Why is wall street so calm in a seemingly world of crisis? 10/9/23

0:01Live from the Nasdaq market side in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Israel now ordering a full siege of Gaza following the deadly attacks by Hamas this weekend. The terror and the geopolitical tensions in the Middle East rippling through global markets will break down the impact on energy, the consumer and your money coming up. Plus, storming the castle. Activist Nelson Peltz upping a stake in Disney and once again upping the pressure on Bob Iger. Conceits on the board whose Disney's struggling stock price. And later, Oprah doing an about-face.

0:32The media titan just a couple weeks ago said taking obesity drugs is taking the easy way out. Today, she's changing her tune. The details, the context straight ahead. I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Karen Feinemann, Dan Nathan, and Guy Adami. We start off with a major market turnaround. The Dow down 153 points at session lows before rebounding and rallying to close up 200 points on the day. The S &P 500 closing up more than half a percent. And the Nasdaq surging 52 points all as investors shake off the war in Israel following the deadly Hamas terror attacks over the weekend.

1:07crude and Brent both popping more than 4 percent, both seeing their biggest gains since early April. Safe haven gold up more than a percent and a half. And the defense sector posting an outsized move higher as expected. Airline travel related names suffering today. Major carriers including United, Delta, American suspending service to Tel Aviv. The late-day rebound seeming to coincide with commentary coming from a number of Fed speakers. Our Steve Leisman will be along shortly with all of that. But we begin with the question, why are markets so calm in a seemingly world of a crisis at this point?

1:38Guy, what do you think? And this is a hard show for you. We've got to be careful, obviously. We understand what's going on. We're respectful of that. But we're tasked to do something through the lens of the market. And Karen and I were talking before, and I think part of it is this belief that interest rates will now fall on the back, potentially, of the Fed, or maybe the market will do it itself in the form of some safe haven asset, which should theoretically be somewhat supportive of stocks, on top of which, you know, that 4 ,200 level that we traded down to now a couple times has been a line in the sand that we've held.

2:05So, you know, Tim talks about the setup of positioning. It's a big part of this without question. The real issue for the markets will be understanding everything that's going on. Now with this Fed rhetoric seemingly dovish, what happens if these numbers, these inflation numbers are somewhat hot this week? That creates a bit of a problem. CPI Thursday. Before the horrors of the weekend, though, we had an intraday reversal on Friday that I think was more defining than any of this. And I think this was just a continuation. I think yield started to give ground. We reversed it today. It kind of felt like that CPI day back in October of 2022 when you had really strong data.

2:37In that case, it was inflation data that was kind of the highest print we ever saw and therefore the lowest the market got and rallied off that point. I feel like we had some of that. We're going to wait to talk about the Fed with Steve. But I feel like a market in an S &P that had sold off, I don't know, almost 8 percent to the 200 day, almost as if it was supposed to. You then also have had this relative outperformance by the stocks that need to lead the market. So you have the seven, whatever we're calling them, that the triple Qs have dominated. And on Friday, they closed at least for this move off that October CPI bottom of 22, a relative high with the S &P, which we've been waiting for.

3:12And I'm not saying I'll just let the market do what it does. But a lot of this stage was set on Friday. The fact that yields had had such a big move, Karen, you know, the flight to quality, all the things that we're talking about mean that I actually think equities can trade higher. I mean, industrials, utilities, staples, all of these things have had big, scary, kind of almost crescendoing, I think, at least temporary bottoms. The bid for bonds certainly helps. I mean, the bond market was closed today, obviously, in observance of Indigenous Peoples Day. But, you know, through the TLT, through bond futures, we know that there was a bid as expected for bonds.

3:45And so yields would be lower. We would ease the pressure off the stocks. Right. Although we have seen geopolitical events where there's the flight to quality and a flight away from equities. And we didn't see that. We saw it in the morning. But by the end of the day, we certainly didn't see that. I think, though, to your point, this could all go away if we see a really hot number. Right. I think maybe the next meeting. OK, maybe that's not on the table. but certainly for one after. So I think we could reverse all this. The last I mean, from Friday morning, the market was looking down about 200 points.

4:17And so that rally from there through that giant rally Friday through this rally today, that's a pretty big reversal. Yeah. And so I don't know. I feel like that's getting this mini bounce, I think, is near the end. Yeah, I think, you know, Tim's point about all those sectors that were down 10 plus percent and there were like seven or eight of them. Right. And there was definitely, you know, a flight to quality in some of the biggest tech names that have kind of kept the indices afloat a little bit. And we only got down eight and a half percent at its lowest. The S &P 500, to guys point on the technicals, it got right to that forty two hundred number.

4:48That was that rising two hundred a day moving average. So that was a big technical spot. And to your point, you know, like sentiment was bad, you know. And so when you have an event like this, I think we were all glued to our TVs and reading about this all weekend long. And you say to yourself, this just doesn't feel great. Right. And so, you know, the good news is that we have, again, if you're looking at it through the lens of the market, as we're doing right here, we have earnings that are coming up. You know, a Pepsi tomorrow morning before the opening. You know, that stock was down at its lows yesterday, I think 20 percent or something from its all time highs just a few months ago.

5:19I don't think the sentiment gets that much worse. You have a stock that was trading at 27 times now at about 20, 20 times next year's number at about a market multiple. We haven't seen that sort of multiple compression in a stock like Pepsi in a very long time. All that being said, that could happen to Apple, too. I mean, like, it just happened to about 10 household, literally household names that we all took for granted, right, are staples. And they trade like that at that multiple for a reason. So I just say, you know, as we get into earnings, let's see what the fundamentals say. Because the geopolitical situation around the world is not going to get better.

5:53I think we could all put our little political science hats on and say this emboldens Russia, this emboldens Iran, this emboldens China. Like, I mean, the list goes on and on. And all of that, to me, is inflationary. When you think about the move that we've had in the last few years to de-globalize, and then if you look at the disruption to supply chains from a war like we had in 2022, all inflationary. So rates don't have to go much higher at all. Fed funds futures are pricing, what, less than a 15 percent chance at that November meeting of a hike. And that's down from 30 about a week and a half ago or something like that.

6:25But if growth really stagnates, then we are in a stagflationary environment. And that will not be good for corporate profits. And I know that S &P earnings have been down four consecutive quarters in a row. So we had the earnings recession. Let's see if the recession recession comes in the economy. Yeah. And of course, Biden is going to meet with Xi in November. So this is all it's an interesting sort of backdrop as we try to mend our relations with China. It is. But because we all recognize that bond yields may be somewhat a function of some of the geopolitics, up there. We recognize that the dollar may be a function of geopolitics.

6:59And maybe even gold is starting to be up 50 bucks an ounce, 50 bucks, yeah, an ounce since the Friday lows. I wonder if you think about it the other way. So think of all the stocks. We say that we know that the triple Qs, but the biggest seven, Google today, I think, closed at a fresh cycle high and is now up 42 percent against the S &P. But everything else, Dan, you point this out a lot. You're right. A lot of stuff trades awfully. And so whether it's industrials, whether it's autos, whether it's even the airlines, a lot of the consumer stocks. But maybe isn't that the strength of the market?

7:29In other words, it's not like things are just starting to sell off. Like some of these stocks have been awful for months, if not all year. And so I realize that the triple Qs and those big stocks are going to be the important part of keeping the market higher. Question, though, what are you buying right now if you're buying the stock market? Are you buying an inflection in the economy, like an inflection up, right? We've just talked about consecutive earnings growth. We've talked about economic data that has held in there, and it's avoided this sort of recession that the stock market last October was pricing a near certainty, right, when we were down at$3 ,600.

8:01So I'm just saying if you're buying right here down 5 % or 6 % from the recent highs, you have to be optimistic about the economy. You have to be optimistic that companies that have been cutting costs fairly dramatically are going to be able to actually re-expand margins. Do you think that? I mean, I buy, if you are buying the index, you're buying for an inflection. But if you're buying individual stocks, you're buying, for instance, Pepsi because it's so, you know, bombed out in terms of its valuation relative to where it was. I'll give you another example. I mean, Delta Airlines, for example, you know, I think collectively in the spring we thought it potentially could trade up to 49, which was a prior high on the back of a myriad of different things.

8:36That's exactly what happened in its stop. It's given the entire move back. As we're sitting here, it's 35 and a quarter ish. They report, I think, Thursday before the bell. I mean, that is a setup that I think you want to get yourself involved in. And typically, when things are at their best in terms of the news cycle for these airlines, it's the time to sell them. Conversely, when you get news like we're getting now, respectfully, that's sort of the time to buy them, especially in earnings for a company that has a tremendous balance sheet. So back to your question of what are you buying if you're not buying the market?

9:05I'm sort of buying individual names. And if I look at something like a meta, I think we'll see ad sale improvement. I think we'll see greater efficiency. I think there's some AI magic there as well. So that's a name, for example. I look at J.P. Morgan. That's one I want to – if you go home long, same as buying it at the close, I always say. So I like the setup there, you know, 3 % yield, less than nine times earnings. So I'm specifically buying whatever names I want. You just listed two really good names. I mean, like, so, like, I think we could all look at, like, some of these staples and say, I don't know.

9:40Or some of these transports or airlines say, I don't know. You know, like from a trading standpoint, you want to set up the risk reward sets up pretty good. Right. If you have it down 25 something percent. But I mean, who's that nimble? Right. You know what I mean? Just to take a little crack on some of these things. I mean, maybe you are. Maybe you're not. Well, if you're trading the market every day, you're brave. But if you're saying Delta at 30 percent drawdown, what Guy's point is. And at this point now, it's trading at seven times EBITDA. And everything they're telling us is at least their business to this point has been very strong.

10:09We're pre-COVID, you know, da, da, da. But back to the staples, you know, General Mills, which is, I think, around 13 times, pre-COVID about 15 times, if you look at the five-year multiple. So it's cheap. It's not crazy cheap. You look at, let's see, I had a couple of these other ones written down here. If you have a Conagra, you know, 16 times, it's now at 10 times. Those are getting to a place where I think you can buy them. And you're making investments in companies that you know it's going to be a little rocking here. The utilities have been down for a year. And that next era dynamic, we can debate that until we're blue in the face, but I think the utilities are overdone.

10:42The only point I'm making is about airlines. I can't see anything in the very near term. Are there going to be more routes? Are input costs going to be less? Are geopolitical tech? You know what I'm saying? I don't really see anything that's particularly positive other than valuation. So if you want to hold your nose and buy Delta down 35%, do that, but understand that it might be a really rocky environment over the next couple of months for these stocks. You didn't say have at it. Well, I'm a little off. I'm a little off. Fed speak today giving investors a sense that the committee could be done raising rates this year.

11:12Let's bring in senior economics reporter Steve Leisman. Steve, why do you think the Fed seems to be leaning dovish at this point? Well, I'm not quite so sure it's leaning as dovish as the market wants to hear right now. For sure, they're leaning dovish on the near term. And that dovish just has to do with whether they need to do another hike this year or even another hike in this cycle. um both logan and jefferson logan from the dallas fed uh vice chair uh uh phil jefferson suggested hey maybe we've done enough here but we're definitely going to wait and see they're both concerned about it but and you can see that by the way in the probabilities which i think are down for two reasons i think the trade uh when it comes to israel uh and and and the terrorist attack by hamas i believe that's part of it um you know general risk off trade but also the comments, if you look at the tail of the tape on these Fed futures, a big decline in the outlook for that last hike.

12:07However, what they're both suggesting is the possibility that because of stronger growth, that maybe rates could be higher for longer. So it's a bit of a mixed bag here. I wouldn't say entirely dovish, maybe dovish near term, hawkish longer term. You mentioned, I believe before, Steve, that there's actually a cut now being priced in mid-year next year? So that's always been there. I'm going to look at it while I talk to you, and I'll give you the exact quote on it. But what it has been, Melissa, is there's been cut plurality, say 40%, 45%, in May, June, or July, the first cut. And what's happened with the recent, pardon me, dovishness is it's moved up into May.

12:54So right now the percentages are 46 % for a cut in May, 43 % to stay the same. That's what it was for June or in hawkish days. For example, by the way, probably Friday, it was more into July with that strong jobs report. So that's one way that traders far out in terms of how far they're trading these things. And there's a lot of stuff. It's a complication when you're saying, what will they do in May or June when there's all kinds of stuff they could do before that? That being said, the way the market expresses dovishness and hawkishness is when that first cut comes. Right now, today, it's in May.

13:33And we'll see what happens tomorrow. Of course, the bond market wasn't open. But if you look at the TLT, well, the price rose and the implied yield sank. sank. And so that suggests that when bonds do open, yields could run quite a bit lower. Steve, maybe you could take us into the machinations. So, for example, what we saw over the weekend is historic for a myriad of different reasons and obviously affects a number of different things in our world. Will they get on a call with each other and discuss that? Is that something you know or even can talk about? It's not something I know. If I did know about it, I could talk about it because I would say so.

14:09But, Guy, I'm guessing any kind of major geopolitical situation comes along. The Fed's on the phone with each other. They're on the phone with experts. They may even be on the phone with the White House. I would assume that. Right now, Guy, what I'm hearing from macroeconomists who I've spoken to today is very limited macro impact, principally through the oil channel seems to be initially the case. Of course, there is some change in the risk appetite and the risk outlook in the market. But it is also interesting to think about the vulnerability of the United States. We are producing an awful lot of our energy now.

14:48If you look at the import to export ratio of oil, it is down near historic lows. Even though the SPR is down as well, we have a tremendous amount of North American production right here. So the risk in And that score, I would say, if you were to compare it, for example, to the 70s, would be much, much less than it was there. So that risk is lessened quite a bit, I would say. Steve, thank you so much for joining us. Steve Leisman. Pleasure. Interesting to hear Steve's take in terms of, you know, it may not be as dovish as you think because rates are higher because maybe growth is actually that good.

15:28Well, they said that. They said that they think higher rates. They said higher for longer, but they said that rates are probably reflect investments, investors assessments of the economy. Now, we've also spent a lot of time over the last few weeks that higher rates reflect investors assessments of term premium, of central banks, of technical factors, of a refunding schedule, of a debt to GDP or a federal deficit that's getting bigger by the second. So I think it's all of these things into one. But again, think of the move we've had in rates so quickly and bring it back to the stock market. The stock market has all kinds of headwinds and there's valuation dynamics and whatnot.

16:02But if rates give some ground and that next week non-favorite, if next. You say rates, would you say CPI rate or? I mean, no, I mean rates. I mean the yield curve. And I mean, I mean certainly what we've seen on the long end where at least a lot of equities and discount rates are priced. If we see a very, we just had a very, very, very strong payroll number on Friday. 260 average over the last three months. No disputing. The job market has not weakened. The next week, NFP markets are going to rally. And I don't know when that's going to be, and maybe it's going to take longer. But we all know the labor market's getting weaker.

16:33All right. Our next guest suggests you can kiss the idea of a new bull market goodbye unless we get a big drop in rates. Canaccord Genuity Chief Market Strategist Tony Dwyer joins us now. Tony, you don't think rates are moving higher because the economy is stronger? No, I don't. I don't. I think it's moving higher. If you pinpoint the peak moment for the S &P 500, it was July 31st when Janet Yellen talked about increasing the size of the Treasury issuance by a third more than expectations to a trillion dollars for the quarter following the debt ceiling crisis. So you increase supply significantly, a trillion dollars in a quarter.

17:11And at the same time, you've got quantitative tightening. So the Fed's not buying them. You've got Silicon Valley Bank. Post-Silicon Valley Bank means the regional banks and other banks' balance sheets aren't adding to them. And, of course, you've got Japan and China supporting their currency. So I really think part of it is the supply and demand imbalance that's really caused all of credit to trade to a significant high. And that is really to what Tim just said. That's going to be the catalyst to rally this thing. I mean, really rally this thing, which isn't too far away, is when bond yields start to drop and reflect the weaker economy.

17:46You're light and tight right now. That's what you're recommending. What does that mean? Yeah, it's annoyingly boring for this long, Mel. It means just to stay in a little extra cash and tight to the benchmark. And the reason for that is I'm bearish economically. All the clients know that. People that watch this show know for the last year and a half I've been in that camp. I think we're going into a recession. I really am highly convicted of that. The reason I'm not more negative to the market, meaning get the heck out and don't look back, is because so many stocks are already so smoked. You guys talked about PepsiCo and some other names.

18:22Remember when the airlines in the summertime, you had to think the economy was going to boom because the airlines were ripping and everybody was traveling? And then it was the home builders because there was tight supply and they rallied to a new high. Both of those areas failed. And my guess is to the debate that we're having or the talk you were having before I came on, energy is probably in that next space that's having this incredible move higher, certainly on the tragic geopolitical events over the weekend, is helping that. But ultimately, once you if you believe the airlines are cheap, the only way they rally is if oil comes down.

18:58And if oil comes down, bonds are going to rip. And so our call right now, Mel, as you know, tactically is for an oversold bounce. But until you get that dramatic improvement, granted, and I mean dramatic, you know, I don't think you're going to have that significant, sustainable bull market. Hey, Tony, it's Karen. Thanks for being on. So aside from rate risk, where are you in terms of credit risk expansion? So, Karen, what I look back for is any any economic recovery, whether it's a soft landing or coming out of a recession, has always been driven by a significant, sustainable drop and not just Fed policy.

19:33It's typically, honestly, in the soft lending, not really Fed policy. It's a changing tone of the Fed that kickstarts a dramatic rally in corporate credit, mortgage credit, and of course, U.S. Treasury credit. So in 1995, the time that folks want to pretend we're in now, you had a 200 basis point drop in all of those areas, mortgage, corporate, and Treasury during 1995. We're at a cycle high. So, Karen, I think the risk is until you see that significant tone change in the Fed like they had in February of 95 at the last rate hike there, that kickstarted that rally. I think that's what really gets us going.

20:10We're just not there yet. Tony, always great to see you. Thank you. Thank you, Mel. Tony Dwyer, Canaccord Genuity. Light and tight. Light and tight. Tight and light. My God, he's good. He's good. We're going to get to the GLP. I'm dark and stormy. We're going to get to the GLP ones later. I'll talk about light and tight. So it's interesting. He's a great strategist. And Guy, you and I talked to Urien Timmer from Fidelity last week. And, you know, we were talking about unemployment for a second. It was kind of interesting. He was saying that, OK, we've lost three million workers out of the workforce.

20:40This was during COVID. And now there might be this situation where a lot of companies don't want to let go of workers just yet, especially in this kind of seasonal sort of thing. So it is kind of the one data point, if you think about it from an economic standpoint, that really does lend itself to the economy stronger than maybe a lot of us think or a lot of strategists think or even a lot of corporates think. I mean, when you think about it, because none of the guidance that we've heard over the last few quarters about a lot of companies that we think are really impactful as it relates to the economy are really that optimistic that have a lot of visibility one way or another.

21:11So maybe the unemployment thing is something that is just kind of, you know, different this time. There it is. People have at it. Well, it's definitely too tight. And that's the point. I mean, I think we're going to get some weak numbers. We haven't had any. We haven't had any. And so it's just taken a lot longer than I think the Fed has expected, which is why we're at higher for longer. Coming up, Disney dispute. Activist investor Nelson Peltz reviving his proxy fight with the media giant. What his firm is doing and the board seat shuffle he's looking for. Details on that next. Plus, more M &A action in the pharma space, this time from Bristol Myers, as it looks to boost its cancer business.

21:44What the nearly $6 billion deal could mean for the stock straight ahead. Don't go anywhere. Fast Money is back in

21:53to. Welcome back to Fast Money. Activist investor Nelson Peltz and his firm Tryon reigniting a potential proxy battle with Disney just months after dropping its initial fight. Tryon taking a stake of more than 30 million shares worth more than two and a half billion dollars and planning to push for multiple board seats. According to sources familiar with the matter, Disney now trading near$85 a share. That's about$25 below where it traded when Peltz ended his last campaign in February. Is Nelson Peltz the answer? Tim, Disney shareholder, what do you say? I don't know, because it seems that the last catalyst that Peltz was bringing on was aggressive cost-cutting and trying to get to profitability.