What The Big Banks Are Telling Us… And The Yen At A Key Level 4/16/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast Here's what's on tap tonight. A bank bifurcation. Shares of money centers like J.P. Morgan and investment banks like Morgan Stanley moving in vastly different directions since earnings season kicked off. How should you read into the results and what do they say about the state of the market? Plus, 34-year lows. Japan's currency trading at levels not seen since new kids on the block were topping the charts. Will the yen keep moving lower step by step? And why does it matter? And later, UnitedHealth keeps the Dow in the green.

0:34LVMH shoppers tighten their purse strings and Bitcoin makes a break towards 60K. Is it heading even lower from here? I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Carter Worth, Karen Feinerman, Dan Nathan and Tim Seymour. We start off with that post earnings divergence in the big banks, consumer facing names under pressure. Bank of America among the biggest laggards in the S &P today, dropping three and a half percent despite a top and bottom line beat. The money center pinched by higher interest rates, which drove first quarter profit lower. That follows J.P.

1:03Morgan, which late last week forecast lower than expected interest income through the end of 2024. Those shares off by more than 7 percent since reporting on Friday. But it hasn't been all bad news for financials, with investment banks seeing some more strength. Goldman Sachs, of course, one of them. Morgan Stanley today closing 2.5 percent higher after its biggest earnings beat in three years. Wealth management and advisory revenues boosting those results. As we mentioned, Goldman also saw trading investment banking revenue surge. Those shares down today, but still up since its report yesterday.

1:32So what are the banks telling us? It's a little bit of a mixed message here, but ultimately there's the results side of it and the stock reaction side of it, which may not necessarily reflect the same story. Yeah, so it's interesting. Wealth management fees, right? And again, those are balances, and there's also, you know, net interest margin to be earned there. So I think the bifurcation is really interesting, right? So the other money centers that don't have as far as the exposure, let's say, though, Morgan Stanley, we know that they've spent the last 10 years, you know, diversifying away from just that core investment banking business.

2:01So when I look at the performance of Goldman Sachs, I look at the performance of Morgan Stanley. Maybe there were like not great expectations, if you will, but they did really well. And you can say to yourself, if you see the economy the way at least the market sees the economy, then some of the businesses that they're exposed to should do better in the back half of this year. We know that there was a few IPOs that got the calendar going a little bit. We know that there was some M &A. We also know if the IPO calendar comes back that there's a dual track, right? There's strategic M &A that should be a part of that.

2:29So I see what investors see in Goldman and Morgan. As far as the money centers, OK, they've come a long way. You know, look at the outperformance that JP Morgan had over the last, let's call it, six months from the October lows. And if you are in a higher for longer environment, it's just not going to be as good for them. Well, I think for JP Morgan, it can be good higher for longer. But I think that one of the big disappointments from their earnings call was the expectation of further compression or more compression. The quarter itself was fine, but that's not relevant really anymore. It was about the future of compression on the NIM.

3:04So and I think they are also very conservative. But, you know, fixed income across the board was good. Advisory and wealth management across the board. Also good. I think, you know, to Anne's point, I like JP Morgan as much the day before as I liked it, you know, much lower. But I think there was just expectations too high. It wasn't a crazy multiple or anything. But, you know, it's down one multiple turn now from there because the multiple is pretty low. So I sort of like them across the board. I want to stay in this long, big money center and short carry. Yeah. And the setup has been your your thesis in terms of it's just it was too steep.

3:44Too steep, right? City up 60 some percent off. It's October. I mean, all stocks have an October low, regardless of sector or type. And then this group up 40, 50 percent certain stocks, whereas Goldman and Morgan Stanley really hadn't done that much. There is, of course, the investment bank and broker sub-industry group in the S &P has been outperforming the BKX since the 2009 low. And yet it all depends about your time frame. Morgan Stanley right now is$90. You know what it was at the dot-com peak? Mary Meeker and all that stuff? $90. So 24 years later, Unch, that's called losing about 60 % of your value adjusted for inflation.

4:17Yeah. Tim, what was your take? And how do you factor in, you know, Powell actually spelling out the fact that it will be higher for longer? Well, first of all, I'm troubled by that we referenced the new kids on the block for the first time on Fast Money. So, I mean, and I know we're hanging tough and we're taking this step by step. But I, you know, my view on money center banks is that a 10 to 11 percent move really by Citi, J.P. Morgan, Bank of America, all since their peak a couple of days before earnings is a function of, I think, more, you know, Carter's view on things and just where we've come from.

4:52I didn't hear anything in J.P. Morgan's numbers that concerned me. I will say the securities losses are something that I think people will start to pay more attention on now that rates continue to move higher. Karen pointed out that the net income margins are lower. The forecast is lower. I think that's disappointing. And Dan and everyone's talked about asset management. In terms of Powell, I'm kind of surprised the market didn't do even more destruction to equities on those comments. I mean, I just feel like not only is the Fed dialed back an overly dovish Fed meeting that I certainly was critical of.

5:29I think you have a dynamic here between where when he's talking about inflation really not giving any ground, that's inflation that's above their 2 percent target. A 2 percent target they haven't hesitated to say is very much still in place. So I thought today's Powell comments were significant. And I think the bond market told you what you wanted. it. I think you're getting this, call it this bearish flattener, which means that short rates are coming up faster than the long ends going up, even though we're focused on the 10-year. And, you know, that's part of where we are. We're reassessing where the short end of the curve is going to be out, not just short term, but maybe even medium term, at least as we get into 25.

6:09Bank of America CEO Brian Moynihan just talked about Fed policy and loan growth this afternoon on the Closing Bell. Here's what he had to say. A year over a year, we're up 1 % in loan growth. That's fine, but we expect to see more. If the economy is running this strong, you'd expect to see more, but I think it has to do with general borrowing conditions still muted due to, even on home loans, obviously higher mortgage rates slow down the borrowing process there. So what are we learning about the actual economy, do you think? Well, it's interesting. Jamie Dimon has been telegraphing this, and we've been talking about almost in a split screen, Jamie Dimon versus Brian Moynihan, going back to that kind of situation, a storm is coming and all that sort of stuff.

6:47And, you know, Moynihan kind of clapping back at Jamie. I think what's clear is if you're choosing your fighter, it's Jamie Dimon. And I know you already chose it long ago. But it's interesting, you know, to me when I just kind of think about J.P. Morgan's stock and where it was, you know, just a couple months ago, it was$175. It got to$220. That was... It got to$200. J.P. Morgan? Yeah. Okay,$200. Okay, so$200 down here to$180. So it's down 10 percent or so. Yes. Excuse me. Sorry. Sorry. So you just think about that. It's just taking out a little bit of the froth. And so when we think about the economy, to answer your question, it's like, OK, so we saw yields in that time period go from like four point one percent to where they are right now.

7:24So, you know, a half a percent or so move the economy, you know, like the outlook for the economy has been actually OK. Right. If all the data and that's part of the problem, that's one of the reasons why yields have moved the way they are. But Jamie Dimon has consistently said, you know, expect rates much higher than here or possibly. And so I think the stuff that he's doing and the cautious optimism that he has about the economy, he's preparing his bank for maybe a more difficult environment. But they'll also execute really well in a good environment, too. So I don't know. I'm with you. If this thing comes back to, let's say, 170, I think it's probably like a slam dunk of a buy, especially relative to a lot of its money center peers.

8:01One thing on Bank of America today, there was a tick up of I mean, it wasn't huge. It wasn't a disaster or anything like that, but just a tick up in credit quality. right and it's been very very good for a long time so but you wonder all right is that is that the change and we're heading you know the pendulum right or is it you mean in terms of the fico scores being higher no no in terms of the charge-offs yes yeah non-performing loans right it's been so good for a long time you know it can't stay that way forever the magnitude of this move in itself alone was really not anything concerning it's just a question of are we really going to see a pendulum swing.

8:38I mean, you know, you were asked about the message from the banks for the economy. The message from retailers is completely different, isn't it? I mean, we've got that XRT down now almost 12 percent with this dropping and gapping every day. Another one of the sort of prominent names falls on its earnings results. You know, the higher for longer, it gets down to that, right? Are we really going above 5 percent? We shall see. But my hunch is that rates are not going much higher. All right. Former FDIC Chair Sheila Bair joins us now with more on the bank. She's also the CNBC Global Financial Wellness Advisory Board.

9:09Sheila, it's always great to see you. Nice to see you. Thanks for having me. I understand that you think the big banks are largely in good shape, nothing to worry about here. But even with the economy pretty strong still, you are worried about the regional banks. What do you think is that shoe that's going to drop there? Well, I think I'm worried about a handful of them. I think some of them are still really reliant on uninsured deposits, have a lot of concentrated commercial real estate exposure. And then I think the larger picture really is the potential instability of their uninsured deposits, even for the healthy ones, if we have another bank failure.

9:46So I do, as I said before, I think Congress should reinstate the FDIC's transaction account guarantee authority so that they can stabilize those deposits. Congress isn't doing much of anything these days, so wait in line. But I do think that this is still a problem for the regional banks. And fingers crossed if there's another failure, we're just quite not sure what's going to happen. The 10-year yield at 4.6 percent and some forecasting it to go to four and three quarters, 4.8 percent. Does that concern about regionals and the exposure to commercial real estate, does that heighten? Well, yeah.

10:17I mean, the higher the rates. So part of the problem with commercial real estate is that a lot of it's refinancing this year and next. So the higher the rates go for those refinancings, the more distressed there will be with borrowers to be able to continue with their payments. But with CRE, the commercial real estate, we had this problem during the great financial crisis. There are things you can do. There are workout strategies. You know, some people pejoratively call it extended pretend. You don't want to do that. If the borrower's cooked, the borrower's cooked. But a lot of these borrowers can get through with some active workout strategies.

10:49So I still think it's a slow burn over time. And again, the big issue is whether there's another shock to uninsured deposits because of a bank failure. And I think that that is really the biggest challenge confronting regional banks right now. Hey, Sheila, it's Tim. Thanks for joining us. I share your view that the big money center banks are in a very different balance sheet place than some of the regionals. I guess if we're worried about commercial real estate, though, when I think of the sheer size of the CRE market relative to even subprime, we're not even close. We're stratosphere's part in terms of broader exposure.

11:21And this is where I just I'm not sure people understand. Not you, of course, but the world of everybody who is assessing credit and the potential domino effect from where CRE could go, especially if rates have to go another 100 basis points higher. And in that world, don't the money center banks have exposure to regional banks? Well, first of all, the money center banks do have their own significant commercial real estate exposure. This is not a concentration for them. So there's less focus on it. But yeah, I mean, And I think I have to say, though, I think that their big mega banks benefit regional banks' distress.

11:59I don't. Are you suggesting there's going to be some knock on impact if there's going to be a string of failures with the regional banks? I think it helps them. You know, the business goes there. That's where it goes. They're viewed as too big to fail, rightly or wrongly. I know my former agency, the FDIC, is committed to ending too big to fail and is determined to use the resolution authorities they have. if the big bank got into trouble. But the market doesn't believe that. So, no, I think regional bank distress benefits the big money center banks. There's no doubt in my mind. Sheila, it's Karen.

12:30Thanks for being on. A question about Basel III endgame. Two-part question. Do you think it went too far? And where do you think it ultimately shakes out? Well, I think there's some really good things in it. There's some things that are probably not very good and very, very complex. and a lot of administrative costs from that unnecessary complexity. I don't think that should be a priority right now. Let those rules primarily respond to things that we didn't get done after the great financial crisis. They've been 14 years in the making. My view is they can wait a little longer. Liquidity really needs to be front and center.

13:05I know the regulators are working on a new package of strategies and proposals to deal with, to provide more liquidity, mainly by getting banks to use the discount window more and be more prepared to use the discount windows. So I expect those to be coming out. But I think that should be a higher priority right now than the Basel III endgame. At some point, those will get done. There's a lot of good things in it, but I don't think that should be the priority right now. Sheila, always great to see you. Thanks. Yeah, sure. I bet. Sheila Baer. Well, Fed Chair Powell is suggesting today that interest rate cuts could be pushed out even further with inflation still well above target.

13:43Let's get to Steve Leisman with all the details here. Here's Steve. Hey, Melissa, yeah, after today's high-level Fed speech from the chair and the vice chair, based both on what they've said and not said there's a case to be made that the Fed's base case has moved away from cuts likely being appropriate. Fed Chair Jay Powell saying this afternoon in a conversation with the Canadian central banker that the central banks or The Fed's restrictive policy needs further time to work. Here's what else he said. He went on to say he noted a lack of further progress on inflation this year. He said the recent data has not given the Fed greater confidence to cut.

14:18Three months of little progress means that progress has taken longer than expected to achieve the confidence to cut. And the Fed could maintain that restrictive rate as long as is needed. What Powell didn't say may be equally important. Remember, back in earlier this month, he said if the economy evolves broadly as we expect, we see it as likely to be appropriate to begin lowering the policy rate at some point this year. That was not part of his remarks today. Fed Vice Chair Jefferson had used that same language in late February, but he omitted them from prepared remarks today as well, making the case that the base case may not be for cuts anymore.

14:55Well, the market beginning to price all of this in here, your probability is 3 % for May. You can write that off. June, increasingly a long shot. July becoming less than an even money proposition for a cut. September is your best case right there, 68%. So 491 is the January 2025 contract compared to the current rate of 538. That still shows slightly less than two cuts built in this year. But remember, that contract had called for six cuts not all that long ago. The market had heard increasingly hawkish talk from other Fed officials, but not necessarily from the leadership like it did today. It means to be seen if no cuts becomes the base case for equity and bond investors and Wall Street's Fed forecasters who are going to have to use some, erase some of that eraser in order to change their base case again.

15:43None of this means the Fed won't cut at all. It means it's not the default position anymore to preemptively cut rates. And I'm kind of with Tim, Melissa, on the idea that there wasn't more market reaction to that. Maybe they wake up this morning or maybe they priced it in already. That's yeah, that's very true. I was actually kind of surprised, too, because it seems now if if Powell is going to acknowledge that the inflation readings that we've had so far are sort of breaking that that previous base case scenario, then it seems like the bar is even higher for them to then go ahead and cut that the trend has to be reestablished in terms of inflation readings coming down.

16:23Yeah, and let me make a couple things I want to say. First of all, if you look back to Thursday and the S &P, we're off 2.7 % or 3 % from there. So the market, maybe not because of the Fed, but because of its concern about Iran, had already sold off quite a bit in a very short period of time. The other thing to make clear is there was this idea out there that the Fed could lower rates and still be on the track to 2 % inflation. This idea of preemptive or optional cuts that it could take, that it would still be restrictive enough to bring inflation down, even if it cut by 25 or 50 or 75 basis points.

17:01That's the idea that's fading away now, Melissa. Steve, it's Karen. Thanks for being on. I always come back to the question of what do you think the Fed wants real interest rates to be? And now with the rates having moved, is there enough room to maybe still accommodate that? Well, first of all, Karen, thank you and others on your panel for thinking the way economists think, which is in terms of real interest rates or the inflation adjusted interest rates, because that makes it easier to kind of or it's a better way to understand the Federal Reserve. What we know is they raised their real or their neutral rate in the last meeting by a tenth.

17:38But there is talk out there that maybe that real rate of 3 % minus, for example, their 2 % goal of inflation is actually a bit higher than that. So they still think they have a ways to go. But remember, Powell is not an economist. He's a lawyer. And he looks at economists debating about neutral interest rates. I don't know if he laughs, but he maybe scoffs a little bit. He thinks it's an exercise in theoretical academic economics that he doesn't have much patience for. His idea is we'll see the right real rate or the right neutral rate, you know, by the way the economy acts. And what we're hearing from Powell now is the economy ain't acting in a way that the Fed is necessarily too restrictive.

18:22Steve, thank you. Nice to see you. Pleasure. Steve Leisman. So how do you think this plays out in terms of the market rate? Do you think there's a delayed reaction? Because oftentimes we do have delayed reactions to Fed speak. I think we're delayed and waiting for earnings and earnings guidance. More importantly, you've said this a couple of times this week, Karen, already. Like, you know, Q1 is baked in the cake. OK. And we know that, you know, estimates usually come down into the quarter and then companies have a higher beat rate. And if the banks, at least the money center banks, at least they're like, you know, the visibility or the tone is similar across some of these other sectors that have been leading the way.

18:54Technology would be a big one. If there is any lack of visibility in some of the biggest leaders in technology, I think the S &P is going to quickly go from being down 4 % to down 10%. But in my mind, that's probably a good thing if you think about it. Maybe estimates don't come down too much for the year in the face of, you know, higher oil, higher dollar, higher yields. These are all headwinds to corporate earnings, right? If you think about a lot of 2023, the ability for companies to pass through, you know what I mean? Some of these price increases to customers, that gets harder and harder.

19:24You know, to me, earnings visibility is going to be the most important thing, and it really will determine if we finally have, you know, a 10 percent drawdown. We did have one last year, July to early October, and you saw this kind of spring sort of action that we had from there. I just think expectations, sentiment, everything got a bit too euphoric a couple weeks ago. But in terms of the charts, you already predict that the S &P is entering the lower band of the channel. Also, speaking of inflation, you know, if you look at the S &P adjustment for inflation, we've still not taken out our 2021 high.

19:53And so that's a factor in terms of what one's results really are in the asset class of equities. But, yes, we're down 4-plus percent. Once you go down 5, it typically triggers more. And if you look at all 5-plus sell-offs in the history of the S &P, several hundred of them going back to 1920s, once you go down 5, the median and mean is between 8 and 11 percent. I think that's a normal kind of thing that should be – well, it's long overdue. All right. Coming up, a luxury slowdown, a currency crush in the dank details from a cannabis conference. LVMH sales growth hits a snag, the yen hitting its lowest level against a dollar in 34 years in all.

20:29The sights, sounds and smells from one of the industry's biggest cannabis conferences. Tim will lay out the details next. But first, we're watching United Airlines after hour. Shares on the move after results will bring you the numbers from that report next. Don't go anywhere fast when he's back in two.

20:50This is Fast Money with Melissa Lee right here on CNBC.

21:02Welcome back to Fast Money. We've got an earnings alert on United Airlines, a beat in the top and the bottom line, sending that stock higher in after hours. Let's get to Philip Bow, who's got all the details. Phil. Melissa, sometimes there's a beat and sometimes there's a, whoa, that is way better than what the street was expecting. That's the case with United in the first quarter. A loss of 15 cents a share. The street was expecting a loss of 57 cents a share. We'll explain why a bit of a divergence there. By the way, United taking a$200 million impact in the first quarter because of the Max 9 grounding.

21:34Without that, United says it would have been a profitable first quarter. Revenue better than expected at$12.54 billion. And here's the divergence between United and the analysts. Revenue per seat mile coming in an increase of 0.6%. That's better than many analysts were expecting. And cost per seat mile, excluding fuel, is lower than many analysts were expecting. That is going to be up about 4.7%. Finally, when you look at their EPS guidance for the second quarter, it's higher than many on Wall Street are expecting. They're expecting to earn 375 to 425 a share, the street going into this report, at 376.

22:12So clearly that's likely to go higher following the conference call tomorrow. And the fleet news is the news that's getting a lot of attention after hours. Remember that for some time, United has said they were looking to get Airbus A321s because they're not going to have Max 10s. Well, they've secured a lease deal for 35 of them. They'll start to enter into service starting next year and then in 2026. And they've cut down the number of narrow body planes they expect to take delivery of. Beginning of this year, they expected to take delivery of 101. now because of the problems at Boeing. And also there's restricted capacity for production at Airbus as well.