Volatility Spikes As Rates Drop… And China’s Growing Chip Demand 10/16/25

0:02Live in 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. Major moves under the surface. While broad market indices held steady today, big moves in the VIX and Treasury yields caught our eye. What the action says about the strength of the rally and a regional route due to the drops in lenders like Western Alliance and Lions Banks suggest bigger credit concerns amongst the regionals. We'll debate that. Plus, more AI upside. Dan Ives of Wedbush lays out the case from his channel checks in Asia. Lululemon lagging after Wall Street downgrade.

0:33And Biotech's boom. We'll talk to the CEO of Magical Pharma about the sector's run and how he is dealing with growing competition. I'm Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight, Steve Grasso, Courtney Garcia, Dan Nathan, and Guy Adami. We start off with a major market reversal for the second straight day. Stocks giving up early gains yet again as trade fears and a continued government shutdown weigh on investors. The S &P is swinging nearly 2 % from high to low and closing the day down more than half a percent. The action launching the VIX above the 25 handle, its highest level since May, though so far from the Liberation Day highs.

1:07It's a pronounced move in an otherwise tepid market. And yields are getting yanked lower the 10-year squarely, below 4%, and the two-year yield hitting its lowest level in more than three years. So do these moves in volatility and rates signal deeper concerns lurking beneath the surface? Guy, what do you think? I think they should. I mean, yields are going lower because it's a perceived flight to quality. We can probably all agree or disagree on that, but I think that's what's happening. But on a 40-point handle day, lower in the VIX, excuse me, on the S &P, understanding that from high to low, it probably reversed about 100 handles.

1:41There's no way the VIX should be at 25, in my opinion. So it is clearly trying to tell the market something. And this comes in the wake of last week's reversals that we talked about, some of the fundamental and technical damage it's done. And the fact that gold had the move that it had on a risk off day is absolutely concerning. So, yes, I'll think this will be a day or a week or so that we'll come back to in the months to come and say the market was trying to tell us all something. Yeah, and I don't think it's about shutdown or tariff fears. I think the market has been pretty comfortable with that, right?

2:13So we had all that going on and we had a VIX grind down to like the mid-teens or something prior to the tape bomb that we had on Friday. Obviously, we're going to talk about this regional banking thing. And, you know, for to be hyperbolic about this and what's going on, you know, this is probably a bit too early. If we take a page out of the playbook from March of 2023, we kind of know there's going to be support for this thing. Right. They're going to kind of figure this out. Some of the numbers that we're hearing about for these smaller banks don't seem to be particularly large. They don't seem like there's going to be systemic sort of risk.

2:44And I think maybe it's too early to say that. I'm not a bank analyst or, you know, look at these things pretty closely. But the only thing I'll say is that if we're about to lose a couple of these banks and then it looks like further than, you know, May or March of 2023, I think we lost a bank in May of 23 after a few. Then you have to say to yourself, what saved us back then? Yeah, there was a little bit of QT, but it was really the interest in this AI trade. And at this point, I don't think AI can save this sort of situation. And I don't mean to sound so dire, but look at the way these stocks traded.

3:15Look at the way it took down some of these large money center banks, especially after what we heard from them earlier in the week. So it just feels like investors are looking for reasons to kind of sell right here. But when you see the sort of pain that we saw on Friday and then here in other sectors, that should get your antennas up a little bit. Yeah, I think you're right. People are looking for a reason to sell. I mean, the markets have done so well this year. At some point, you're going to see some profit taking. But I also think on the flip side, you are seeing these large amounts of cash that are sitting on the sidelines.

3:41And a lot of that is from institutional investors, just still left over from Q1 and Q2. They're hoping for some sort of 10 % correction that they can buy on because they don't want to be sitting on this cash if markets keep going straight up. I think that's why you're seeing these up and down moves, because you're going to continue to see these dips bought. So I actually am not overly concerned about this. I do think you're going to see some profit taking here, but I don't think this is going to be longer lasting. So I'll go back to yields. I think it is safe haven. I think it's about China. Maybe a little bit about government shutdown, not much.

4:11Also, the Fed's going to be lowering rates. I think yields are probably getting ahead of that. And what else are they going to be doing? Ending QT. So I think the market's getting ahead of that as well. Do you know it's rarely that you see the 10-year below the Fed funds rate? And we see the two-year really goes in lockstep, but it's rare that you see the 10-year below it. So that dropped as soon as they started to lower rates. We went from four and a quarter percent in the Fed funds rate and you saw the 10 year drop and now it's below four or around four. But the Fed funds rate is around four to point one.

4:48So I think this is all normal. It's all normal. No biggie, huh, Guy? No biggie. I mean, it's a bond market. Maybe it's normal. You know, again, Fed can do what they want. I think rates are going lower because people are scared of something. And I think that's what the gold market's been saying for a while. I think it's this flight to perceived quality, which may or may not be the right thing to do. That time will tell with that one. I'll say this to Dan's point about the banks. If things were as robust as the market until today suggests, KRE should not be at levels we last saw in August. The all-time high being made three years or so ago.

5:21Think about that for a second. So if you have all this M &A activity, if the bank, if the environment is – Things are so great for the large money centers. They should be better for the smaller banks, and they're not. So why? Maybe it's the yield curve a little bit, right? So to your point about yields getting broke that double bottom. And, you know, but we would have seen more caution, I think, at the end of the day. The one thing I'll just say, if you kind of just connect some of the dots. All right. So you have this regional thing. You've already had these private equity names, these private lending sort of names acting very, very poorly.

5:51And the way the money centers gave up some of those gains, I think at some point you have to start asking the question, like, how much leverage is in the system? And, you know, we had Thomas Shodan last night from KBW, and we asked him a bunch of questions about deregulation and what's going on here. And, you know, my view is that you give these banks enough rope, they're going to hang themselves. Like, this has been the story of the last 20 years. And so when I think about what's going on here, listen, again, I don't know if there's anything brewing under the hood. But if you have business loans that are weak and they're starting to fail, we have a labor market that's already somewhat of a concern.

6:26and you start to see this lower end consumer having a difficult time, delinquencies ticking up, that sort of thing. It doesn't make for a great backdrop investing in equities right here. And we're only 2 percent off the all time highs. All right. For more on the moving rates that we saw today, let's bring in CNBC's Rick Santelli. He joins us today from the CME. Rick, it's always great to see you. You've always made that, you know, the metaphor of the balloon. You push it down underwater, pops back up. But here we are. We close below four. Yeah. No, we have. And let's go through it, shall we? Real quickly, I want to go through the charts.

6:58September 1st with regard to two-year notes of 22. So fresh three-year lows. We'll stay at three-year lows if we see yields at these levels because September of 2022 and the previous months, we were much lower. October 1st of 24 for a 10-year. But the most important chart of the day is an X1. Year-to-date SOFR. Secured overnight funding rate. Now, let's go through everything. Guy talked about all the issues of banks and whatnot, and I agree with that. We had two regional banks today. Think about loans. What prices loans? Dan talked about that. Many of these loans are priced off SOFR. And Steve talked about the spreads between the effective overnight funds rate and what's going on in 10s.

7:44Well, think about it. With the Fed overnight fund rate, now we're at widening spread with SOFR, which is above it. All these things come at a time where we had historically tight credit spreads. Fed's now talking about no more runoff on the balance sheet. I wonder why. And Fed lowering rates and trying to ease credit. And what's the market doing? Right as they do that, it's tightening credit. Now, I think Courtney's right also. I think the economy's going to have great fundamentals in a couple of months when the big, beautiful bill starts to pay us some dividends. But I think it could be a little dicey in between then and now.

8:21The Czech oil light, Czech engine light is on on the U.S. economy. But I don't think it's that, you know, the engine's going to break down. We need a little more oil in the crane case because SOFR is basically the oil in the gears of the funding market. And I think that's really what's going on today. So if you ask me how long rates are going to stay under 4 % or how long the two years is going to continue to make strides against three-year historic lows, I think as long as some of these funding issues remain. But I do think that stubborn long rates is here to stay once we get past this chapter.

9:01So this chapter, Rick, will then yield rates that are, what, back in the range of 405 to 420 or so? I mean, I'm just trying to figure out, like, how long is this chapter? Because it seemed like everybody wanted to sort of write off tricolor and first brands and not really think about the impact. And then we saw J.P. Morgan talk about it. We saw all the big banks talk about it. We see Western Alliance and Zions. Maybe it's a little idiosyncratic in terms of their exposures, but they're talking about credit quality in a way that investors care. And we see it result in tighter credit. Yeah, you know what?

9:38It's a big grab for good quality collateral. And you know whether it was gold moving up or the fact that silver was trading$128 when the futures markets were trading significantly less. The whole thing with dollars being in demand but yet the dollar index going down. I think all these things are odd things. But I think in the end what we need to concentrate on the most is that everybody rejoiced when we had what? Close to a$200 billion monthly surplus. But what we're not talking about is when this fiscal year ends, we're going to be spending$1.22 trillion on servicing the debt. Those are the dynamics that we ultimately are going to continue to price the long rates on.

10:22Rick, always great to speak with you. Thank you. Thank you. Rick Santelli. Regional banks, as we mentioned, the biggest losers in today's action. Zion Bancorp, Western Alliance getting crushed after both banks disclosed problematic loans in their portfolios, raising concerns over credit quality and potential charge-offs. Those stocks sending the regional bank ETF KRE sliding nearly 7 percent, its worst day since April. For more on the troubles facing the group, we're joined by Chris Maranak of Jannie Montgomery Scott. He is the firm's director of research. Chris, great to have you with us. You heard Rick and you heard him talk about SOFR.

10:54How does this connect? When you take a look at that graph and you take a look at the action in regional banks, it doesn't paint a pretty picture. What's your take? Well, today it's a negative picture because of the explosion of SOFR and these concerns. I think that we've seen SOFR go back and forth many times, including back in April. If you go back to 2023, we had a lot of chaos for a few months, March, April, and May. And then we gave all that negativity back and we rallied from that. Because the fundamentals of the banks are they have a lot of capital and a lot of reserves and a lot of earnings to sort of handle this noise.

11:29I agree. I don't think that it's idiosyncratic or one-off. These things are going to happen. Credit is not pristine, nor should it be. The banks are levered 9, 10 to 1. They're going to have errors, and they're going to recognize them. I think a lot of the negativity for banks tends to be unfounded because it's a very short cycle of recognizing the issues and then moving on to the next task. And I think the task for most banks is to continue to make money, buy back stock. And I think the tightening of credit is going to be temporary. I think that, as Rick mentioned, collateral builds character, and that's always been true in banking.

12:05So I think we're going to see that the better borrowers can get access to capital, and those who are going to struggle are already struggling. And I think that many of the banks have less leverage heading into this cycle, so I just don't think it's going to be as ugly. But days like today will happen. It's just part of the game for banks. Yeah, Chris, I hear what you're saying, and I would agree wholeheartedly if the KRE was coming off from an all-time high. but it's not. This is an ETF that made an all-time high in February of 2022. Obviously, the S &P is significantly higher than that. The larger banks are much higher than that.

12:37They've underperformed. And oh, by the way, these are banks that should be theoretically doing well if there's going to be all this M &A activity that everybody is hoping for. So why the continued underperformance, forgetting about just the last week? Well, for one thing, Guy, I don't think that the whole sector has reported enough earnings for people to see where the whole capital stack is. I also think to some extent we've seen companies like Fifth Third a month ago recognize that almost 100 % loss on Tricolor, raise their dividend two days later, and then buy Comerica a month later. So there are ways to self-heal the process.

13:12I think there still will be M &A, and I think there still will be progress in the banks. The stocks are off because everyone sort of crowds into the same trade temporarily, and it works. It worked beautifully today. So that's great. Tomorrow's another day. I think you'll see these stocks rally on the back of the fundamentals and a little cooling off of these concerns, because there isn't likely to be 20 problems that are like tricolor first brands and others that have popped up. There will be more. I'm not saying it's zero. I just don't think it's going to be a plethora, because we're at a different phase of the cycle where some problems emerge, but it's still going to be relatively limited.

13:48So even with the explosion of private credit, Chris? You don't think that the loans that have been extended and made are any worse in quality to companies that maybe you have a worse balance sheet? I mean, I'm just trying to figure out how you have such certainty that this problem is going to be less. I understand on the bank side of things, their balance sheets and their leverage, their balance sheets are much better. Their leverage is much lower than previous cycles. But at the same time, you have, on the other hand, an explosion in private credit where there's so much money flowing in and there's just a reach for deals and loans to be made?

14:20So I think at the end of the day, the credit answer is it goes back to frequency and severity. How many problems, that's your frequency, and then what's your severity of loss? When you have fraud like Tricolor, the severity is almost 100%. When you have other situations like commercial real estate, it's a lot lower. You know, things were not as ugly at New York Community Now Flagstar than people thought a year and a half ago. And I think that'll play out in some of these other concerns. On private capital, they are lending a higher leverage for a higher interest rate. The banks are sort of being blamed and labeled into that when the banks are really lending on lines of credit with a much better security position.

14:57I think a lot of companies are doing senior secure deals. And yes, they will be hit by fraud. Those fraud incidents will be painful, but they'll be few and far between. I think the structure of how private capital is tied into the banking industry is going to ultimately be better than folks understand. But it won't be perfect. it will have some issues and some bumps and bruises associated with play. You gave the example of Fifth Third is self-healing, Chris. And so I'm wondering if you go out on a limb and you say Western Alliance is a buy or Zions is a buy. Sure. I think both of those stocks can rally.

15:32I think you're going to see that they both build capital. Most of the midsize banks have built capital 100 to 120 basis points since Silicon Valley failed. And their shares have gone down in terms of both price. but also the share count has come down. Many banks are buying back stock hand over fist. And I think days like today actually encourage CFOs to buy back more stock, which I think will be another theme that comes out of this episode today. Chris, great to have you. Thank you. Thank you as well. Chris Marinak, Janie Montgomery. So where do we go on the cap scale? Do you go with the large money center banks or do you go with the regionals, which seemingly have more perceived problems, let's say.

16:12Yeah, well, since, you know, SVB, you really don't want to go with the regionals. And now this is another reason why you will stay away from the regionals. I wouldn't go with the regional, even though you're going to find probably some outsized performance buying them off the bottom when they're all hit with the same stroke. There's no reason to buy those. Stay with the money setter banks. They're the safest asset. They have the most capital. We've got some breaking news here we want to get to. President Trump making some comments on weight loss drug prices. Eamon Javers got all the details. Eamon.

16:40Melissa, some of the drug makers are moving on this news. A bit of an unusual moment just now in the Oval Office. The president was speaking at an unrelated event about IVF, and he was asked by a reporter about the prices for drugs related to weight loss. The president said that those prices are going to be coming down significantly and that he was working on a deal around that. Then Dr. Oz, who is now the administrator of the Centers for Medicare and Medicaid Services, stepped up, kind of interrupted and said, well, we don't have a deal just yet. It's sort of an unusual moment. Nonetheless, you can see there, shares are moving on this moment.

17:19So I want to play you that exchange. Here it is. They'll be much lower. They'll be much lower. We have not negotiated those yet. We're going to be rolling these out over time. the GOP category of drugs, which includes Ozemek, have not been negotiated yet. What's the timeline for that? It will. It'll come down, like everyone else. Okay. Any timeline on those negotiations? No, but I think those are going to come down pretty fast, and we do have, I guess, some alternative. The president will be happy with the result, and until he is, we're not going to close those negotiations. So the dynamic there, Melissa, pretty clear.

17:52Dr. Oz not wanting to say that a deal has been done, saying that the negotiations are still ongoing, And the president really wanting to assert that those drug prices are going to come down. That may be why you see what you're seeing on your screen right now. Eli Lilly down over 4.6 percent right now. And, you know, you see Novo also down 3.7 now. So clearly investors are looking at that exchange and saying, well, the president knows something about where this is going and we ought to pay attention to it. Eamon, thank you. Eamon Javers in Washington. You saw the swift drops in the stock prices directly in reaction to this news.

18:29You know, this is a sector, the pharmaceutical sector, where we thought everything was sort of in the clear. The base cloud has lifted. And here we are, the president, reminding investors that all he has to do is say, we demand lower prices and that's going to impact the results. We're going to hear from Eli Lilly at the end of the month. I mean, we've said for a long time that they're trading at two or three times turns more expensive than big cap pharma. and that, you know, something goes wrong on the GLP front, they're going to suck. Now, I didn't see this one coming, but you get headlines like this, you're going to see that type of reaction.

19:00So there's no catalyst into earnings. I'll say this, although all big cap pharma get lumped into a single ETF, which would get dragged down by the weighting of Eli Lilly, Merck's and Bristol's and Pfizer's actually should sort of win to this in the longer run. And I'd be curious to see what the negotiations actually come to. Like, are they going to get anything like expanded coverage for what they can actually sell these drugs for that they even if it's a lower price, will it help them or will offset some of that? So I think when you get some of these headlines, you get these knee jerk reactions.

19:28I don't think it's necessarily something to fear right away. But I think whether it's the pill versions of these these drugs or if they're getting under Medicaid coverage or just more symptoms that they can cover for, I think that's actually going to be a bigger thing for these stocks. This sounds a lot like democratic socialism. This is a debate that's going on, especially in this city. But I will tell you that I have to imagine that both sides, this is a very popular sort of thing. You know what I mean? It's like kind of keeping down the price of oil. But again, how is that your point? It's like when this administration comes to you, if you're a company, whether you're public or private, you can't say no to them.

20:04I mean, so you're in a position that's really difficult. And there might be some situations like this that are uneconomical for these companies. I don't want to say crazy, but what's so interesting is that Eli Lilly has already decided that it's going to invest a lot in new manufacturing facilities in the United States. And we thought that it would be in the clear because of that. And it's still in the crosshairs. It's like Dan said, it's a bipartisan issue. It's like oil. Everybody wants lower drug prices, whether you're on the right side of the aisle, the left side of the aisle. This is where it's going.

20:34Everyone agrees on this. There's very few things that are bipartisan. This is one of them. Coming up, another big day for Oracle. what analysts are hearing about the company's AI push and how that stock is responding. We've got the details next. Plus, demand hitting the mat, why Wall Street isn't holding its breath for a rebound in Lululemon and whether the stock will stay in downward dog. Don't go anywhere. Fast Money is back in two.

21:00Welcome back to Fast Money. Oracle shares up 3 % today after the company gave some updates on its AI business. At its analyst day, the company also confirmed a cloud deal with Meta shares, though, still up about 10 percent off, I should say, their post-earnings peak last month. Sima Modi is here with all the details. Sima. This was an important update, Melissa. Executives revealing gross margins for that important cloud infrastructure business will be in between 30 to 40 percent, while revenue in 2030 is expected to reach$166 billion. This same business, by the way, brought in just$10 billion last year.

21:32So the bottom line is that revenue is accelerating rapidly. gross margins are much better than feared, sort of throwing cold water on that report last week that suggested weaker margins due to the cost tied to buying hundreds of thousands of AI chips from NVIDIA and AMD. And just moments ago, founder and chairman Larry Ellison commenting on the fact that Oracle does it all from building data centers, training the AI models, empowering the database. He adds that, quote, none of the other three big cloud vendors do that. They are primarily tech platform. So throwing a bit of shade on his competition.

22:03Ellison, of course, referring to Amazon, Microsoft, and Google that had their competing cloud platforms. Now, with today's gains, the stock is now up over 80 % on the year, and the company's CFO previewing that Oracle could see even more larger scale opportunities signed over the next 12 months. So they're sort of leaving the door open to another update in terms of higher guidance. What was the tone amongst the analysts question, Seema, when it comes to having the money to pay for all of these things? Well, here's the thing. We were not expecting Oracle to detail margins for their Oracle cloud infrastructure business, because in the past, they haven't really disclosed that number.