What’s Changed Since The Banking Crisis, and What to Expect From the Jobs Report 4/6/23

0:01Right now and fast, countdown to the jobs report. While companies across America are tightening their belts, slashing head counts and prepping for a recession. The market continues to take a what me worry attitude. So how are stocks seemingly holding up in an environment where storm clouds seem to be brewing? Plus, while the banks are getting battered, pharma and health care names riding high. How long will this trade be the right prescription for your portfolio? We'll get a pulse check. And later, a Thursday edition of chart of the week. We'll dig through the rough sketch stretch this industrial giant has had of late and the ripple effect it is having and other names in the sector.

0:34I'm Melissa Lee. This is Fast Money. We're live with the Nasdaq Market Sight. Full house here on the desk tonight. Tim Seymour, Courtney Garcia, Dan Nathan, and Guy Adami. And on the eve of the jobs report, we start with a look at everything that has changed since the banking crisis began. Since the collapse of Silicon Valley at the start of March, rates have plunged. The yield on the two years dropped from more than 5 % to less than 3.8%. Bank stocks have dropped. The regional and money center ETFs are near lows, not seen in more than two years. Credit is tightening. The Dallas Fed reporting sharp drops in loan volume and demand.

1:06Loan pricing, meantime, significantly higher. And layoffs, they are on the rise. The latest data showing nearly 90 ,000 people losing their jobs in March, bringing the total number of layoffs this year to more than 270 ,000. All this having an impact on the consumer. New credit card data from Citi shows spending fell in March for the first time in over two years. And lastly, oil prices. Crude is up 25 percent from its lows of last month. back above 80 bucks a barrel. Yet through it all, the stock market, especially big tech, holding strong. The Nasdaq leading the games today. Shares of Alphabet, Microsoft, Meta even hitting their highest levels of the year.

1:43So as we get ready for the jobs report tomorrow, how does this make sense, Guy? Doesn't make sense to me, Melms. And there's that great publication, the Wall Street Journal, that I'm sure is a fine publication. And I'm not going down this rabbit hole because we don't do this on the show, But equity risk premium, they talk about. You hear that every once in a while on the network. The worst it's been since, I think, 2007 or so. I mean, that's staring us in the face. But right now, stocks don't seem to care. And I think part of today's move, air quoting, is the way we look at the jobs numbers. They recalibrated everything.

2:16So things are actually worse. But the market interprets bad as good for the market. We're going to find out tomorrow again. But I think that's part of it. But as things continue to deteriorate, stocks continue to get more expensive. For example, Microsoft, which you mentioned, 290, that puts Microsoft at 27 times next year's numbers, which doesn't make sense, especially in light of the quarter they put up two and a half or so months ago. Well, the aforementioned journal also had an article this afternoon. I thought this was what you're talking about. They were referencing basically inside the Fed and how down to the wire they maybe weren't going to go and that the Fed really.

2:50And so what does it augur for the May meeting? You know, possibly that they may be on hold, that there's more anxiety within the Fed about the financial conditions tightening. I would just point out that I talk about how as long as the NASDAQ and the semiconductors outperform the S &P, I want to be long the market. Now, since March 23rd, the SOX, the SMH, whatever you're following, the ETF, is down 6.3 percent in 10 days to the S &P. The NASDAQ, not a lot, but down one and a half percent. So through March 23rd, you had two different things going on. One, you had a flight to quality, and we know what happened to interest rates.

3:26I think since that point, since that Fed meeting on the 22nd, since you digested the Fed and the census, and it should be, the Fed's not cutting any time soon. You couple in, look, we've had labor data. We had jolts. We had jobless claims today. We've had different things. We had an ADP that was weaker, even though that's usually an outlier. We have a payroll tomorrow. That and the data, it's telling you that growth is really under pressure here. And I would watch those ratios, those relative performances to the S &P, because I actually think we're starting to give up some ground. And I think it can continue.

3:59We're really seeing growth get headwinds here. And if the job market's really starting to slow down, as it will, as it should, equities will suffer. So have we been, Courtney, in the eye of the storm? You know, we're sort of in this calm period before everything breaks. Yeah, I think what the markets are really focusing on right now is, I mean, the jobs numbers, which we'll get tomorrow. I mean, it does look like they're going to be weakening, which you pointed out here, but they're still not really that bad. And I think that's what the markets are looking at right now. I mean, they're not that much higher than the pre-pandemic levels, which is near historical lows right now.

4:31I think that's what everybody's focusing on. And they continue to focus into your mega cap tax as it looks like interest rates are going to be staying probably the same, if not lower, later this year. But I do agree. I would not jump into that. I think likely interest rates are going to stay higher. You don't want to be overexposed to those categories. But I think the bigger thing is we're going to see how the banks are reporting next week. And there's been a lot of pessimism there after the bank failures. But I think probably more so than is justified. So I think I like some of the rotation you're seeing back into pharmaceuticals.

5:00The rotation into your big tech, I wouldn't trade here. Yeah, I'd say keep an eye on the Russell 2000 guy, Adami, who is often prescient. What do you call it? Nostradami or something like that? You should never give yourself a nickname, by the way. And I know you don't. I'm just saying, folks at home, here's a PSA. Don't ever give yourself a nickname. There have been a history of people on this show who've given themselves a nickname. That are no longer on the show. And they are never to be seen again. Anyway. Yeah, so good. Sorry. But back in November, early November of 2021, before the Fed had actually pivoted to start battling inflation, signaling they're going to raise their interest rates.

5:35Remember the Russell 2000 small caps broke out. It was in this really long consolidation period. No astronomy overseer said watch the small counts. They're going to be the ones that first affected by the rate increases and that sort of thing. And it's just interesting when you think about Russell 2000 is still down 30 percent from those highs in early 2021. We had a huge rally in January. They're up about 15 percent. Really felt like they were leading a little bit if the Fed was going to pivot. And now, even with rates coming in, but we've heard all this Fed speak this week, right? We've heard Fed speakers saying that the Fed fund should stay or get above five and stay there a little bit to battle inflation and look at the underperformance of the Russell.

6:11I just think that's really interesting. And then going across the spectrum, a name, I don't know why it stuck out to me this week, Airbnb,$70 billion market cap company. And again, they were supposed to benefit from the post-pandemic, all that sort of stuff. It was down like 11 % this week, like two down 4 % days in a row, that sort of thing. So I just think there's plenty of stocks. And you can say, listen, you're looking at it like glass half empty. OK, and fine. Just give me what I'm supposed to look at to be glass half full because I don't see it. I don't see the crowding in some of the largest tech stocks right now as particularly bullish, especially given all the uncertainty that we have as we head into Q1.

6:45So I keep an eye on small caps. I think they're going to lead the way. I know there's a lot of financial exposure in there. So and I know we're going to talk about banks later. I got plenty to say on that. But again, small caps and some of these other names that are not those top 10 names, I think, are really concerning. Well, I mean, glass half full in terms of the overall markets and how the indices hold up is just the concentration. in certain names and the crowdedness of those trades. What are we going to see to make them crack? Probably a lot would have to happen to make an Apple or Microsoft crack.

7:13Yeah, I don't love Airbnb, but, I mean, the stock's up 30 % this year off of where, you know, again, you shouldn't be doing cartwheels about that? No, but my glass is half full in a market that's clearly half empty. I mean, I don't feel great about where APS is going. I don't feel great about where the economy is going. And I heard Mike Santelli saying this in the previous show. and the OT, where actually, you know, you have a dynamic here where we've really done nothing in terms of where the index has gone over the last year, but we've done a lot. And we've had a lot of great trading ranges. And that's something that I think we're going to continue to do.

7:43A day like today, I mean, look, health care, I want to own health care. I want to own energy. I want to own staples. And there are places to do this. And I think that's where we are. The cycle of this bear market has so many more legs to go, in my view, that this has been frustrating for people. They want this thing just to play out. And And there's so many reasons why this time is different. So should we be waiting for an overall market crack? I mean, should we be waiting for the broader index to crack? Or is it possible that we have these sort of rolling corrections within this index where we have the index largely emerge unscathed?

8:16That's the right question. And I would have said this many percentage points ago, just to be clear. But I mentioned Microsoft, for example. I mean, their last quarter was not a particularly good quarter by Microsoft standards. If you recall, it traded down to 220-something. Since then, the entire move higher. All it is is multiple expansion. Nothing has gotten better in their world. As a matter of fact, things have probably deteriorated. Apple is an expensive stock. $25 ago, it's an expensive stock now. Again, the environment that they exist in has gotten more difficult. Google makes sense in terms of how it dropped and the comeback on the back of the AI noise we saw a few weeks ago.

8:51So I'll sort of extract that. But so many of these moves, all it is is just multiple expansion in an arena where we should be seeing the exact opposite because earnings, in my opinion, are going to deteriorate. But isn't part of what has changed for these stocks? It may not be the business dynamic. It may not be that they're getting more orders or whatnot, but that people are looking for more defensive names. They want cash on the balance sheet. They want somebody who doesn't need to tap capital for the market. Until, though, Mel, until there's a demand issue, right? Until you start seeing demand decelerate and you start seeing, you know, like just weaker revenue growth.

9:25And, you know, I don't want to put too fine a point on this, but Tesla, you know, they reported deliveries, you know, over the weekend that were up 4 percent quarter over quarter. That included two price cuts. Do you know what I'm saying? And then we know that's going to come with lower margins. So, like, for instance, to Guy's point, you have Apple trading 27 times for low single digits earnings and sales growth expected this year. If their expected sales growth is below, you know what I mean? We know with this kind of pesky and persistent, is that what you call it, like some of these inflationary inputs, that's going to come with lower margins.

9:58That's how these kind of these stocks are going to get re-rated. I mean, that's what's going to happen in the next quarter or two, in my opinion. Yeah, and I think valuation is going to continue to be important, which we've been saying that. And clearly, investors have not been listening. They're rushing to these things like a safety trade. But actually, you brought up small caps, which I do find interesting because most people are not excited about small caps right now. And they are trading so much cheaper than your mega cap techs. And if you especially look at just the large, eight largest companies, they trade about a 40 percent premium to your small caps right now.

10:27And that at some point is going to come back. And so I just don't think you want to reach for these things right now, which investors are continuing to do. And I would just be cautious there. All right. Well, our next guest urges investors to take profits and get defensive. Chris Harvey runs equity strategy for Wells Fargo Securities. I guess you didn't give yourself a nickname because you're back. Good to see you. Smart move. Good to see you, too. Just a warning. Don't do it now. But what is defensive in this environment, Chris? Pharmaceuticals are defensive. And really what you want to do is you want to look for better balance sheets.

10:56You want companies that don't rely on the capital markets to fund themselves. I heard you're going to talk about the banks a little bit later. We are concerned about the banks. But the banking space as a whole, it's fine. But the ability for it to provide capital at a reasonable price, that's where we have to worry about. That's where it starts to cause friction and slow down the economy. We think there's going to be more regulation. So as a result, you have to raise capital, less loan, less loan production, and that's going to be a problem. So here you go. Eli Lilly, and I'm with you on pharmaceuticals, big cap pharma, but just to push back.

11:28Stock went from 375 all-time high, 310. It's bounced within a whisper of an all-time high. These stocks are expensive. I mean, can they continue this run? They could continue this run, but our price target is 4 ,200. We're at 41. It's horseshoes and hand grenades. We're pretty close. We have a pretty healthy 20 multiple on a 210 number. You're not going to get much more than that. And what we thought is, hey, rates will go down this year. We're going to go into a period where economy is going to slow, growth will be better. And the S &P being a large cap growth index will perform. And you've got that.

12:04You can't expect much more at this point in time. The risk reward just doesn't look that great. So where do you get the beta then? You don't want beta. You really don't. You just want to preserve capital. You want to preserve capital. That's the environment we're in. I think that's the environment we're in. I think this is going to be one of the most difficult earnings seasons we've seen in a long time. Because if you don't print perfectly, the Fed's not going to bail you out. The economy's not going to bail you out. And there's going to be a big penalty for a big miss. So we started the show with what has changed since the banking crisis started.

12:31Did you have this view pre-Silicon Valley Bank, or has this evolved since then? No, this has evolved since then. What we said at the beginning of the year, we expect some sort of economic malaise. We never thought recession. Now we think recession. And so we're getting a lot more defensive here, especially as the market has rallied on the belief that the Fed is done with our tightening cycle. Dan used the word pesky, so I'll use a baseball metaphor. Guy, stay with me here. Please. You could hit a ball about 310 feet in Yankee Stadium in center field, and it's an out. In Boston, you could hit the pesky pole around 301, 302, and it's a home run.

13:06You've had such great trading ranges in this market. It seems to me we're going to have the same great trading ranges. And so I realize you're making a market call. But within health care, staples, energy, those have been places that are easy to be defensive here. It just seems to me there are places to be investing here, and there are places that are also oversold. And coming out of this, I don't think banks are the place to go run to. But there's no question the sentiment on banks is terrible and there's banks with great balance sheets that are probably worth owning. Yeah, if you want, if you're a long-term investor, there's a lot of banks that are trading at very, very reasonable valuations and have very good management teams and a more conservative style.

13:43But it's going to be tough to exploit that value in the short term. And I agree with you. We're going to be in a range. The wheels aren't falling off the cart, but you're at the high end of the range. And could we go higher? Yeah, I guess so. But can you sustain that? Not at a 20 multiple on 210. Not for that long. And we're going to I really do believe we're going to run into a recession. And that's just not great for risk product. And let's not forget the debt ceiling is coming up. We're going to get some resolution on student loan. And at the end of the day, we don't know if the Fed is done.

14:12So still a lot of risks out there. So your title, Chris, is head of equity strategy. Yes. But in order to preserve capital, do you actually recommend going outside of equities? I think at the front end of the curve, right, you can make a pretty good rate of return. overseas, some of the valuations look attractive. What you really want to do is you want really good risk rewards. And you can find that in fixed income and you can find that in equities. You want to be more balanced. So the answer is yes. I bet he calls himself head of equity strategy. It's not a nickname. It's a title. It's a title.

14:44It's not a nickname. It's too long for a nickname. What it is. Chris, it's great to see you. Thanks for injuring this. I only got a chuckle out of That bad joke, I guess. Boy. What do you think? Well, you know, it's funny. We've heard this a lot last year, especially when the market closed down 22%, the S &P 500, that like the back-to-back down years is not a common occurrence, right, over the last 100 years or so. And it's funny because, you know, we had COVID happen and the stock market wasn't even down, right? So we actually finally had a down, you know, 22 % year last year. I just kind of go back to, you know, 08 was the only year that the financial crisis was down.

15:23But then you go back 20 years and we had like a three year bear market and it really stunk. And there was a really long recession and everything like that. So I think what I took away from Chris's commentary is that he came into the year thinking soft landing, no landing, like basically not a recession. And now he thinks they are. And so at some point that's going to become that's going to permeate most of investors thoughts the way it did back in October. And think of where we were in October when everyone was convinced we're going to have a recession. We're at 3 ,500 on the S &P. Now, earnings estimates for this year are lower than they were four or five months ago.

15:54And so to me, I just think that there's going to be a time in the next couple of months where we're going to be flirting with that 3 ,700, 3 ,800. And that's going to be the moment of truth. And if you are a long-term investor, that's when you start layering into some of these things. Maybe it's banks. Maybe it's some of these things that have gotten kind of expensive. And you start thinking about it on a multi-year time horizon. Yeah, and I do think the bearishness has definitely turned since the banking crisis. And I think you're even seeing that come up in the jobs numbers, right? So when you actually look underneath things, you're seeing some people leaving their jobs.

16:21So people are not resigning any longer because they are more nervous about the economy. They're not so sure they can find another job. You're also seeing that companies are actually pulling down positions from websites. So before they have to fire anybody, they'd say, well, why don't we just hang tight and see how the economy goes? I think that's the same thing you're seeing with the markets here. People are just in this wait and see mode, and they're not sure where things are going to go in the future. That's why I think earnings is going to become really important because it's going to be the first time that we actually have any sort of visibility into that.

16:47The irony of Johnny Pesky, as you know, Mel, as you were saying before the show we were talking about him, he only hit 17 home runs over the course of a 10-year career. The fact that they named a foul. A poll after him? It's the craziest thing. Does it say Pesky poll on the poll? It does not. It does not. But they refer to it that way in Boston. I'm glad we covered the Pesky poll today. That's news you can use. Good. Do not miss a special edition of Squawk Box Jobs in America. That's tomorrow, 8 a.m. Eastern Time. that's news that you'll be able to use, actually. They're breaking down the Mark Jobs report as soon as the numbers cross.

17:20And coming up on Fast Pharma Fury, the group holding up strong this week, even as other areas of the market feel the pain. So is this trade the right prescription for your portfolio? We'll debate that. And big tech's exposure to China. Lawmakers meeting with industry leaders to discuss the threat from Beijing. The details out of that ahead. Fast Money's back in two.

17:42Welcome back to Fast Money. We have got a news alert on former J.P. Morgan exec, Jeff Staley. Let's get to Christina Parts Nevelis for the latest. Christina. No, that's right, Melissa. A new filing for the case regarding the relationship between J.P. Morgan Chase and Jeffrey Epstein. Lawyers for Jeff Staley, J.P. Morgan's former private banking chief, are asking the judge to sever the bank's lawsuit against him from other charges over the firm's ties to the disgraced financier. The new filing also asked for the trial to be pushed back to March 2024, saying that the current schedule gives him and his lawyers, quote, grossly insufficient time to defend against what he says are false accusations.

18:20We have, of course, reached out to representatives for Staley, the bank, and Jay Doe, the plaintiff in the case, and we'll update you if we hear back in the hour. Mel? Christina, thank you. Christina Parsinevilis. Well, healthcare stocks among the top performers of the week with UnitedHealth, Johnson & Johnson, Merck, and Amgen, the four top performing stocks in the Dow since Monday. Lilly and Pfizer are also seeing solid gains for the week. So should you stick with the safety trade? Guy, I'll go back to you in terms of the valuation question, which you're trying to push on Chris Harvey about.

18:49I don't think it's a – see, that's the thing. I understand why it's perceived to be that way. But this was some – there was some growth in these names for a very long time. Now, they've gotten expensive, but they've historically been expensive. Eli Lilly, there's been a problem on valuation literally for the last five or six years. We've addressed it. They continue to grow into it. Merck, Tim has talked about it, and did Karen. It was a$68 stock. I think it closed at 113 today, still reasonably well-valued. Amgen, I think it's the best biotech stock out there that's way too cheap in this environment.

19:17So although it's perceived to be safety, I actually think it's still investable as growth names, too. Yeah. Courtney, you like this as sort of a defensive play. I do. Yeah, actually, our acronyms at the beginning of the year, my vibe, the Vanguard value. The shameless plug of the acronym by Courtney. UnitedHealth and Merck. Those are actually two of the top holdings in there. And I do think people became a lot more pessimistic on these earlier in the year just after there was so much optimism last year and people started to rotate out of that trade. And I think the fundamentals continue to look really strong with your pharmaceuticals.

19:49And I think I don't think they're overvalued here to Guy's point. And I do think they're likely going to continue to do well. And especially those two names, your UnitedHealth and your Merck, they've done a lot really to reduce their costs. So you had Merck actually spun off some of their lower margin businesses, which is going to save them like a billion and a half in revenue by next year. And then you also have UnitedHealth at an acquisition, which is going to help their highest growth margin. So I think that's only going to benefit them as we look forward. UNH continues to grow in the fastest growing parts of health care.

20:16That's why the multiple keeps going higher. Let's talk about J &J. I mean, this week they removed a major cloud hanging over their business. It's an expensive cloud, but you can't tell me that this isn't bullish for J &J, which was coming off of also just a range trade near the bottom of its range is now up about 8%. I think you still buy this thing. And, you know, it's three businesses, one. And I think we know that it's devices, it's consumer products and it's pharma. I think their pharma pipeline is actually growing faster than most of their peers. I think that the medical devices business is actually now finally seeing some pricing power.

20:46So I think J &J is a great stock to own here, especially as you've taken risk off the table. The talc loss settlement of that. UNH, that's a chart that the chart master has called godlike. Yeah, it just broke out above that downtrend that's been for months. Tim, what about your Pfizer? That one, it's interesting. Is it digesting like, you know, earnings are expected to be cut in half this year, sales down 30 percent. But then if you start looking at next year, you see 10 percent earnings growth and mid single digits sales growth trading about like 10 and a half times or something like that. Is that setting up as a one?