CNBC's "Fast Money" – Episode Summary: Rate Rip Higher… And A Middle Market Pulse Check (01/08/25)

Release Date: January 8, 2025

Overview

In this episode of CNBC's "Fast Money," host Melissa Lee, along with panelists Tim Seymour, Karen Firestone, Guy Adami, and special guest Mike Schumacher from Wells Fargo Securities, delve into the pressing financial issues impacting the markets. The discussion centers around the significant rise in 10-year Treasury yields, the global implications of rising interest rates, the Federal Reserve's recent minutes, sector-specific market impacts, currency strength, and the performance of quantum computing stocks. Additionally, the show celebrates its 18th anniversary with reflections and special guest appearances.

Rising Interest Rates and Market Impact

Melissa Lee opens the discussion by highlighting the dramatic increase in 10-year Treasury yields, which have surged by 60 basis points over the past month, reaching levels unseen since April. This spike has exerted downward pressure on major stock indices:

• Dow Jones Industrial Average: Down 4.5%
• S&P 500: Down nearly 3%
• Nasdaq: Dropped almost 2%

Tim Seymour emphasizes the broader implications:

Tim Seymour (02:13): "Rate sensitive sectors like homebuilders, regional banks, small caps plunging over the past month. So do these moves signal that cracks in the market could spread even further?"

Guy Adami adds context to the yield curve dynamics:

Guy Adami (02:32): "It's a re-steepening. And now the two tens are as steep as we've seen in quite some time. But I don't think a lot of people anticipated 10-year yields a month and a half, two months after the Fed started cutting rates to be 4.7% and I still think they're going higher."

Global Interest Rate Movements

The panel discusses the international landscape of rising interest rates. Tim Seymour points out the situation in Japan:

Tim Seymour (02:44): "Japan to me is a lot more dramatic. ... Japanese investors have been relative value buyers of Treasuries. Meanwhile, Chinese yields continue to go through the post-COVID lows, indicating a spreading deflationary spiral."

Melissa Lee notes the global nature of the problem:

Melissa Lee (02:44): "And this is a global problem. It's not just in the US that rates are rising. Japan is over a percent for instance."

Federal Reserve Minutes and Market Sentiment

The recent Federal Reserve minutes reveal a more hawkish stance than anticipated, raising concerns about future rate hikes. Karen Firestone provides insights:

Karen Firestone (04:04): "The Fed thinks about what if these policies happen and what do we need to do in front of that, whereas normally they just wait and see."

Frank Holland links this to potential Q4 earnings challenges:

Frank Holland (04:48): "The sentiment together and you say to yourself Q4 earnings better be great and people better have confidence in that 13, 14% expected EPS growth year over year for the S&P 500."

Sector-Specific Impacts

Guy Adami and Frank Holland delve into how rising rates are affecting specific sectors:

• Banks: Potential benefits from higher rates can improve profitability.
• Small Caps and Homebuilders: Facing significant downturns due to sensitivity to interest rate hikes.
• Tech Sector: Concerns over overvaluation, especially in quantum computing stocks.

Frank Holland warns about the concentration in mega-cap tech stocks:

Frank Holland (06:56): "When you put a lot of that price action together, that sentiment together... we are going to have a sell-off."

Currency Strength and Equity Valuations

A strong U.S. dollar poses challenges for equity valuations. Mike Schumacher from Wells Fargo Securities elaborates:

Mike Schumacher (10:28): "A strong dollar... eventually it becomes a pretty tangible headwind for equities."

Guy Adami concurs, highlighting the negative impact on international growth:

Guy Adami (11:52): "The strength in the dollar... is going to be a tremendous headwind for equities."

Nvidia, AMD, and Quantum Computing Stocks

The episode shifts focus to the tech sector, particularly quantum computing stocks, which have experienced significant volatility. Following reports of potential export restrictions on Nvidia and AMD, stocks in this space plummeted:

• Quantum computing stocks like Rigetti, D-Wave, and IonQ saw declines exceeding 330%.

Guy Adami draws parallels to past market behaviors:

Guy Adami (16:37): "History is repeating itself and the amount of volume yesterday should really give people concern."

Frank Holland discusses the potential overstimulation of the sector:

Frank Holland (33:37): "If the Gen AI thing doesn't materialize this year... these stocks are going to go down."

Fast Money's 18th Anniversary Celebration

Marking its 18th year, "Fast Money" reflects on its evolution and impact on the financial community. Special guest Dylan Ratigan, the original anchor, joins the celebration, sharing insights on changes in market accessibility and trading technology. The panel reminisces about the show's beginnings, notable market shifts, and the growing sophistication of retail investors.

Dylan Ratigan highlights technological advancements:

Dylan Ratigan (40:04): "Accessibility... there are things that you couldn't do 18 years ago that you can do now, like trade volatility spreads profitably."

Tim Seymour and Karen Firestone discuss the transformation of market focus from oil and resources to data and technology, emphasizing the shift towards passive investing and democratized market access.

Southern California Wildfires and Insurance Industry Impact

The episode addresses the devastating wildfires in Southern California, with over 80,000 evacuees and significant property damage. Contessa Brewer from CNBC provides an analysis of the insurance implications:

Contessa Brewer (20:21): "Insured losses at about $10 billion... high value of lost real estate will generate large economic losses."

The discussion highlights the precarious state of the Fair Plan, California’s last-resort insurer, and the potential long-term impacts on property values and the insurance market.

Karen Firestone raises concerns about economic repercussions:

Karen Firestone (23:18): "If they can't get insurance, then property values have to go down a lot... it's a vicious cycle."

Middle Market Lending and Private Credit Growth

A segment featuring Lawrence Gollum, CEO of Malab Capital, explores the robust growth in middle market private companies. Despite rising interest rates and a strong dollar, private credit remains an attractive investment avenue with tight credit spreads and increasing deal volumes driven by private equity enthusiasm.

Lawrence Gollum emphasizes the resilience of the private credit sector:

Lawrence Gollum (25:21): "Private equity firms are very excited about deal volume picking up... it's very difficult to try and sort out for investors."

Conclusion and Final Thoughts

As the episode winds down, the panel offers final insights on market dynamics, emphasizing caution amidst rising rates, currency strength, and sector-specific vulnerabilities. The celebration continues with acknowledgments to long-time contributors and reflections on the show's enduring relevance in a rapidly changing financial landscape.

Frank Holland concludes with a reminder of market readiness:

Frank Holland (35:09): "Thanks for watching these past 18 years. Mad Money with Jim Cramer starts right now."

Key Takeaways:

• Rising 10-Year Yields: A significant driver of market volatility, impacting major indices and sensitive sectors.
• Global Rate Pressures: Interest rate hikes are a worldwide phenomenon, affecting economies like Japan and China differently.
• Fed's Hawkish Stance: Recent minutes suggest potential for further rate increases, heightening market concerns.
• Sector Impacts: Banks may benefit, while small caps and homebuilders face challenges. Tech sector valuations, especially in quantum computing, are under scrutiny.
• Strong U.S. Dollar: Continues to pose a headwind for equities, particularly affecting international growth.
• Quantum Computing Stocks: Significant volatility driven by export restriction rumors and skepticism about near-term viability.
• Private Credit Growth: Middle market lending remains robust, offering opportunities despite broader economic challenges.
• Insurance Crisis in California: Wildfires exacerbate existing insurance challenges, threatening property values and market stability.
• Fast Money's Legacy: Celebrates 18 years of market insights and adaptation to evolving financial landscapes.

Notable Quotes:

• Guy Adami (02:32): "It's a re-steepening... I still think they're going higher."
• Mike Schumacher (10:28): "A strong dollar... eventually it becomes a pretty tangible headwind for equities."
• Frank Holland (33:37): "If the Gen AI thing doesn't materialize this year... these stocks are going to go down."
• Lawrence Gollum (25:21): "Private equity firms are very excited about deal volume picking up."

This comprehensive summary captures the essence of CNBC's "Fast Money" episode, providing a detailed overview of the key discussions and insights shared by the hosts and guests.