by investors and corporations as they navigate consumer behavior, economic indicators, and international tensions. This volatility presents both challenges and opportunities for market participants.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:01Live from the Nasdaq market site in the heart of New York City's Times Square and this is fast money. Here's what's on tap tonight. A major warning from the Amex CEO sending shares plunging midday, but his counterpart of Bank of America sounding much less concerned. Whose read is right and what will it mean for the markets? Plus, China firing back against the U.S. Commerce Secretary's latest comments on export controls as one ratings agency makes a major call on Chinese credit. The ripple effects on stocks both here and abroad. And later, Starbucks' historic losing streak gets worse. CBS flips the script on drug pricing and Exxon gets ready to unveil an ambitious set of production goals.
0:36I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Karen Feiderman, Guy Dami, and Julie Beal. And we begin with two vastly different takes on the consumer. Top financial execs convening at a Goldman Sachs conference today where American Express CEO Stephen Squarey warned a more skittish consumer could be to blame for a slowdown in billings to start the quarter. Those remarks sending shares of Amex lower by as much as 4 % midday. On the other hand, Bank of America's Brian Moynihan saying he thinks the consumer is in pretty decent shape. Listen to what he told CNBC earlier today.
1:10For the prime American consumer, they're employed, earning money, earning more money. Now, is inflation tough on certain segments of the economy? Absolutely. And that's what you're seeing in the tension between how I feel versus what I do. And how I feel is I feel inflation. I'm reading about everything that's more expensive. What I'm doing, I'm going to concerts. I'm spending money in entertainment 7 % in November, higher than last November, to give you a sense. And so the way consumers are spending money is leveling out, but all in all, I'm in pretty decent shape. So who's got it right, Guy?
1:41Maybe they both have it right. I mean, maybe Brian Moynihan has a window into his client and then American Express, obviously, something else. I would obviously tend to favor what American Express is saying. And then you sort of listen to what Discover said over the summer, Capital One. You put together the fact that bank credit is now contracting, I think, for the first or second time. in the last 50 years. And I don't think it pays a particularly rosy outlook, especially if you think the unemployment rate is going higher in a market way, which I do. So I hear Brian Moynihan, I side towards American Express.
2:14And we did get the JOLTS data ahead of the jobs report data, which we're going to get. JOLTS data is quietly, very quickly changing before your eyes. And also then if you're a real wonk on some of these things, you look at resignations data, which tells you if people are resigning, if there's less resignations, people are less confident they can resign and go get paid someplace else. And that's also starting to abate. There was not long ago, there was two jobs for every one applicant out there. Now it's about 1.3. These numbers are changing. And so back to Moynihan versus American Express, it's guys right.
2:47I mean, there's two different perspectives here. And I think Brian Moynihan often, much like Jamie Dimon does, they have the insight of their own credit card data, but they also are talking more big picture on the economy. He also, you know, at different Times Day was quoted talking about the strength of his capital markets business and how it's going to be one of their best quarters ever in equity sales and trading. Some of those dynamics, I think, it's really about where you look at it. And I think if we remember Brian Moynihan at times over the last year, year and a half, when Jamie has been more bearish or used meteorological terminology about the economy, he's been much more sanguine.
3:21And so I think that's what we have today. I don't think there's any denying joblessness is going higher. The impact of the Fed, The lag effect are things that are slowly taking hold. What he did say in terms of consumers are spending down their balances, that they are actually slower on big purchase items. I mean, that is insight into the consumer that I think we already kind of knew. And I think it's important. Brian Moynihan has mostly been right. I mean, in terms of predicting the strength of the consumer, even though his stock price has not been great. Right. Well, that's a different issue.
3:51But I think a couple of things. So American Express is, you know, we know a different customer, a wealthier customer. And I think that customer is more acutely aware of what the stock market is doing. So if you think about where the stock market was doing September, October, that wasn't great. And then I think the CEO did say that November was sort of better. So and I could see the Moynihan, if you have less interest in the stock market, then that consumer was doing just fine. They were employed. Their wages were probably increasing. Inflation was coming down. Gas prices were coming down. So that makes sense to me as well.
4:29I mean, American Express also has had an extraordinary run. So to give back a little bit, I don't think is very much a big deal. But it is interesting to me to hear. I mean, Moynihan does, as Tim was saying, have an outstanding look into millions and millions of customers to see what they're doing. And as I said, though, I put all of my bank money, almost all, in J.P. Morgan just because I think they're managing better. Yeah, but I think, Julie, this all underscores this notion that it's kind of confusing and it's sort of what you want to see at this point in how you read the tea leaves and what your interpretation of the markets is.
5:04I mean, the other piece of this whole thing is rates have dropped and you can interpret that any way you want as well. It could either be a help to the consumer that rates have come down or maybe it's signaling something worse for the economy. Yeah, exactly. I think it's like you can take any piece of data right now and make it tell the narrative that you want or more importantly, that your book is positioned for. right? And I think that's the same thing here. I agree with Karen. I think that the stock market having such a tough time in September, October had an impact. I think that's just absolutely true.
5:34Bank of America has such a unique perspective because the breadth of their customer base is so wide. What I think is really interesting about American Express is they talked about T &Es being soft in October. And to me, that's an indication of not just kind of the consumer being a little nervous, but businesses too. And that, I think, is actually pretty problematic because once businesses start to get nervous, they start to not hire, they start to lay off people, they start to cut back. And that is what really sinks consumer confidence. We know that. Consumer confidence is what's going to really drive us around.
6:06I guess the question, though, is how long does that softness last? I mean, to Karen's point, he made it sound like it was sort of a blip. And remember, in October, there's a lot of geopolitical going on, so there could be a pullback just from that front from businesses getting just more cautious because of that environment. Except with American Express, I mean, you go back over the summer and it started in July with Capital One and DFS, which were a month or so earlier. But the stock reported earnings. The stock fell off a cliff. I think it went from 175 down to 145, pretty much in a straight line.
6:35A lot of analysts got on the back of that, downgraded the stock. This run that we've seen, which Karen just pointed out, seemingly is all in the back of yields going from 5 percent to 4.15 percent, which I'm sure we'll talk about. So the fundamentals, I don't think, have improved. The stock clearly has, but I don't think the underlying business certainly has. No, and I think this is setting up for a great opportunity to throw some of these out there on the short side. I mean, we've had such a tremendous run. I know we're about to talk about banks, and I think the story is a little bit different.
7:01But as you get into consumer credit and the things that we did hear from American Express, and we heard this in their earnings call, which, again, at the end of October-ish, great numbers beat the street dramatically. Net interest, income was higher, expenses were better. But they did talk about a reserve that was going to have to improve, have to go higher, excuse me, in the fourth quarter. The dynamics around the credit worthiness of I don't even care if it's American Express customer. DFS is a little bit different. I think some of those lower credit quality ones are ones you throw back out.
7:29Look, it's been a big sigh of relief for this entire space that rates have gone down. You've taken a lot of pressure off revolving credit, et cetera. But it's just a matter of time. So if you're a trader, this has been a great opportunity. I think you're setting up very nicely on the short side. Discover Financial Capital One, those sorts of lower ends. Look, you follow the same playbook you had over the summer that Guy's talking about. Yeah. Julie, you agree with that? Yeah, no, I agree. I think you're seeing deterioration in credit quality across. You know, American Express reported their net charge-offs for November, and they've seen a doubling year over year, right?
8:01It's still low historically, but it's not going the right direction. So I think even at the high end, you're seeing some kind of weakness, some kind of pullback, some kind of holding of the breath. And that makes sense, right? You know, we've all kind of spent down that savings cushion. And so where do we go from here, right? It can't really come necessarily from wage growth. So where is the consumer going to find that incremental dollar? So when I look at the J.P. Morgan or Bank of America, I look at that's one part of their business. But to me, there's a couple of things that are a little more, have a little more reason for optimism, which I think is the M &A activity, the trading activity, which is starting, it was more of an, it was just dead.
8:40This was a terrible year for the first, I don't know, however many months. And so that would be nice to see a little gain there because it's really been terrible. And then they can start to maybe get a little more momentum and maybe have it be. I think next year will even be stronger as long as rates find a level, whatever that level may be. Even at this level. But what if it's a level that's even lower, but for other reasons? Right. I mean, that's what we talk about all the time. I mean, maybe rates are going to go lower because the economy is in terrible shape. You know, remember what Morgan Stanley's James Gorman said when the floodgates will open when we go down.
9:15He's jealous of the next CEO, which we now know is Ted Pick, because M &A will come back. Yeah, well, his timing was pretty good, I think. I mean, think about when, well, we're on Morgan Stanley, but think when we came into office and think about when he left. I mean, he timed it really well. I'll say this. BlackRock had a piece today talking about expect more volatility in the bond market. If you think yields are going to stay low, you're probably, I'm paraphrasing, you're probably going to be wrong. Now, with that said, I had no I didn't think yields were going below four and a half percent, let alone four fifteen.
9:44Carter Worth had talked about that for sure. But I'm not sure we're out of the woods in terms of rates going up for the remainder of this year and early next year. By the way, he put out a note this afternoon saying sell bonds. So I did position today. You got out on the way here on the way here. Yes. After you write Carter's note or just. No, I actually I didn't see Carter's note, but I just I feel like this move has been just as dramatic as the last one. Yes. Yes. And so and I think, you know, some of the underlying issues that led to the last one that, you know, government funding, we have not solved that.
10:15Right. So, I mean, unless you're very bearish on recession and you think that the economy is really going to slow, inflation is really going to come down. OK, then be long bonds. I'm not of that school. So I did sell some. But but there are some asset classes that have been interest rate sensitive that I think are worth continuing to follow through on different than the fixed income market. So I think yields have gone down. Agree with Karen that whether it's the Treasury refunding announcement that's coming in January, whether it's the deficit spending gone gone mad, whether it's less central bank buying.
10:45But you have utilities, you have staples, you have had big swaths of the economy that typically are defensive during a slowing period, which I think were assaulted. And you haven't totally taken some of that back. Look, utilities are up 15 percent. If you look at the XLU over the last kind of four to six weeks, a dramatic run back. But I think people were starting to question whether a lot of these energy utilities could actually survive a higher rate environment. I think there's been a major reassessment. I think utilities, by the way, into next year, you're buying pullbacks here. All right. Meantime, big bank CEOs heading to Capitol Hill to testify before the Senate Banking Committee tomorrow.
11:19CNBC's Emily Wilkins got the details on what we should expect to hear. Emily. Hey, Melissa. Well, yeah, bank CEOs are going to be making the case to senators tomorrow why a pending increase in capital that Basel III could hurt the economy. That proposed rule from the Fed, you know, it's meant to decrease risk, but it has hit really strong pushback. In testimony prepared for tomorrow, J.P. Morgan, J.C.E.O. Jamie Dimon, put it this way. More is not more in this case. He said, ironically, a proposal to mitigate risk will create even more risk in the financial system. And several Republican lawmakers on the committee told me this week that they want to hear from the CEOs what impact those potential capital increases will have on community banks, on small businesses and on consumers.
12:05Now, Democratic senators, most of them have told me they plan to ask CEOs about other topics. That includes how they're addressing climate change, de-risking their energy portfolios and whether they're making use of a new instant payment system from the Federal Reserve. A hearing is going to be starting tomorrow morning. We expect it to last about three hours. Should be a very interesting day, Melissa. Emily, thanks. Emily Wilkins. For more on tomorrow's hearing, let's turn to Tom Michaud, the CEO of KBW, a stifle company. Tom, great to have you back. Great to be with you. What do you think is going to come across tomorrow?
12:36What I think is going to come across, first of all, is that the crisis of the spring where we had three of the four largest failures in history is behind us. And that it's been an era of increasing stability, stability in deposits, stability in earnings. So I think they're going to try to put an end to that chapter and really talk about how those three bank failures were for problems at those three banks. The second piece, I think, is the near-term outlook. The near-term outlook is going to be one of a stable, profitable industry, but one that's got negative operating leverage and not really growing.
13:09The third piece that I hope that does come up is the regulatory reaction to these bank failures, which has been, they call it gold-plated, very strong. And really, it's going to de-risk more of the banking industry, which is going to tilt the balance of the banking industry's competition with non-banks. Non-banks have been growing at faster than 10 percent a year. They've been taking more and more market share from banks, the private credit area. And as the regulators are increasing regulations on banks, they're actually standing up the non-banks. And so I think I hope that dynamic comes up. Do you think that private credit, that area, isn't about me?
13:46There's been so much chatter. you know, you saying, right, that it's a bubble and there's a risk here, you're saying, perhaps. So we research all these companies, the ones that are public. Some of them are terrific companies, really well managed. But anything in financial services, in my opinion, that grows a lot faster than the economy usually hits a catch up moment. That doesn't mean that it's going to be a crisis, but all the players in private credit aren't going to be successful. So I think it'll be interesting to see how it plays out. I do think private credit is here to stay. So it's a real industry.
14:21But I think that the regulators have a decision on how fast they want to grow. You keep coming down hard on the banks, it'll grow faster. It's interesting, Tom. Silicon Valley Bank would have passed the stress test if they were under the auspices. That's the 16th largest bank. So the question I have to you is what good is a stress test if a 16th largest bank would have failed it in the first place. Let me pile on to what you just said. All of them were investment grade in the weeks before the failure. The FDIC reports afterwards talked about how the Silicon Valley, excuse me, First Republic Bank had a one rating for liquidity before it failed.
14:57So you're 100 percent right. It was a bank run. And the changes that are being made have nothing to do with the failure. The one way to fix it is deposit insurance reform. And in May, I testified in front of Congress, really believing that the targeted approach to change deposit insurance, to reduce the too-big-to-fail thinking so depositors don't run like that, that is what we need. And that effort is stalled in Congress. I'd love to see that change. And that is what's needed. That would fix, Guy, what you just said. A couple things. I'm married to a private credit guy, so I do hope there's at least room for one.
15:33But the other thing is I feel like banks are going to push harder, push back harder on this than almost anything I've seen in a really, really long time. And I think they also feel like they're going to be heard somewhat and that they will find some relief with versus the worst case scenario. This is the real deal. When I started in this business, there were 14 ,000 banks. Today, there are 4 ,700. Just to unpack that for you, 97 percent of the banks in America are below 10 billion. The top 25 have 60 percent of the assets of the deposits. There are 115 banks in the middle. These banks are working hard to compete with the big banks.
16:14We want that to happen because then we'll have choices and we won't just have four big banks. If deposit insurance reform, in my opinion, doesn't happen, there's going to be tremendous pressure on those banks to consolidate. and is the harder they push down these regulations to$100 billion, which, by the way, really means$75 billion, as they do that, they're going to actually encourage the activity they probably don't want. What does this mean, though, for the consumer finance companies that needed funding that was right here and now it's here? So back to the point about non-banks versus banks.
16:48To me, banks get so much stronger in this environment because, again, they have the funding, they have the balance sheets, they have the deposits. You know, all these companies, and there's so many, and we talk about buy, not pay later. We talk about consumer credit. We talk about a lot of the fintech that's not really fintechy. And it's really just a business that stood up on 0 % interest rates. Thoughts on that? Because I think most of those businesses are going out of business. So here's the thing. I listened to your prior conversation. So much of what we're talking about revolves around the aftershock of the COVID support.
17:19As the COVID support is being withdrawn, as the Fed shrinks its balance sheet, liquidity is getting tougher. A lot of that liquidity was on the bank's balance sheets. It's now fleeing. There comes a moment where it will reset. We think that reset moment's happening in the next six months. It's happening actually right now. So the banking industry is going to reset their deposits, and then they're going to be able to grow again. I wouldn't count them out unless the regulation is so strong that they're hamstrung and they really aren't in a fair fight with the rest of the finance sector. So I think that's a big issue.
17:53The other thing that's going on is we're going to, in six months' time, this deposit situation and rate situation I think will be behind us. Then we're going to be talking about credit. And I think your conversation earlier about are we returning to normal or is it going to be a little bit more than that? The market now is thinking soft landing, we get back to normal. If it's more than that— More than that, more losses? Yeah, meaning if we get a harder landing than what we have. I also think the market's way too optimistic on the Fed pivoting. And I just don't. The Fed didn't raise rates super fast to cut them really fast.
18:27Their outcome and how history is going to judge them is did they ensure the defeat of inflation? And I think they're going to stick with it. My own opinion would be even into the second half. So just quickly, what will be the trigger in your view to something going wrong in private credit? In private? I think the whole thing revolves a lot around unemployment. I actually think it starts with unemployment. And look, I hope there are a lot of excellent players in private credit. I'm just saying for an industry to stand up this quickly, they all won't get it right. And there will be winners and losers, just like there is in the banking industry.
19:04So I'm just saying when I look at the economy growing what we think it's going to be 2 % and private credit growing 10 % or more, It just says to me, wow, if there's a growth mandate for managers and private credit and financial services, that's usually when there's a problem. Tom, great to see you. Thanks for coming. Great to be with you. Thank you. KBW. Julie Beal, what do you think? Yeah, I know I completely agree with everything he's saying. Incentives are so important to have these businesses growing as quickly as they have been. And they've never been back tested right in a recession. So you have no idea the quality of their models.
19:41If there's, you know, I understand that if things are positive or there's a soft landing, they're probably OK. But what if there isn't? And I think this idea that everything revolves around employment is critical, right? Because we could have more velocity of employment, you know, a year ago when people had lots of savings. They don't have the savings right now. And so if people lose their jobs, they take action immediately. Where our propensity to spend that kind of marginal dollar is so high. So I think all his points are critical, but the most being that it all really revolves around employment.
20:11It sounds, though, like things will be good for the banks. They're de-risked. They've got great balance sheets, et cetera. It sounds like this whole hearing about raising the capital requirements probably won't be enacted for a very long time if anything happens. So 2024, a great year for banks. Well, first of all, you've had a great year for banks in the last six weeks. And I'm not sure we're going to have the same environment. I think there is a window with lower rates. It takes a lot of pressure off. also means that some of the asset flight kind of reverses. I think you have a case where you look at Bank of America, Citibank, two of the biggest balance sheets in the world have rallied, I don't know, 23 % since that CPI number are in a place where they're paying north of 3 % divs.
20:51In terms of both the kind of the capital dynamics of what these banks can do, their balance sheets, what they can give back to investors, buybacks, that core business I think has room to be appreciated. I think everything we're talking about on credit is stuff to play out that's not going to be great for these banks. We haven't seen them have to put any reserves aside yet. And at some point, everything we're talking about, but I think, yes, you stay longer. Coming up, we're watching Toll Brothers on the move after hours. Shares are higher after results of details from the quarter and how to trade the home builders.
21:19That is next in CVS Swing. Shares jumping after the pharmacy chain announced a major change coming for drug prices, what the CEO had to say, and how the new model will affect your wallet when Fast Money returns.
21:39Welcome back to Fast Money. We've got an earnings alert for you on Toll Brothers. Shares higher after HomeBuilder reported a beat on the top and the bottom lines. Let's get to Christina Parts Nevelis with more on the quarter. Hey, Christina. Hi, Melissa. Well, it wasn't just the top and bottom line beat. It was also rosy commentary from the CEO in their recent earnings report. What we know is that CEO Doug Yearly saying he was, quote, encouraged by recent drops in mortgage rates and that buyers continue to be drawn to new homes, yearly adding that he expects lower rates and easing inflation to add to demand moving into the next year, aka the spring selling season.
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22:11The head of the home builder also said the outlook for new homes, the new home market remains bright in the long term and that Toll Brothers is well positioned to capitalize on the demand amid pricing trends that we're seeing thus far. Toll Brothers predicts they will deliver about almost 9 ,800 to over 10 ,000 units just over the next fiscal year or so as they continue to reduce homes in their backlog. That's down about 19 % from last year, which is a good thing when they're reducing and clearing inventory. Shares are up about 2 % in the green right now. Melissa? Christina, thanks. Christina Parts Nevelis.
22:45Yeah, the outlook for 2024, looking pretty good, which is great, right? Yeah, look, I'm somebody that has been pretty negative on the home builder sector and think we've seen its peak for a long time. And it doesn't mean that there isn't demand and there aren't supply issues. If you look at inventory levels in October, apparently they rose, but they are still down 14 percent year over year. This is very much in favor of higher prices. I think, though, and if you believe that rates can't go a lot lower than 4 percent, like if rates go down to three and a half percent, this is going to overshoot to the upside.
23:17There's no question about it. But if we have a place where we start to rebound back in rates after a 30 percent move in Toll Brothers since October 24th, Are you chasing these homebuilders here? I'm not. I agree with Tim on this one. And again, we were very constructive on these stocks for the longest time. We said across the board that there will be a point in 10 year yields where homebuilders were no longer like them. It turned out four and a half percent ish over the summer into September was that level. Rates are coming back down now. This is backward looking the quarter. I know. Please don't at me.
23:46It's a fantastic quarter. But you heard, Tom, it's all about employment. And if you think the unemployment rate is going to spike, which I do, I think Karen agrees, Tim, probably as well, then it's going to be a very hard sell to continue to be low on the homebuilders in the early next year. Agree, agree completely. I just feel like, I mean, it sort of must be frustrating as they put up fantastic numbers, right? Nice, nice DNA, right? Good leverage. They're doing, I mean, these are not the homebuilders going back 15 years. But I just think that unless we get a material, material movement in rates for only a good reason, and those two things don't really seem to be likely to happen together, then it's going to be sort of tough going against sentiment anyway for the stocks.
24:30All right. There's a lot more fast money to come. Here's what's coming up next. CBS on the mend. An overhaul on its drug pricing policies sends shares soaring. How the company hopes to flip the pharmacy script next. Plus, China slaps back. Tensions heating up over chip export restrictions. More on the U.S. semi-stans and how a Chinese retail IPO is feeling the pressure. Ahead, you're watching Fast Money live from the NASDAQ market site in Times Square. We're back right after this.
25:12Welcome back to Fast Money. We've got an earnings alert for you on Toll Brothers. Shares higher after HomeBuilder reported a beat on the top and the bottom lines. Let's get to Christina Parts Nevelis with more on the quarter. Hey, Christina. Hi, Melissa. Well, it wasn't just the top and bottom line beat. It was also rosy commentary from the CEO in their recent earnings report. Or what we know is that CEO Doug Yearley saying he was, quote, encouraged by recent drops in mortgage rates and that buyers continue to be drawn to new homes. Yearley adding that he expects lower rates and easing inflation to add to demand moving into the next year, a.k.a.
25:43the spring selling season. The head of the home builder also said the outlook for new homes, the new home market, remains bright in the long term and that Toll Brothers is well positioned to capitalize on the demand amid pricing trends that we're seeing thus far. Our Toll Brothers projects they will deliver about almost 9 ,800 to over 10 ,000 units just over the next fiscal year or so as they continue to reduce homes in their backlog. That's down about 19 percent from last year, which is a good thing when they're reducing and clearing inventory. Shares are up about 2 percent in the green right now.
26:16Melissa? Christina, thanks. Christina Partsinevelis. Yeah, the outlook for 2024 looking pretty good, which is great, right? Yeah, look, I'm somebody that has been pretty negative on the homebuilder sector and think we've seen its peak for a long time. And it doesn't mean that there isn't demand and there aren't supply issues. If you look at inventory levels in October, apparently they rose, but they are still down 14 percent year over year. This is very much in favor of higher prices. I think, though, and if you believe that rates can't go a lot lower than 4 percent, like if rates go down to 3.5 percent, this is going to overshoot to the upside.
26:50There's no question about it. But if we have a place where we start to rebound back in rates after a 30 percent move in Toll Brothers since October 24th, are you chasing these homebuilders here? I'm not. I agree with Tim on this one. And again, we were very constructive on these stocks for the longest time. We said across the board that there will be a point in 10 year yields where homebuilders were no longer like them. It turned out four and a half percent ish over the summer into September was that level. Rates are coming back down now. This is backward looking the quarter. I know. Please don't at me.
27:19It's a fantastic quarter. But you heard, Tom, it's all about employment. And if you think the unemployment rate is going to spike, which I do, I think Karen agrees, Tim probably as well, then it's going to be a very hard sell to continue to be loaned to homebuilders in the early next year. Agree, agree completely. I just feel like, I mean, it sort of must be frustrating as they put up fantastic numbers, right? Nice SG &A, right? Good leverage. They're doing, I mean, these are not the homebuilders going back 15 years. But I just think that unless we get a material, material movement in rates for only a good reason, and those two things don't really seem to be likely to happen together, then it's going to be sort of tough going against sentiment anyway for the stocks.
28:03All right. There's a lot more Fast Money to come. Here's what's coming up next. CBS On The Mend, an overhaul on its drug pricing policies since shares soaring. How the company hopes to flip the pharmacy script next. Plus, China slaps back. Tensions heating up over chip export restrictions. More on the U.S. semi-stans and how a Chinese retail IPO is feeling the pressure. Ahead, you're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.
28:44Welcome back to Fast Money. Shares of CVS jumping after the pharmacy chain announced its plan to switch up how it sets its drug prices. The pricing overhaul revealed today during the company's first investor day in two years. The new policy, CVS Cost Vantage, will go into effect in 2025. it'll use a simpler formula to set prescription prices based on the purchase price, a limited markup, and a flat pharmacy services fee. Prices are currently not based directly on what pharmacies spent to purchase the drug. CBS CEO Karen Lynch telling CNBC earlier today the change could help increase transparency to the consumer.
29:19There is increased scrutiny over the cost of pharmacy and drugs. And as a company, you know, as I said, we're committed to lowering the overall total cost of health care. We will have that transparent pricing at the pharmacy counter and through the entire health care chain. Could this new pricing model flip the script on the entire pharmacy space? They also gave Outlook, Karen, which was better than expected. Yes, which I thought was good. It was. I think that's why the stock moved. And it's not an expensive stock. I don't own it now. I have owed it in the past. It is something I would look at because it is inexpensive.
29:58I do find, though, this idea of transparency. I find generally CEOs do not love transparency when they have a business that is not transparent and tends to provide bigger margins maybe than one that is. But we know that they're pressured by the Mark Cuban and others as well. So that may be just, you know, her embracing reality. This is the way it's going to be. Interestingly, I did also find that the discussion about transparency, not particularly transparent itself, because this is happening in 2025. Right. I wasn't they didn't lay out enough details, but I do think the stock is cheap. I mean, you know, it's a free cash flow machine.
30:40The earnings are I mean, they're talking about, you know, mid eight dollars or so. So it's it's hardly expensive. Probably worth a look again. Do you think we'll actually find out what CVS pays for a drug? Because, you know, they're going to add the markup fee and the pharmacy services fee. And I just I don't know. It just seems like something that they probably wouldn't divulge. What is cost? It's really in the eye of the beholder, is it not? No. No, not at all. Julie Beal, what did you make of this move? Yeah, I mean, I think they should have called it cost plus plus. I mean, it's it's clearly an indication of, look, we're going to we are transparent.
31:15We see what our competitors are doing and we're going to be so good. And, you know, I think the details are thin because they don't actually want to be that transparent. This is a good place in their business, you know, and it's been an important generator of profitability where they've struggled to get their assortment correct. And I think going forward, you would expect that they're going to figure out ways for it to still be a little bit obfuscated. I appreciate the effort and the move in the right direction. And, you know, we would love to see more transparency across the supply chain for prescription health care.
31:46but I'll believe it when I see it. Nice timing, too, ahead of the elections. That's all I have to say on that. Coming up, keep your chips close. Tensions heating up as Beijing responds to the latest U.S. stance on semi-exports, plus a cut to Chinese credit out of one major agency. And if that's not enough talk about China, we're rounding the conversation out with the Xi 'an squeeze, the regulatory pressure facing this retailer, and how its IPO may hang in the balance. Don't go anywhere fast when he's back right after this. Missed a moment of fast? Catch us anytime on the go. Follow the Fast Money podcast.
32:19We're back right after this.
32:31Welcome back to Fast Money stocks closing mix to end the day. The Dow losing nearly 80 points. The S &P virtually flat, while the Nasdaq managed a small gain of three tenths of a percent. Shares of Apple hitting a four-month high after its iPhone supplier Foxconn boosted its sales outlook ahead of the holidays. Foxconn citing improving consumer demand for phones, tablets and other electronics. Apple now up nearly 49 percent this year, the stock closing back above$3 trillion in market cap. And shares of MicroStrategy continuing to climb. That stock rallying 10 percent already this week as a crypto rebound gains steam.
33:03As of November 30th, MicroStrategy holds more than 174 ,000 bitcoins bought at an average price of around$30 ,000. Not bad. Meanwhile, two stories highlighting the growing tensions between the U.S. and China. Beijing on defense after Commerce Secretary Gina Raimondo's comments that more controls on tech exports to China are coming. Plus, the latest Chinese company looking to tap the U.S. market drawing scrutiny from lawmakers. Xi 'an coming under fire for its labor practices. CNBC's Eunice Yoon and CNBC.com retail reporter Gabrielle Von Rouge are here to break it all down. We start off with Eunice, who's here in-house with the latest.
33:40Yay! Welcome again, Eunice. It's great to have you here. You got your chest beat. But it's almost not surprising that Beijing has fired back at Raimondo's comments. They're very strong when she was talking about NVIDIA. And if they make a chip that gets around the controls, they're going to go after that. Right, right. And so the government overall is feeling that the U.S. export controls are meant to contain China. So that's been the narrative that we've been hearing for quite some time. Overnight, state media has also said that this is a way that Raimondo and the U.S. is depriving U.S. companies, in particular chip companies, from short-term and long-term revenues, they said.
34:21So they're trying to drive a wedge between U.S. business and U.S. government. And I think that longer term, what you're seeing is that the economy is so fragile right now. And that if you want to look at what the industries are of the future, they are AI, they're in technology. And there's a big question mark as to whether or not China would be able to develop their own industries into kind of replacement industries from, say, manufacturing or investment in what China relies on today. Yeah. Meantime, I think Shanghai has Microsoft, right, to sort of beef up its AI presence in Shanghai. And it's sort of interesting to see this sort of back and forth because, you know, China needs that industry, obviously.
35:04But the U.S., you know, we're trying to hold back there. Yeah. And it's just I think the messaging is really mixed. It's just, you know, we see Xi Jinping saying that foreign businesses are all welcome. But then there I mean, I feel like almost every day we hear about exit bans, people being detained. And it's not only Americans, but it's Japanese. It's, you know, other Europeans or other just anybody from other countries. And so that just really undermines the overall investment sentiment. And we were talking briefly about this earlier. The fact that China is so intent on being a financial center in the world.
35:41And so at times it's such in conflict with everything that we're reading about. Leaving aside the geopolitics, China, in terms of the consistency of the markets and the investment in the markets, and even on some level, policy around supporting a market-friendly environment. And yet it seems that Xi Jinping doesn't really care about that in ways that I think predecessors have. They were kind of building to this point, and we're moving in reverse. Right. And the thing is that the expectation has always been that China's practical, that at the end of the day, China will be practical. And, you know, whatever the politics are, they're going to make the decisions that are best for the markets and for business.
36:17But that is now really in question. And we see in the past, we would see a lot of discussion within the party because it's a one party system, but there are a lot of factions within the party. And so you'd have the reformers or folks who wanted the U.S. business. And then at the end of the day, they would make their argument and it would be practical. And then these days, it's just not the case anymore. You don't hear as many conversations going. It's just whatever President Xi wants. And those voices that you would hear who would be acting as a counterpart to the overarching direction just aren't really there anymore or maybe don't feel emboldened.
36:52And in fact, there is a joke that we were talking about a little bit before that people behind President Xi's back have been describing him as the decelerator because he's been bringing the economy back in time. So, you know, it's just they just nobody really feels as though they could actually say that without getting detained. No, I'm sure that's not an easy thing to say. Right. Prior to his trip to San Francisco, we, United States, sent for Janet Yellen, Anthony Blinken, John Kerry, somebody else. Gina Raimondo. Thank you. And then each time they all came back great, very constructive. And then a week or so later, something escalated.
37:30And that seems to be what's happening now. So you're there. What is the U.S.-China relations, in your opinion? I mean, it's hard. On the one hand, you see that the U.S. is making this outreach, that they feel that it's necessary to have a conversation in order to have the bat phone, to make a phone call in case there is a crisis. And I think what I'm concerned about is that because there isn't as much flexibility built in the system, because most people are just trying to second guess what President Xi wants, that there is more potential for a miscalculation because everyone on the lower levels is trying to guess what President Xi wants.
38:09And so because of that, they act more aggressive and more extreme. And you see that in various industries and in various levels. Eunice, thank you. Good to see you. Eunice Yoon. Turning now to the Xi 'an IPO, CNBC's Gabrielle Fon Rouge joins us now with more on the congressional response. Gabrielle. Thanks, Melissa. You know, with Xi 'an, as soon as they started to get bigger, Congress started to pay more attention to them. So as they have grown, that scrutiny has intensified and lawmakers are really, really ramping it up now that we know that they have filed to go public. So we spoke with Congressman Blaine Luckemeyer out of Missouri and he told us that he wants the SEC to block the IPO altogether.
38:47And if they don't, he wants them to, he wants to introduce legislation that would actually ban them from going public in the U.S. or ban the import of their products into the U.S. So this is going to be a major roadblock for Sheehan if they're going to still move forward with this IPO. Is there an actual securities law, a rule that he will cite in getting the SEC or trying to get the SEC to ban this? Or is this just going to be this specific example, which doesn't seem like, you know, make a great case, great foundation for a block? Yeah. So they, you know, Congress has legislative authority on their side.
39:23So they could write a bill that could try to get this passed. I mean, whether or not they would have the ability to get it past the line remains to be seen. But earlier this year, the SEC implemented new regulatory requirements for companies that have either the majority of their operations in China or are based in China entirely, Chinese-founded companies. So that's going to come up in Xi 'an's process now with their S-1 or their F-1 that they filed. They're going to be required to disclose additional items about their connections to China, how the government might be, interacting with their business, might be controlling their business, how their supply chain is going to be under control of China.
39:58So all of that stuff is going to come out in this review process that could take a year, could take longer. And something could come out then that could cause the SEC to pump the brakes on it. And then if not, Congress could try to come up with a law, but whether or not it's actually going to get past the line remains to be seen. Gabrielle, thank you for joining us. Gabrielle Fon Rouge, CNBC.com's retail reporter. Again, all of this sort of underscores sort of the tension here, you know, looking at China. What are they hiding? What connections to the Chinese government will this company have that sells$4.99 bathing suits?
40:31I was going to say, I mean, this is a company we're worried about the consumer right now. This is a company that we're not worried about the demand for their products. I mean, they're killing it. And there's demand globally for them. And so this is the whole story. And can you invest in these Chinese companies that are global companies that have historically traded here, traded in Hong Kong, traded all around the world. It's setting up for a moment that I think is not right now. And even though, you know, I stay in this kind of bang your head against the wall range with Alibaba and traded around, you know, that stock, while others and even the rest of emerging markets are breaking out on lower dollar and whatnot, is trading near 52.
41:10We close. I think this is a story that's going to continue to play out. And I think it's a story that probably underscores why most investors don't feel they need to invest here. Yeah. I mean, it It sort of shows you how there can be a tit-for-tat if these governments wanted there to be a tit-for-tat, Julie. Yeah, it definitely feels like siblings arguing at this point. And it's hard to keep track of where the real linchpins are. If you look on the semiconductor side, this is the place where China is absolutely the weakest. They really do not have the capacity or the ability to produce the kinds of chips that the likes of NVIDIA are making.
41:45And they can't do AI with those chips. They recognize that they have the programming talent because we're all addicted to TikTok. They have the right people in place. But it's really difficult to do it if you don't have the hardware capacity. Shein is a little bit the same story. Guy, you're addicted to TikTok, right? I'm not on TikTok. I don't have that application. Tic-tac-toe? This guy addicted to Shein. I just wanted to say tic-tac-toe. Because that can be tough to step away from. And I think you're going to be embarrassed if I defeat you in tic-tac-toe. No one will have to know. FXI, and Tim will point this out correctly, we're getting close to levels we saw in October of last year, which was the same low we made about 13 years prior.
42:24That doesn't trade particularly well, and I think that's a bit of a warning sign as well. Coming up, it's red cuff season for Starbucks, and their stock is seeing plenty of red as well. Why shares need a little jolt of caffeine right now. That trade and more when Fast Money returns.
42:43Welcome back to Fast Money, Starbucks, in a slump since mid-November. Shares today extending their record losing streak to a 12th consecutive down day. At a Morgan Stanley conference today, Starbucks CEO warning the recovery in China will be choppy and that demand growth next year will be back-end loaded. Tim, you're a shareholder. Well, what's happening is you're getting some follow-through on people that are seeing what this fiscal fourth quarter looks like and the dynamic into 24s. You've already seen a couple EPS cuts, but again, the comps that they showed last quarter were a big surprise in the U.S.
43:15despite the choppiness. That's part of what drove the shares up near 107. Stocks pulled down almost 12%, 13 % since that point, as has been noted, 12 straight down days, an RSI of 27, blah, blah, blah. I've done nothing in my Starbucks position over the last kind of four or five months after selling into the previous round of strength. I'd love to buy it. 95 is an important level. I think you're going to get it lower. And again, if you look at the EPS and the dynamics into next year, at$4 a share on 24, you can do that math. This is a 25 forward PE and not something that's terribly cheap here.
43:48I think it gets cheaper. $4 a share can barely buy you a cup of coffee. Oh, my goodness. I mean, you know, I just bought a cup of coffee out in Vegas at a Starbucks location inside a casino and paid$7.99 for a regular coffee, not the almond latte, noca, pumpkin thing that guy buys with the soy milk. Yummy. A couple things. Yummy. Very well-defined uptrend since 2020-ish when it was a$58 stock. Very defined downtrend since its all-time high in the fall of 2021. This pennant formation is going to be resolved, I think, to the downside. And because Jonesy's in my ear, people hear that ambient noise.
44:26Yes. It's a big party going on. Well, it's the season. I mean, check. Look at this. It's a big gathering. It's a big gathering. NASDAQ's the place to be, apparently. NASDAQ's always throwing a party. I mean, it's a place to be. There's always going on around here. I'm just saying. They're here to see you, Mumps. Coming up, Exxon getting ready to reveal an ambitious new spending plan. Will it help the stock get out of its slump? And could an FTC probe put a wrench in its ambitions? We've got the latest next. More Fast Money in two.
45:00Welcome back to Fast Money. ExxonMobil and Pioneer natural shares dropping after the FTC opened an antitrust probe into The oil majors plan$60 billion takeover of the shale player today. The news comes as Exxon is preparing to announce ambitious capital spending plans tomorrow. The company expected to target production of more than 4.4 million barrels of oil a day by 2027, this according to Reuters, and to address the impact of reduced demand for motor fuel and the rising adoption of EVs. Exxon has been sort of just out there since 2022, same levels, not doing too much. I thought it was breaking out to the upside.
45:35It certainly appeared that way. Then this deal was announced, and then the Chevron deal and all these big cap integrated names have sold off. But I will say this. On valuation, it's not going to get a lot cheaper than it is now, and I still think the energy space is in play. It seems Exxon has always been entranced by production growth, and it's a story that they've had a big issue around. So they've now got this Guyana asset, which is arguably the most exciting asset in the world. the fact that they're going to be increasing CapEx around it, that they need the technology to actually add 700 ,000 barrels to the existing lot is important.
46:09And as someone that believes that these companies are run differently and that the dividends are sound and are going to be paid, this is the real question for these stocks. You're at, again, a major kind of support level, and I think you're going to hold. It's interesting, just from when the stock peaked, just literally dollar for dollar, dollar invested in each oil and Exxon. I know it's not entirely just an oil play. is exactly the same. That was sort of surprising to me. I would have thought it was underperformed. It hasn't. They are literally within 50 cents of each other. So, I mean, it's cheap here.
46:43The whole space has been cheap, though, and it's surprising to me how it is just sluggishly cheap, I think, for next year. It's a good place to be. By the way, do not miss David Faber's exclusive interview with Exxon CEO Darren Woods on Squawk on the Street this Thursday. That is 9 a.m. only on CNBC. Up next, Final Trades.
47:12time for the final trade let's go around the horn julie beal yeah i'm still pretty chicken about the home builders so i like simpson they serve all the home builders and they're regulated jim tom michaud talked about the banks i think there's a room to run citibank with its 3.6 div yield and 0.8 price to tangible book. Citibank. Karen. Yes, I like this bond move for the equity market, but I really think it's too far, too fast. So I have shorted the TLT again. Guy. Right before our collective eyes, IBM, six-year high. Interesting. Wow. Wow. Is that a haiku? No. No. Thank you for watching Fast Mad Money with Jim Cramer starts right now.
48:00All opinions expressed by the Fast Money participants are solely their opinions and do not 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.
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Shares of American Express diving midday after the CEO warned that a “skittish” consumer caused billions to slow to start the quarter, while Bank of America’s top exec suggested spending was still holding up. Which of these reads on the consumer is right? Plus Beijing firing back at the US over its latest export control comments. And a Chinese IPO faces the scrutiny of US lawmakers. We dive into all the ripple effects.
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