Yields Head Higher… And AI’s Copyright Issues 10/21/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast And will the 10-year yield keep climbing? We'll debate that. Plus, delivering a sell will break down the downgrade of UPS by Barclays. The stocks have been lagging FedEx this year, and the analysts think things are about to get worse. And later, Inside Netflix's roaring run to record heights. Why, the chartmaster thinks it's time to bail on the builders. And there's one fewer problem at Boeing, but does that mean it's time to buy? I'm Melissa Lee, coming to you live from CDIB at the NASDAQ. On the desk tonight, Tim Seymour, Carter Worth, Steve Brasso, and Guy Adami.

0:44We start off with a rapid rise in interest rates. Yields on 10-year Treasuries jumping 11 basis points today and closing back on 4.2 percent. They're up more than 50 basis points since the Fed cut its target rate last month. Mortgage rates following suit with the average 30-year fix hitting its highest level since late July. This is markets pricing an increasing chance that the Fed will take a pause at the November meeting. Chances of no change have risen to more than 13 percent today from zero a month ago. So what does this sharp spike in yields mean for the broader market? What is this telling us, Guy?

1:17Well, I mean, if you've watched this show over the years, you know I'm sort of the half-empty person on the desk. So label me a pessimist. And typically it's one of two things. It could be the economy is on strong footing. Things are going well. Rates are going higher because those things are going well. That should be extraordinarily bullish for the market. The flip side is there's an election coming up. Either candidate is going to be inflationary. And oh, by the way, there's$15.5 trillion worth of treasuries we have to sort of fund over the next three and a half years. And there's a debt problem as well.

1:47And it's not just U.S. rates, by the way. You're seeing the same thing in Germany and some other countries. So I look at it as maybe it's a function of the fact that the economy is OK. It's more of a fact that there's a debt problem and the markets come to that conclusion. You've been half empty and half full at different points of the year. So where do you stand? I'm nowhere near as half empty as Guy Adami. I can tell you that. No, I what's interesting and it's Carter's the guy I want to listen to tonight because he's probably the guy a year ago that said, you know, whatever. They're kind of doing what they're doing.

2:15They're not doing as much as everybody said. They're not going to do as much on the downside. But let me not speak for him. I'll say I think people underestimated the U.S. economy since we got that payroll number in September. Excuse me. In August, that was July. I think people have realized they were very off sides in terms of where they took rates, how quickly they took rates. So rates didn't belong down at 355 on the 10. I think everything we all know about both candidates for the next president of the United States is that there's nothing they are doing that's deficit friendly. I think there's persistent inflation out there.

2:44I think U.S. data has been better. And I think you then get into a dynamic around the U.S. dollar and what we're also seeing in terms of central bank differentials around the world. Our Fed actually may still be one of the more hawkish central banks out there. So the world of kind of Fed gradualism, Kashkari, who I don't know that we necessarily have. Let's put it this way. This is someone I think has been all over the map, but out there today and said that I do think that there's a dynamic that rates could go slower in terms of what they're going to do. So consistent with that messaging. That all adds up to the kind of day you got today.

3:17Also, when we have the VIX persistently high near 20, close to 21, whatever that number is, I think that's part of the market's anxiety here, that rates could be a big deal. Yeah, I mean, obviously, earnings season is upon us as well. So there's another that aspect going on. Ultimately, we know that there's no relationship. And despite what anyone might think, any of us, there is no relationship between the price of shares and the earnings of share on a one month basis, six month basis, 12 months. But over 10 years, of course, good earnings, good shares, bad earnings, bad shares. The real issue is we've jumped from three, six to four, two here.

3:49But in the past two years, we've been as high as five. We've been as low as three, two. And we're sitting here at four, two. It might just be that it's not either good or bad. It is sort of this thing that is not. It's six and a half and seven that's bad. It's two and a half that's bad. And we keep neither doing so higher for longer, out the window. And all of a sudden, the odds of them cutting again or going back to zero. It just keeps doing this. And so maybe that is the message. Rates are in this benign environment. Yeah, we've seen this move before. We've been at these levels before. So what is the big deal?

4:19So it's counterintuitive, right, because they cut rates and then rates move higher. And I think it's more where guys started off with the economy is doing better. So I think it's pricing in a better economy going forward. Two years, two year rate is Fed. Ten years economy. So if you think the economy is going to be doing better, then you have higher inflation. So if you have higher inflation, rates move up. But to your point, car loan delinquencies, mortgage applications are all problematic for the market. So you can believe we're going to do better in 10 years, but have a problem right now with the market.

4:56Right. I mean, and the thing about when you think about relief for the consumer and the move in rates, yes, they've moved higher. But in actuality, a lot of these rates did not really feel that downtick that we saw when the Fed cut rates. As Phil LeBeau has pointed out, auto loan rates are notoriously sticky. You usually don't feel those moves lower for a very long time. Credit card rate, are they below 20 percent? No. Credit card rates never move. I mean, unless you're out in the market getting a mortgage exactly when rates are down, you're not feeling any relief. Not at all. And credit card rates, I think, are at a record level.

5:27I think the average credit card rate in the United States is now 23.4 percent. And the thing you have to watch, I think delinquency rates north of 7 percent are now the highest they've been since 2011. So that's all out there. But with an S &P at an all time high, the market seemingly doesn't care. But Tim is correct to point out the VIX. You know, the VIX is stubbornly high here around 20. One would think, you know, we've seen a VIX 13 and a half, 14 in benign circumstances with a market at an all-time high. One would think we'd be there. We're not. And maybe that speaks to just ahead of the election and some of those factors.

5:59But maybe it speaks to something else in the horizon. Isn't it amazing that we're saying the VIX is high and it's close to 20? I mean, if you really think about it, right? I mean, it's really not that high. It's not that high. And it's also such a bifurcated market in terms of equities. There are so many, I mean, big tech, whether it's Google Microsoft, have slumped and not made highs since July. And yet other things have had this huge rally at United Airlines or at IBM. You put it all together and you call it the S &P. But the structure seems sort of uneasy. I would characterize it that way. Yeah.

6:30In Goldman Sachs, David Kostin came out saying for the next 10 years, we might be stuck. Three percent a year. Well, that's quite a difference. Look, we've had a 62 percent move off of that October 13, 2022 CPI. I mean, this is one of the greatest bull markets of all time. And to expect also that, you know, we we've been able to play both the dynamics around extreme fiscal accommodation, monetary policy, some of them related to the same sources like COVID, but also this this secular industrial revolution of technology, whether it be semiconductors, things that that people have had a chance to invest in.

7:03But you can look at even I was looking at a chart of of of of Caterpillar and John Deere. And if you look at, you know, Caterpillar has kind of been stuck. John Deere trades like it's it's a tech stock. I mean, this is a stock. If you look at the three year chart on it, it's up three times. And should that really have happened to a company that's attached to farming equipment and that part of the economy? Yeah, they're doing things better. I don't want I'm not leaning on on them in terms of being critical of their business. I just think that this is what we've seen in the stock market. It wouldn't be extraordinary.

7:31We have seen extraordinary moves that have sometimes not been related to fundamentals, but the market itself. You know, when you make a call out 10 years, it's it's who's going to remember the call if he's wrong. Right. I mean, you make a call out 10 years, but historically. It imputes to the person making it insight knowledge that doesn't exist. Right. They're imputing themselves. I can see out 10 years. Nobody can see out nine months. Right. You can see out three to four, three to five months. You know, when people say, my price target for 2027, and you want to think, you know what's going to happen in 2027?

8:01Wow, you might want to keep that to yourself. That's valuable. I mean, it's absurd, yeah? Ten-year things. But it's the nature of Wall Street. Right. And historically, markets go up on average 10 % or roughly thereabouts, 10%, 11%, since the beginning of markets on average. That's in numerical terms, right? So he's talking about 3 % a year. Just for inflation, he's saying nothing's going to happen for 10 years. Yeah, yeah, yeah. Depending on where inflation's going to be. You could be down. But nobody's going to hold him accountable. I mean, nobody is going to say David Klassen, you know, it moved 5 percent.

8:28You know, nobody. But directionally, it's a significant call to say the markets are basically not going to do much for the next 10 years. Well, I think this gets a little bit back to the comments on the VIX that we just had, because, you know, a pre 2007, 2008 financial crisis. The VIX that I grew up in in the markets was perennially kind of, you know, high teens, low 20s for sure. And as someone that was investing in overseas markets, some of those even more volatile. We were thinking about when we gave annualized standard deviations, we were trying to beat a 25 VIX. And so I do think that the whole world is different.

9:00When you have squelched down, so you've compressed down risk, really in the form of volatility, equity should trade higher. For more on the market, let's bring in Julian Emanuel, Senior Managing Director at Evercore ISI. Slipped in here on Sunday. Julian, great to see you. Great to be here. You make the point it's been a tough bull market. Everybody wants to find a reason to not believe this one. It's too good to be true. Why do you think that is? Well, first of all, because when you think of this set of circumstances, right, you threw everything you had at the pandemic. Then you had, you know, sort of a speculative top in SPACs and profitless tech in 2021.

9:37And then all of a sudden the Fed was doing what we knew they had to do in response and the speed with which they did it. Here we are. We're still the economy that's the envy of the world. and you're actually now at a point where at 24 times trailing, you're very, very expensive. That's probably why you saw that note this morning from our competitor. But what we would say to that is, tells us the wall of worry is still very, very intact. And I mean, if you think about it, yeah, the VIX is low compared to maybe longer run history. But actually, if you think about the inertia of the markets the last several weeks, the VIX is high.

10:18And it should be in front of probably one of the biggest unknowns we've been facing, certainly in the last four years, if not longer. Carter, it's quick and correct to point out that we've seen 4.2 percent in 10-year a number of different times, both up and down. But the move from 3.6 to here has been fast. We spent eight minutes trying to figure out what it's about. What do you think it's about? I think a lot of the people that we talk to are surprised because basically the thought was the move by the Fed to cut 50 basis points should underwrite the long end. And in fact, when you're doing that and the economy is not going into recession in the next several quarters, when, as you mentioned earlier, both candidates are going to blow out the budget deficit.

11:07And now in the last few weeks, there's a potential that China could at least stop exporting disinflation. That's what you get in the long end. Julian, we're going to the year end. We have an election year cycle. So there's a lot of movements that none of us are going to be able to describe the reason for them. You have new money to put to work. Do you just go with technology at this point? I believe in fragmenting it out with crypto, merging markets, technology, not making as complicated as it used to be. Where do you put the money right now going forward? So as equity strategists, we'll give you the equity strategy point of view.

11:44We love what we call the Fed rate cut playbook. Basically, you go back to 1970. You look at all the rate cutting cycles. There is a very pronounced outperformance in the year after the Fed starts cutting from Infotech. Surprise, surprise. small caps, which might be a bit counterintuitive considering how much they took it on the chin today, but also barbelled by the more defensive sectors, consumer staples and health care. So to us, that's sort of the sensible way that will help you ride out if you get some turbulence, which, of course, if there's a contested outcome, you're likely going to get some turbulence.

12:22Is there concern that information technology outperformed on the way into the cutting cycle? and so may have pulled forward gains? I mean, in past cycles, did we see this sort of outperformance as well? We did. Again, a lot of that owes to the secular gains over the last, call it, 40 years in infotech. But again, it also calls up this point, Melissa, 24 times trailing. If we get a quote-unquote clean outcome in the election that everyone says, okay, this is what happened, and we get a melt-up, which is very, very possible. That's the kind of situation where particularly in InfoTik, you'll be borrowing from next year's gains.

13:05But I think, again, we have to acknowledge the fact that one of the very bright spots today is the leader in the AI revolution made it on their new all-time high. Very positive. Speaking of that, Semis, just since you're speaking of NVIDIA, right? If you look at, of course, an index versus the equal weight, whether it's the S &P versus equal weight S &P, or NASDAQ versus NASDAQ equal weight, 100. The one that's got the widest spread is the semiconductor index versus the equal weight, right? The SOX, which is the most important element within the biggest sector, tech being 32 percent. The SOX is up, what is it, almost 20, 25 percent year to date.

13:40And the equal weight is up five. So you have more bifurcation within the most important area. That's the sort of unfragile part about where are you on semis? Do you think that they will lead or do you think that that dispersion is starting to send a message that this area of the market that has been so good won't actually be a good play in 2025? So what we think it's saying is really just doubling down on the importance of AI as a driver of semis. And we saw that in the recent earnings reports, you know, from one foreign maker who's light on AI and had difficult earnings, particularly selling into China.

14:20And then another where the AI story continues to be robust. We do think that's the theme going forward. And again, if we're going to get a melt-up, and I would remind everyone that bull markets end in one of two ways. Either a recession comes upon, we don't see that now, or you get the sort of the emotional melt-up phase. And we haven't had that either. And I would suggest, again, that those names, the AI-centric names within semis, will lead a melt-up because they've led the entire last two years. All right. Julian, great to see you. Thank you. Thank you. Julian Emanuel. Hard to believe, by the way, Julian's got great insight.

15:00And I don't think what he's saying is that a 43 percent move in semis and a 73 percent move year to date and a 73 year over year isn't an extraordinary move. I mean, I think what's going to happen here and forget looking at 10 years. I think drawing on where a lot of managers have not made the call that this was going to be a great year. There was a lot of reasons to be bearish. I actually think it means that the next two months from boo to Santa Claus rally. That's right, guy. Boo meaning Halloween. Halloween. I mean, I think you've set yourself up for a dynamic because the Fed is not. They may not be as aggressive in cutting rates, but they're not a factor for you right here.

15:37And I think it sets up for a big year in rally. All right. Well, let's get to a stock that Julian had mentioned. NVIDIA hitting another all time high today. The semi stock jumping four percent, bringing its market cap above three and a half trillion dollars for the first time ever. It is now just 80 billion dollars behind Apple. It last topped the iPhone maker back in July when it briefly became the biggest company in the world. But it just keeps powering higher, Guy. Carter can opine on this. So we had been mentioned in June 20th. And actually, that was right to mention it in the weeks or days after because you saw what happened on August 5th.

16:08I mean, the stock went down almost 38 percent. Obviously, it's recouped the entire thing. And now with today's close, that June 20th and golfing pattern is out the window. Now it feels like it did back March, April, May when it started this next leg higher. With all that said, you know, the stock has gotten itself more expensive. I think three and a half trillion dollars now-ish or thereabouts. They report on November 20th. So the question, I guess, is are we in a new sort of trading range and do we continue to move higher into earnings middle of November? I mean, here, too, the dispersion, half the stocks and the SOX index were down today.

16:42Half were up and, of course, leading the way. And that's Julian's point. A breakout is a breakout, right? So one would have to respect that. and in principle, NVIDIA has just now exceeded its high of about five months ago. Presumption is higher. Are you kicking yourself, Grasso? Yes. How's it feel? In one word, not so great. So this one didn't give me the chance to get back in. This is the problem with trading stocks. When you have an idea, you sort of fall in love with your premise and your chart and your levels. And I waited for my level. The level didn't happen. Got away from me. I'm still going to sit on my hands.

17:19Well, I think if you speak to some of Carter's comments on the divergence, bifurcation, I mean, look at AMD up 5 % on the year and Nvidia up 227%. And AMD was supposed to be a distant but at least a second choice here in the AI trade. So they're not all created equal. I still think Taiwan Semi, if you can remove geopolitics around this, is the one you want to own. All right. Coming up, a delivery downer on UPS. Shares lower after a bearish call on Wall Street. The challenge is facing that name next. And Steve Sweet change is just around the river bend for Disney. The media giant laying out a timeline for CEO Bob Iger's successor and naming a former investment bank CEO to lead the board.

17:54What all the changes could mean when Fast Money returns. Back in two. This is Fast Money with Melissa Lee right here on CNBC.

18:14Welcome back to Fast Money. Let's get to our call of the day. Shares of UPS sinking more than 3 % after Barclays downgraded the stock to an underweight. Analysts citing weak delivery demand this quarter, long-term pressures from Amazon and FedEx, and limited dividend growth. Barclays' price target remains$120. That's about 8 % lower than today's close. The sell is very rare, of course, on Wall Street, and a key point is losing Amazon. And also, it's just the rivalry that Amazon now presents with its own delivery fleet. Hasn't been the same since I worked at number one. This stock has been awful for two years now, which is, you know, as much as you may think it's an economic thing, most of it, I'd say 80 percent of it is a UPS thing.

18:53They're just they're just not basically operating all that well, as opposed to FedEx, who seemingly has figured out. But you have to admire a call two days or so before they report earnings with a sell rating. One hundred and twenty dollars would make it a multi-year low and be a new 52 week low as well. So good for them for the call. And you know what? It feels like it's coming to fruition right before our eyes. And when you make a call like that, you look back five year performance. FedEx is up 70 percent. UPS is up 13 and a half percent. So when you make a call like that, past performance usually is indicative of future potential.

19:27They also don't have the headwind of the unions on the FedEx side that UPS does. So that's been a huge thing in the last year for a lot of corporations. I mean, the thing that you started with, it's very rare to get a salary. So just to put this in perspective, 500 stocks in the S &P, forget about bigger indices. Average stock has 20 analysts covering. That's 10 ,000 ratings. And 500 of them are sell-rated. Wall Street never puts sell because you lose access. You can't get the banking deal. So they put hold. You're trying to hold on. You're trying to say that actually there's a correlation between good research and banking deals?

19:59I've never heard about this. Never, never. So the point is that this is a bold thing, right, for a stock that's still down some 43 percent from its 52-week high and all-time high. And there's something wrong with the business, clearly. Stocks have been going down for three years. The market's going up. Can't be good. I think all the honor to him. What's interesting about UPS is this is the same story. We could have been talking about FedEx two years ago in the same thing. It went through six quarters in a row where you're like, so one of the most sophisticated management teams, do they even get their business?

20:26And, in fact, there ultimately was a dynamic for bringing change. I think part of the story here is that both FedEx and UPS have gone from a place where they had total pricing power to a place where they're there. You just don't have the same dynamic. Some of this is cyclicality. Some of this is secular. I think UPS, it's a bold call. I think it would have been a more bold call before the stock fell 20 percent. You know, I'd probably be a buyer. There's a lot more fast money to come. Here's what's coming up next. Succession plans underway at Disney again. The media giant laying out a new timeline to name CEO Bob Iger's replacement and a former Wall Street exec just named Chairman.

21:05What it could all mean for Disney's future. Next. Plus, AI under fire as news outlets go after one generative AI search company. The claims they're making and what it could mean for the entire artificial intelligence space. You're watching Fast Money, live from the NASDAQ market side in Times Square. We're back right after this.

21:34Welcome back to Fast Money. Disney laying out its latest succession timeline today. The company announcing it will name Bob Iger's replacement in early 2026. So write that down. And former Morgan Stanley CEO James Gorman will replace Mark Parker as chairman starting in January. Iger originally served as CEO from 2005 until early 2020. The stock skyrocketed in that time. He turned over the reins to Bob Chapek, his hand-picked successor. but the stock dropped during this two-year position on the job. Iger returned in November 2022. Shares are up about 5 % since. His contract is set to expire the end of 2026, so there will be that year of transition.

22:13It's taken a long time, but we are there, and Gorman is looked upon as an executor. I mean, he does his job, and he's had his own successful succession plan. No question. I guess, you know, you think about the next few quarters in Disney, it's hard to really understand where the catalysts are. I mean, there's very little, I think, to get excited about. And, you know, barring some kind of an acquisition that I think is going to be risky or a divestiture of ESPN or something like that, which at times has been a catalyst. At times, we actually think there might be some value there. So I think about the, again, the irony, though, DTC, now profitable, parks business with headwinds.