Why It May Not Be “All Clear” For the Market, and What’s Next for Bitcoin 11/16/23

0:01Live from the Nasdaq, Markazite in the heart of New York City's Times Square. This is Fast Money. Here's what's on tap tonight. Walmart Wallop shares seeing their worst day in over 18 months despite posting an earnings beat. Was the stock already priced to perfection or is this company telling the true tale of the consumer? Plus, Baba Breakdown, the Chinese tech giant, posting its lowest close since May after shelving its hotly anticipated cloud spinoff. It was just yesterday that one of our traders said he was positive on the deal. Now what is he doing with shares? And later, Formula for success.

0:31Liberty Media made a big bet on Formula One racing six years ago. Has it paid off and what could it say about the value of live sports? I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Dan Nathan, Guy Adami and Kristen Bitterly, head of investments at Citi Global Wealth. We start off, though, with the signs that the markets may have gone a little ahead of themselves this week. Shares of Walmart diving 8 percent, their worst day since May of last year. The big box retailer posting an earnings beat but gave cautious guidance for the holiday quarter.

1:00But that wasn't the only reason for concern. and new data showed homebuilder sentiment fell to its lowest point in a year. Oil prices have dropped 5 % as a rise in inventory suggested slowing demand, and weekly jobless claims climbed to a nearly two-year high. So does this all mean that the soft landing investors seem to want to be priced in into the markets? Maybe a little harder than hoped. Guy. Yes. I mean, it's interesting. So the answer to that question, I think, is yes. I mean, the data suggests that things are slowing down. The jobless claims is the thing I think you have to focus on. This is now a trend, I believe.

1:33And I think we're on our way to somewhere between 4.5 % and 5 % in unemployment. And it's not going to happen in a linear way. I think it's going to happen in a very quick way. I don't think the market will like that. But getting back to Walmart quickly, the quarter was fine. The only thing that might have been disappointing operating margins, maybe a touch light, it was, again, what they said, the guidance. And kudos to Tim and Dan, who said this would be the quarter that the chasm between Target and Walmart collapses. And that's exactly what's happening. but it's not an indictment so much on the quarter.

2:01I think it's the commentary on top of the commentary that we heard from Target that should be concerning for people. Think slightly more cautiously about the consumer versus 90 days ago. Slightly more cautiously. That didn't seem to me like an 8 % decline, and yet it was an 8 % decline because of that valuation. Yeah, but this is a stock that's been bulletproof on the way up in really difficult conditions. And when I hear about a 300 basis point hit on grocery and I hear about disinflation of grocery, I mean, we're going to I said some things I'm going to get roasted on later in the show yesterday.

2:31I also said, though, a couple of things that with regards to Walmart, this is a case where inflation is great for grocers. It's great for retail. And you have disinflation in food. You have deflation in general merchandise, which most people attach to Target. But again, it gets back to a company now that's trading on 24 estimates, which will come down a bit around 26 times forward. So, look, I love Walmart. I actually think they have room for multiple expansion. I think they've made a lot of investments in technology. Walmart Plus advertising. They have new cash streams that are meaningful. But this was, I think, guys, right.

3:05This wasn't really about the consumer. And back to the data today. I mean, jobless claims, remember, we were expecting bad data. We wanted bad data to be good news. We wanted actually stocks and bonds to trade in the same direction, except for when you get enough of this bad data is what you find is bonds go higher and stocks go lower. Yeah, I would actually agree with that. In terms of the data that we saw and continuing claims, that's the data that we're looking for to actually show that the economy is slowing. That's actually indicative of even a soft landing, that it's not a recession, but a slowdown.

3:38So we want to see that come through in the data. I think with the retailers, the most obvious thing to me is how they were priced coming into this. And so how they were priced, that really drove the reaction. So you had half of the retailers which got a bounce off the back of earnings. And it was really around inventory maintenance and really kind of controls around inventory. And this was more about the outlook going forward. And so that outlook, which is showing a little bit of a weakness in the consumer and a little bit of a slowdown. Yeah, they did say that traffic was OK. Still, transaction count was OK.

4:06So the consumer did go into the store, although they may have been thinking more about what they were spending and sort of budgets. Yeah, I mean, and that's something that we've been highlighting a little bit. I mean, that's some of the data that we've just been seeing. You know, I think on Monday night we talked about this this poll that the FT ran. And they were just saying that, you know, consumers are at least ones that responded to this poll are not even it's not just discretionary stuff. It's also staples, too. And I think you got to go back to September. The last time Walmart was making a new all time high, that stock sold off nine percent over a couple of weeks.

4:36All the consumer staples stocks got hit. And it was because the data started coming in weaker as it related to consumer. I know there was some other things kind of tied in there, but I think the Walmart is interesting. You know, people use that expression all the time that stocks are in general don't crash off all time highs. Go back to 2022. This stock was trading. It was trading as an outlier to the rest of the stock market as this market was correcting in the first half. And remember, it came off an all time high and then it had a huge gap. And it was really in the doghouse for a while. It wasn't until they got a lot of these inventory situations corrected.

5:07And then it was the beneficiary that Tim's talking about is being a beneficiary as it relates to consumables and the like here. So I don't know. I don't love the fact in retail that there's very few names. Costco is another one that really trade as an outlier. A lot of retail stocks trade particularly poorly. And I'll just kind of lump it into what's going on with these Lilly and what's going on with the mega cap tech stocks. There's a few stocks in each sector that have done really well. And it seems like all the positive enthusiasm or a positive sentiment is wrapped up in them. And they have the ability to go the other way, too.

5:38Yeah, they suck the oxygen out of the room, the sector room. So if Walmart and Target are sort of the idiosyncratic stories and their moves can't be read as a read on the consumer per se, then in your view, what is? What have we gotten that is the read on the consumer, if not the biggest retailer in the world? It seems like average ticket price seemingly heading in the wrong way. They seem to be more, I guess, thoughtful in terms of their purchases, to Dan's point. Those are things I'm looking at. But the biggest read is going to be in the form of the unemployment rate going higher. I mean, that's going to be where I think people start waking up when they say, oh, wait a second, unemployment's down north of 4 percent.

6:16It's north of 4.5 percent. Maybe we should be more cautious in our spending. You know, people will start to wake up when those needles start to move. And they're moving right before our very eyes, I think. And my earlier point, I believe, will happen. It won't be a stair step higher in unemployment. I think it will be a nonlinear thing that will catch a lot of people off guard. Bank of America had a really interesting note out today using their own internal data, taking a look at what they call paid disruptions. So they know when people are getting paid, it goes into their bank account. This is three months or more they're not getting paid.

6:46There can be many reasons, but most often it's because of employment. So they're seeing a rise in pay disruptions. Before they were seeing it in high-end consumers or high-income consumers, now they're seeing it in mid - to lower-income consumers. And they're also seeing a big slowdown in job-to-job moves. job moves. So the consumer is not so confident about getting that next job if they leave that job. Yeah, you have a number of signals of that. So it's not just the continuing claims that we saw this morning. It's also the personal savings rate. So pre-pandemic, that was around 8 percent. Now it's at 4 percent.

7:16And so you think of what that would mean to kind of get back to those healthy levels. Now, some people say, well, a lot of the consumers have built up equity in their homes. A lot of consumers have locked in historically low mortgages. But that's not liquid. So when we start to actually look at the cash flows and credit card receivables ticking up, all of this is going to flow through into corporate profitability. And those are the types of indicators that we're actually looking at. How are they spending? Where are they spending? And are they using credit to spend? Corporate profitability, especially when you look at floating rate debt, too, is just going to be under pressure.

7:46And if you look at the consumer, we talk all the time about household income and debt services, a percentage of household income, where credit card debt, revolving debt is. So at the same time, we are really one not-so-great, hardly-poor job number away from effectively all-time low in unemployment. So I think it's taking a little bit longer. I just think, I mean, Dan's right to bring up that Walmart. And really, when Walmart and Target gave those warnings a year and a half ago, it was really a shot for the retail sector, less about demand, more about the strange dynamics of being a retailer in a post-COVID environment.

8:24I mean, those smartest guys in the world in terms of retailing. But I think the message, whether it's been Apple, whether it's been Home Depot, whether it's been Walmart, whether it's even been Target. I mean, Target's story was Target. It was not really about the consumer being better. Look, we had consumption trends coming out of COVID that I don't think we're going to see again for a long time. And a lot of it is just a relative markdown in terms of those expectations. Yeah. And just the last point, I'll just say that normally on a day that you see, you know, we're talking about Walmart down 8 percent and cautious on a consumer when you see oil.

8:55And I know we're going to talk about oil later down 5 percent. You'd say, well, that, you know, maybe that should be something that acts as a bit of a tailwind for a consumer that's kind of strapped. And then if you obviously and listen, there's a lot of cross currents yields we're in today. You know what I mean? So we know mortgage rates have come in also. So but at the end of the day, I just I feel like we're back to that place that we were six months ago where a handful of stocks are doing a lot of heavy lifting. I know there's been huge bounces over the last couple of weeks or so. But to me, they're for all the reasons.

9:24If Guy is right on unemployment and that starts to tick up, I mean, the Fed will start to cut rates sooner than you think. That's the thing that's being pulled forward, but not for good reasons. And they won't be supportive of risk asset valuations. The 10 year yield, 4.44 percent. And if I told you that yesterday, that we're going to be at 4.44 percent, what would you say? Stocks would be higher? Probably. Well, you know, because I know what happened. I might not. But but I think we're fighting around this four, four and a half, 55, 45. I mean, this is the level we traded straight down to breaking down from this level.

9:56Is this good for stocks or bad for stocks? And I think we all would say probably not so good for stocks, except five wasn't good for stocks. So careful what you wish for. I mean, that's what Carter Braxton said for a long time. They should be moving in the same direction. Rates are going to go down. Stocks are going to go down, right? So obviously, it's interesting. Again, on the way up, rates were supportive of stocks until we sort of hit that four and a half level. And then stocks didn't like it. We got the five crescendoed. On the way down, stocks love it until we get probably to this four and a half level.

10:25Now, maybe not so much. And Carter has said there's a scenario where rates go lower, which is happening, and stocks do as well. And rates are going lower, not because of the inflation, you know, dragon has been tamed or slayed because things are slowing down in a pretty market way. And not to get too macro or layer on too many technicians. But when we had Chris Verone on the other day, he was saying that commodities, the commodity picture has not confirmed what the stock market wants to believe in terms of the move that you cited in oil, for instance, or in copper. I mean, you could take a look at these and think, you know, they're not broadcasting to anybody that there's anything great going on here.

10:58So I and I agree that Dr. Copper didn't give it to you. You're getting a rally in gold for all the reasons commodities are actually selling down. I think it's a great environment for picking stocks. And so, you know, we were doing that that spread Paris trade thing the other day. That Walmart target spread is moving. It's moved 30 percent in a few days. It's moved 35 points. You also you know, there's a handful of places, but stocks right now seem less correlated to each other. And it's a pretty interesting time because there's a lot of stocks that have been painted with a macro brush. Look at Intel really outperforming the semiconductor.

11:28Intel up seven, almost seven percent today and up 60 percent since May. So there are plenty of places to be making money. There's a lot of stocks that have been punished in this environment. For more on what's ahead for Walmart, its competitors and the outlook for consumers. Let's bring in Bill Simon, the former Walmart U.S. CEO. He's now in the Darden Restaurants and Haynes Brands board. So you really got your pulse on the consumer. Bill, always good to see you. You know, Walmart better than most people out there. What did you make of the guidance and their cautious commentary? It seems like they had to give that cautious commentary.

11:58I mean, we effectively got it from Target in the form of their very, very wide forecast for the current quarter. Yeah, sure. I mean, I think the reaction to the market was a huge overreaction. It was probably an overreaction earlier in the week when they ran up and certainly today. You know, it was a good quarter for them and a cautious outlook, which is probably necessary, because when you pull apart their report, you know, a lot of their growth was in food inflation. They're still talking mid-single-digit grocery inflation, and that's what their food business was up. And so, you know, you pull that out.

12:34They did really well in their health and wellness and pharmacy business, and then their broad lines, the hard line and soft line business, was down similar to Target, not as bad as Target, but similarly to Target. So I think, you know, you're looking at a consumer who's starting to have to really, really be considerate of their purchases, which is indicative of us heading towards a downturn in a recession. And you heard this in Walmart's announcement this morning. They buy deals. So Halloween was really good. The promotional period was really good, but it slowed down after that. My expectation is they'll have a pretty good Black Friday season.

13:12And, you know, it's now elongated, but a pretty good Black Friday season. And it'll slow down a bit. And when the consumer gets stressed, they buy deals. And that's what that's what we're seeing now, which is not a bad thing. Broadly, it's a good thing because it might indicate that the Fed's action is finally starting to slow things down enough so that inflation will cool. Hey, Bill, it's Tim. So you sat in the chair where even though your daily job was to focus on the operations, you cared about the multiple of where your company traded. Walmart trades at a premium. Does it deserve that premium?

13:46And I talked about advertising. I talked about Walmart Plus. They've made a lot of investment in technology. And you say in your notes that investors kind of feel like they have to own Walmart if they're going to own something in retail. Why is that? Well, I mean, they're a beast, right? And, you know, just the size and the scale and the amount of investment that they've made in the last 10 years is astounding. I mean, they've grown their top line$100 billion in the last, say, eight or nine years and actually have a lower operating income than they did eight or nine years ago. What that really equates to is just a massive change in the company, in the infrastructure, in their digital capacity, in the businesses that they're building.

14:29So, you know, as a long-run play, they're just going to be really, really difficult to beat. In the short run, you know, you can bet against them. They're going to have to anniversary this food inflation and the growth that they've had from that. And that'll be a challenge. But in the long run, yeah, they probably do deserve to be an outside multiple. Bill, you've talked about the self-inflicted wounds at Target for a while. Will this be the quarter when you look at operating margins came in much better, 5.2 percent? Inventories down almost 14 percent. against sales growth of only down about 3%.

15:00Will this be the quarter we say that Target figured it out and that multiple should be obviously not a premium to Walmart, but it should start to catch up? I do think so. I mean, you know, look, Brian Cornell is a great retailer and he knows what he's doing. And, you know, it was really encouraging to see them get their cost structure in line and to be able to sort of get that managed. And really now all they're waiting for is sales to return. And look, it's going to be hard to be as bad as they were over the last 12 months and the next 12 months. So they have much easier numbers to anniversary without all that inflation in it that Walmart does.

15:36So in the short run, you know, I think Target's ready for a run. Hey, Bill, we spent a lot of time obviously talking about Walmart and that grocery business. And, you know, today it just kind of struck me. Kroger is trading at a new 52-week low. And it trades, you know, at a multiple much lower than that of Walmart's. What's the read through on that? You know, the margin structure is not that different. You know, it's a low growth company. But again, it changes really cheap to the market and many of its peers. Yeah, I mean, look, Walmart is unique in that it's sort of woven together this grocery business, a general merchandise business and a health and wellness business.

16:14So they're kind of CVS, Kroger and, you know, Target combined. And, you know, what happens when one struggles, typically another piece of business sort of steps up and runs it, you know, delivers for them. And if you look today in their release, I think they said their health and wellness business was, you know, up high teens. I mean, that's just a monster number that Kroger doesn't have. And so Kroger's probably dealing with the food inflation and the traffic kind of transaction issues that Walmart is. But they don't have that big monster business in the margin that comes from the general merchandise.

16:53So I think that's the difference. Bill, always great to get your take. Thank you. Bill Simon. And while we didn't explicitly ask on air, would you rather, he did say he would rather Target over the next 12 months over Walmart. Karen and I were actually just discussing that notion of the Kroger multiple in the car ride home last night. Oh, really? Where she was saying 58 % of revenues at Walmart are from grocery. Kroger's P is like 10. Were you guys really talking about that in the car ride home? Oh, dude, have you ever been in? Have you ever done it? Isn't that time to talk about where you're going to have a cocktail?

17:26No, Tim, they get into the wonkiest stuff from the show. I've been there. Anyway, we digress. Okay, sorry. Kroger's P is like 10, you know? And so if you impute that onto Walmart with 58 % as grocery, shouldn't it be much lower? Kroger multiple. It also has negative EPS growth. I mean, so negative EPS growth. So it makes yes is the answer to the question. And Kroger is obviously a very Kroger-specific story. It does come back to Walmart at a certain point. Obviously, this was the quarter that the gaps were closed. But is that a one-off thing? I mean, Walmart traded 30 million shares today, six times normal volume.

18:01I don't run too far from Walmart on this sell-off, I don't think. Yeah. Is Walmart, Kristen, defensive in this environment? Well, I think it goes back to what we were saying about how it was price to perfection coming into this and this delineation between how the retailers have been performing. And it's hard to extrapolate from that that it's about the health of the consumer. It's really idiosyncratic stories. But going back to something Tim said earlier about this disinflation and deflation argument, I thought that was the most interesting part of some of the commentary, because what they said was that deflation could actually net be good because it would reduce the cost of like the basic goods and then increase spending in other areas and general merchandise.

18:44So you take that through and you say, OK, all of the signs of the slowdown, which then could ultimately lead to rate cuts, which then could actually be more stimulative. I think it's a stretch, but that was something that I think the market was trying to get their head around as well. Sticking with retail here, we've got an earnings alert on Gap. Shares are jumping following a huge earnings beat after the bell. The call is just getting underway. Courtney Reagan's got the latest court. Hi, Mel. Yeah, so like Walmart, Macy's, Ross stores, Gap also beating on profit, revenues and comparable sales.

19:13Though the fourth quarter guidance is a bit conservative. Gross margin, 41.3 percent. That's up year over year and well above consensus, too, in the third straight quarter of margin expansion there for Gap, Inc. Total comparable sales, they did fall 2%, but the street was expecting them to fall nearly 9%. Old Navy, which is the biggest brand by revenue, grew comps 1%. Athleta, down 19 % for comps. That is, though, the smallest by revenue. I spoke to new CEO Richard Dixon ahead of the conference call, which, as you mentioned, is going on right now. And he said, month to date, we've seen modest improvement over our third quarter performance, and that's embedded in the forecast.

19:48CFO Katrina O 'Connell added the retailer is taking a prudent approach to competing during the holiday season. Dixon said the margin expansion was driven by lower promos, leaner inventories, excuse me, and the team controlled expenses extraordinarily well, with cash 100 % more than at this time last year. It's all part of his focus on operational and financial rigor, enabling us, excuse me, to focus on reinvigorating the brands. But of course, how will they reinvigorate the brands and the sales? Excuse me. Dixon said Old Navy and Gap, they're making progress, but it's going to take longer at Banana Republic and Athleta.

20:21Melissa? I got the same cough, Courtney. So don't worry. Get a drink of water. Courtney Reagan, thank you. Guy. Another company with their inventories in line down 22 % year over year. You had this huge double bottom around$7.5. The stock is now up 100 % since the spring. And it's at levels we last saw magically this time last year. In my opinion, if you've enjoyed this ride, which some people have, tomorrow's the day not to be adding to the gap. It's to be getting out of it. Coming up inside the latest crypto craze, we'll sit down with Grayscale CEO Michael Sonnenschein. for a closer look at how close a Bitcoin ETF could be to reality and how it could transform the crypto industry.

20:57Plus, a Baba buzzkill, the Chinese tech giant plunging after disappointing earnings and a scrapped spinoff plan. We'll dive into the numbers next. More Fast Money in two.

21:13Welcome back to Fast Money. Shares of Alibaba tumbling more than 9 percent, its worst day since last October. The move coming after Baba announced it was scrapping the spinoff of its cloud computing unit, the company blaming the U.S.'s ban on chip exports to China, saying it is harder to get the needed supplies. Baba also missed earnings expectations for the current quarter. You were just saying that it was undervalued, given the value of these spinoffs. Yeah, look, and it is and was, and some of the parts on Baba is as good as, you know, and that and the subway token or something like that, especially when you consider the value that has been destroyed at Vali Baba over the last couple of years.