What to watch in next week’s earnings, plus looking ahead to Taiwan’s elections 1/12/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast money and here's what's on tap tonight. Earning season officially underway. The big banks kicking things off. The results showing consumers and businesses are still relatively strong. But will this year's forecast tell a different story? We'll debate. Plus, a day of turbulence. Airline stocks hit hard despite Delta doubling its profits last year. The carrier trimmed its forecast and investors punished the sector. And later, inside Tesla's no good rotten week. United Healthcare's unhealthy returns and Julie and Mike close out our 2024 acronyms.

0:36One of them hopes they are on track for the year. The other is feeling brave. Just a little clue. I'm Courtney Reagan in for Melissa Lee this evening coming to you live from Studio B at the NASDAQ. On the desk tonight, we have Tim Seymour, Steve Grasso, Mike Coe, and Julie Beal. And we will start with the kickoff to earnings season. The Money Center banks getting things underway this morning. Citigroup ended the day up a percent after announcing it would be reducing its workforce by 10 percent over the next three years. Wells Fargo, meanwhile, seeing its worst drop since last May, the company upping its loan loss reserves in the quarter and logging a near billion dollar charge related to severance costs.

1:13But with the big banks now in the books, investors turn their eyes to next week when we'll see results from investment firms, regionals and a handful of names in tech, industrial and energy. So we wonder which of these names will give us the best read on what's in store for the markets and the economy this year. Tim, you get to kick us off. Well, we'll stay with some banks because we're going to hear some of the regionals. We're going to hear some of the credit cards. So DFS Discovery, I care a lot about what's going on with DQ and NCO kind of trends. What's going on with the consumer? Are we going to hear more?

1:43Certainly their audience would be the folks that might start to give some insight into that. This is a company that largely, though, there's new leadership. There's some arguments. They're going to sell their student loan business, should improve their capital ratios. We'll see. I think loan growth is very important to understand the strength of the consumer. If we listen to what the big banks all told us collectively, the biggest banks in the world, their EPS grew by, again, collectively about 11 percent. I think people, if you told us a year ago, they wouldn't have expected that. So the strength, I think, is going to surprise people to the upside.

2:15Outside of the banks, you look at PPG. Again, you're talking about a company that's very much involved in the industrial space, whether it's paints, coatings, things that are both relevant to the housing sector and other parts of the construction sector. And I think these numbers are going to be solid. I think you're going to see, you know, it's more about are they getting more back to normal versus is it just about normalization? I think some of those trends might be decent. And then there's Schlumberger. I like the energy sector. This would be one of the pillars of an energy basket I would keep for this year.

2:43I think their earnings power in 24 could be better than it was in 23, whether we see the oil price spike from here or not. I think this is a case where EPS is recovering to where we were back in 16, 17, 18, which means the stock's really cheap. Gives us a good setup. A lot of things we're going to dive deeper into. What do you think, Steve? Yeah, so when you look at the banks, going into the banks, FactSet was predicting that the bank revenues were going to be down about 3%, 3 % to 4%. And if you carved out the insurance arm of the financials, they said that it would be down around 9%. That's a big number.

3:16And that gets everyone's attention. Once we hear the earnings now, we're talking about net interest income. Right. And everyone across the board is saying it's going to be lower. J.P. Morgan, the darling of the space. But it makes sense, right, with what we're expecting from rates. Yep. So it depends on whether you expect three rate cuts or six. Right. So where is that? Where are you going to fall in? Because Wells had four, I think, but some of the other banks were pricing six. J.P. Morgan, I believe, said six. Yeah. So J.P. Morgan is always basically setting the bar really low for themselves.

3:46And Jamie is always historically negative on the economics and the macro data. and everything. So he thinks that rates are going to stay higher for longer. He thinks inflation is going to be sticky. I think as smart as he is, I think he dresses down the window. So I think we're going to have inflation not as sticky. I think we're going to have rates probably fall a lot quicker than people think they're going to fall. We have the PC. We've talked about CPI, PPI, but PCE is running at 2%, which is where the Fed wants it to be. So I think we're going to be surprised to the upside with the market because we're going to be surprised to the downside with inflation.

4:22So I'm looking at a stock, Interactive Brokers, which is hidden under the radar name. No one talks about, no one thinks about on a relative basis, lower market cap than the rest of the space. But they pay an incredible amount of interest. OK, where the normal banks that we think about, the money center banks don't pay a lot of interest. So we wind up looking. How many times have you looked at a bank account statement and you're still interest rates are higher and you're still not earning anything, right? You're paying higher on credit cards, but you're not earning anything. IBKR does a masterful job of doing this.

4:53Across the street, the price targets are higher. And I think the highest one is 128 on the street. So I'm looking to see if these guys, which are a higher beta to the financials, can outperform. That's good. I like the under the radar names kind of gives us some education and some homework, really, to look into. Mike, what do you make? I mean, we've got a lot of earnings still on deck, I guess. Sum up what you learned from today. And what do you expect for next week? Yeah. I mean, so I'm taking a look at J.B. Hunt, and I'm also interested, like Tim, in Discover Financial. Starting with Discover Financial, and Tim kind of touched on this, one of the things that we've seen, obviously, are rising revolving credit balances.

5:33I think when we look at Discover, and this isn't so much because I think we ought to be looking to buy the stock, but I think it's just sort of an interesting read on what's going on with the consumer because they tend to appeal to maybe not the top tier of sort of credit worthy revolving credit borrowers. And if we start to see some credit losses there, I think that that will give us a better sense of whether we should be concerned about these record revolving credit levels in general and the strength of the consumer in general, especially also in light of what Citi announced today with their big layoffs.

6:04If you start seeing layoffs and you start seeing rising revolving credit balances and you start seeing some increases in charge offs or losses, I think that's obviously something to pay attention to. And J.B. Hunt also, I think, can be kind of an interesting thing to look at in terms of the broader health of the economy. Now, freight, of course, usually is, and freight hasn't necessarily been in a great spot. We saw a big material freight bankruptcy in yellow, obviously, some time ago. But they're well positioned if it does turn around. That's the first thing I would say. They're running kind of an asset-light model, and I think that's also interesting.

6:40They have good positioning and intermodal. But, you know, really what we want to see is what management has to say and what they're kind of looking at. And they are poised if we do see a rebound in freight to benefit from that. Yeah, that makes a lot of sense. I see a lot of different reads we can have there. Julie, what are you watching? I'm really paying a lot of attention to, you know, the investment banks. So Goldman and Morgan will be reporting. And I'm really curious for them to talk a little bit more about the M &A environment. there is a lot of pent-up demand. A lot of these portfolio companies that are owned by private equity, they got to move around, right?

7:14Their LPs are waiting for some kind of liquidity events, and they haven't been able to go IPO some of these assets. So there needs to be kind of some movement and some trading. And so we keep hearing from some of the boutiques, there are a lot of discussions happening. We're waiting for a better, more favorable rate environment. It's harder to do deals. And now that we're starting to get a little bit more of a favorable rate environment, I'm curious to see what happens. I was at the J.P. Morgan Healthcare Conference, and everyone was talking about, yeah, we're all kind of talking about deals. This is a great business development opportunity.

7:45And I think we will see that on the strategic side. But until kind of private equity is really unleashed, I think that's what we really need in order to move the earnings for those types of investment bank businesses. So that's where I'm really looking. Yeah, absolutely. Deals have not been plentiful recently. We're all waiting for when that tide will turn. Well, it was also a volatile day for oil. Crude prices surging more than 4 % at their highs, topping 75 bucks a barrel before settling at just under$73. Bretton North Sea crude also rising. The moves come, of course, amid rising tensions in the Red Sea.

8:16But even with today's gains, both commodities were down for the week. So how vulnerable is oil right now? Steve, what do you make of the situation? I mean, we're starting to hear some companies, which we'll talk about, I suppose, a little bit later, say, look, this is going to be a problem for us. You have a you have a I don't think it's going to be a problem because I think if you we always we play the game. If you knew yesterday, if you knew tomorrow's headlines today, how would it how would it react to the market? If you would have told me what was going on in the Red Sea, I would think that oil is up at one hundred dollars.

8:47So I think that, yes, when you couple it with what's going on with the U.S. now getting involved with Iran through proxies, however you want to phrase it, I think that's a that's a problem. And I think you're starting to see the immediate reaction. But as far as the the real level of where oil is going, it's going lower. And the reason why I say this is we have a supply glut. We're pumping, we're producing at historic levels. And no one thought that that would happen in a Biden administration. Probably his own administration, his own party hates the fact that we are pumping at historic high levels.

9:20And whenever OPEC decides to cut, it's cut out of desperation. So and they're all lowering prices. You don't know who and they never adhere to it. So Russia could cut, Saudis could cut, and they wind up pumping oil into the marketplace. So there's always way too much supply. So whatever they do, you take the opposite side. Granted, this is a geopolitical event right now. But if you look at the stocks, the ExxonMobil's and Chevron's and the world, they really haven't bounced with oil, even bouncing this little insignificant amount of price. But you haven't seen the stock reaction. Tim, you brought up Schlumberger earlier, and energy, I think, was the leading sector here today.

9:59What do you make of what's going on in the Red Sea and then the price there through of the commodities? Red Sea in the short run. I mean, Steve's talked about the bigger chess game that is the oil market and the involvement of Iran and certainly Iranian exports. And, you know, whether they'll be let back into the market, whether we're throwing them back in the box. I think Saudi and OPEC Plus are pretty well coordinated here. So, yes, U.S. production is high. But the bigger issue for oil, and if you think about the move to, you know, around 72 bucks before we saw a little spike here and really where it's a very, I think, pretty strong six-month support, it's really been on a view on the economy.

10:33And I think ultimately, look, you can't have it both ways. The economy that right now is showing a stubbornly strong labor market and EPS growth of 11%, at least what the analyst community says for 24, is not an economy where oil prices are going to suffer on a lack of demand. I also just, every year people forget that we build on aggregate demand around the world in terms of oil. More consumption, especially in emerging market nations like India, Indonesia, parts of where there's serious oil imports. Back to Schlumberger. The reason the company to me is interesting is the company's never been.

11:07First of all, they are a technology company. They are efficient. They have innovation. They are someone in the middle of the oil services space that really is the only, I would say, global player that is worth investing in here. Their earnings power growing 15 percent roughly year over year, I think will translate into much higher prices. I also look at the relative, I think, outperformance of the underlying securities to the oil price. That, to me, is the story for 2024. Mike, I want to grab a comment from you. Yeah, I mean, well, a lot of the oil production that Steve was just alluding to, of course, is North American oil production.

11:43And, you know, if you're looking for oil, basically access to that market in terms of oil services for North America, I think Halliburton is an interesting play. But to Steve's point, also, I think if you just take a look at the price action in these stocks and in the underlying commodity, they aren't really speaking to a longer-term strong economy. In fact, I think they're kind of giving us the exact opposite read here. And I think it's dangerous when we look at some economic strengths, like unemployment, for example, which is still looking pretty good at the moment. The backup in unemployment can be severe when basically the economy slows down.

12:20So when you're looking in the rearview mirror like that, I think it's a little bit hesitant. If you look at these commodities, they're not pricing in a really optimistic outlook looking out, you know, six, 12 months, I think. We brought it up earlier, but this morning's producer price index actually coming in slightly cooler than expected, a contrast to yesterday's CPI print. And today's numbers are becoming increasingly more relevant. So CBC Steve Leesman has the details. Why is that, Steve? Well, it's because the PPI affects the PC. I'm going to explain that in just a second. But I think the bigger news here, Courtney, is the Fed is losing the battle to hold back the March towards March rate cuts.

12:54Data breaking towards lower inflation and Wall Street economists now backing up where the market is in pricing in those March rate cuts. After today's better than expected wholesale price report, Barkley changing its outlook to a March cut previously had been at June and saying rates will decline this year to four and a quarter to four and a half. Next year to three and a quarter, three and a half. J.P. Morgan making a bold call this afternoon, writing, quote, it's all over now, QT, quoting Bob Dylan, for those who might be paying attention, forecasting the Fed begins to reduce its balance sheet runoff, that is, tapering QT, as soon as April.

13:28The producer price index coming in below expectations, minus 0.1, suggesting little inflationary pressure up the supply chain, prompting economists to estimate the Fed's preferred inflation indicator of the core PCE is going to be 2.6 % to 3 % when it's reported January 26. and year over year and even 1.5 % to 2 % on a three-month annualized basis. That is darn near the Fed's target, even below it. So what happened to the March rate cut probabilities? They rose by 10%. It's going from 69 to 79. They were pretty sure before. They're pretty, pretty sure right now. Ian Shepard said from Pantheon writing, the PPI is far more important than yesterday's slightly disappointing CPI numbers.

14:04Core PCE is what matters for the Fed. And these data will increase the pressure on policymakers to ease soon. Guys, you got two more PC reports, two more CPI reports, two PPI reports. They come before March. There could be some upside risk to inflation, supply disruptions and higher energy prices in the Middle East or from the conflict in the Middle East. But if we keep going the way we're going, it's going to be hard for the Fed either not to cut or to concede, Courtney, cuts around the way. So, Steve, you've got these three numbers. I'm saying three because you also do this NRF tracker. And you talked about the deflation that you saw there, which was ahead of the CPI print.

14:40And then you got the PPI today. So if you put it all together, I mean, which one should we really be focusing on? They don't all seem to be telling the exact same story. Well, certainly CPI had some unusual numbers in it that caused people to raise their eyebrows just a little bit. The used car prices were on the way up. There's data suggesting it's on the way down. The rent in the CPI still high. with lots of data, lots of market-based data showing that rents have been coming down. So what happens is the PCE is believed to be a more accurate picture of what's happening in the economy on an inflation basis because of how they change it, because of different things that they put into the calculator.

15:23I would follow that. And in part, Courtney, we don't have to worry our pretty little heads about any of this stuff because that's the one the Fed follows. So that's where I'd go. Okay, so we listen to what they tell us on that one. Steve, thank you very much. Have a good weekend. All right, let's trade it. Tim? Well, by the way, Steve's head is pretty. Very pretty. So, you know, it's nice to hear that from him. We have a ton of Fed speak next week. And if you think about what the Fed's agenda has been since the last Fed meeting, and we saw it in the minutes, is to actually damp down the expectations of rate cuts.

15:52So we had very hawkish Fed cut. We have Waller. We have New York Fed Williams, who I think is someone you should be always listening to. And there's a lot of Fed speak. There's a lot of chatter. This week was a fascinating week because I think even earlier in the week when there's some components of that CPI data that were somewhat hawkish and you had some jobless claims number that tell me the labor market is still extremely strong. Look, rates went down this week and rates went down in the face of some massive issuance. And that's impressive. And it may speak to what everybody's saying here about the inevitabilities of what the Fed is.

16:23I think what we've lost track of and investors just kind of lost track of this overnight is the sheer amount of deficit spending that needs to be covered and the sheer size of refunding that's going to go on in global bond markets around the world, including ours. And remember, this is all we thought about in October. This is all we thought about when rates hit their peak. And yet nobody's talking about it. And I get it. It makes sense that the economic path we're getting right now says rate cuts. But again, deficit supply and issuance is a big problem. That's a good point. Yeah, I guess our memories are short on some things.

16:54Julie? Yeah, one thing that really stuck out to me in Steve's reporting is, you know, now we have 80 % of the market expecting a rate cut in March. If it doesn't get it, the tantrum will be substantial. And it will have, I think, pretty big ricochet effects. So there is a lot of pressure on the Fed, but there was a lot of pressure on the Fed for them to raise rates too. And they waited a very long time to do that. So I appreciate that the market thinks that they can bully the Fed, but they tend to kind of do whatever they want. I mean, they're a little bit like my toddler was, you know. So I think it's like I think it makes sense.

17:28But I think that they're not really looking for inflation to just kiss 2 percent and then start cutting. I think they want some sustained reporting that the Fed really that the that inflation really is at that 2 percent rate. Yeah, I'm going to remember that. The Fed's just going to look at us and say, you're not the boss of me. I'm going to do what we want to do. Exactly. Can't bully anymore. Bullying's not nice, everybody. No bullying. But, you know, if you're a toddler, you still win. They always win. Always. Anyway, well, coming up, Tesla tumbling in UnitedHealthcare under the weather today.

17:57We'll dive into new prices in China and disappointing earnings be dragging these names down. Plus, major turbulence hitting the airlines as Delta trims its earnings forecast will impact the outlook from Delta CEO and ask if this trade should be grounded for now. Fast Money will be right back. You're watching Fast Money here on CNBC. We'll be right back.

18:23We expect to see an inflection point in the first part of this new year in terms of our domestic unit revenues turning positive. And also corporate travel is up again. It finished the year strong and it's picking up again. So we're now probably back almost 90 percent of where we were pre-pandemic levels and continuing to build. That was Delta CEO Ed Bastian on Squawk Box earlier today. Despite a beat on the top and bottom line and record revenues, Delta trimming its 2024 earnings forecast, sending shares plunging nearly 9 percent. And that was the stock's worst day since March of 2022. Now, the rest of airlines dropping with it.

18:57American, United, Alaska Air are all facing some major turbulence today. The FAA also announcing plans to audit Boeing's production line, bringing that stock down about 2 percent. And Tim, airlines were a part of your acronym last year, not too much in 2024. Well, look, I like Delta. I actually think this pullback is not going to surprise people. This pullback is to be bought. Now, their guide was conservative. I wouldn't even say it was awful. I was surprised at the reaction today. But again, that guide was below previous guides. So there's a lack of confidence and trust in the airlines. I refer to them often as trading stocks.

19:33This is the perfect day to tell you that. I'm not sure that they're often trading on fundamentals. Delta is a$49 stock on an EV EBITDA five times, which isn't expensive, which is kind of where it's been trading over the last four or five years. But you see a lot of variance in even that valuation range. So today was an ugly, ugly day for airlines. They had actually gotten out of the gates pretty well this year. I think this is weakness to buy. There's costs, though, that you're concerned with, Steve. We talked about the labor before the show. I think labor costs have, all through the whole transport sector, labor costs are vital to their business.

20:06And I don't think there's enough attention paid to it. I don't think corporations actually talk about it. They mask it with supply chain issues. I think the overarching thing with the airlines right now is Delta is definitely best in breed. But when you look at them on a performance basis, no one has really knocked the cover off the ball. So you have to look at it. You have to trade the market that is in front of you right now. So to me, it's it has to do with the Max Jets. Delta doesn't fly Max Jets. But Alaska Air, that's 20 percent of their business. Then if you look at United Air, it's 8 % of their business.

20:41So if Delta doesn't have any exposure to the Maxjet, I think that you're safe buying this dip in Delta if you have to own them. Okay, fair enough. Well, there's a lot more fast to come. Here's what's coming up next. Tesla in turmoil and an insurance stock in need of some medicine. Stat, should you buy the dips in these stocks or avoid them like the plague? We'll debate next. Plus, China in focus, fresh economic data out of Beijing, and pivotal elections in Taiwan could make an impact heard around the world, even in your portfolio. A top expert joins NEXT for key insights on how to navigate the headlines.

21:21You're watching Fast Money, live from the NASDAQ market side in Times Square. We're back right after this.

21:35Welcome back to Fast Money. A couple of buzzkills today. Tesla and UNH both sinking. Let's dig into Tesla first. The EV maker dropping nearly 4 % after cutting prices on some models in China, the stock at its lowest level in two months. Tesla also confirmed reports that it would temporarily halt most production in its Berlin factory due to supply chain constraints because of what's going on in the Red Sea armed conflict. And that is making things difficult for them. Mike, I believe this is one of the first companies, at least in the United States, that trades here that has drawn this direct correlation to what's going on in the Red Sea and the impact on its production.