← CNBC's "Fast Money"
CNBC's "Fast Money"
Stocks Sell Off As Santa Claus Rally Fades… And 2024’s Winners & Losers 12/27/24
00:43:52
Markets still searching for a Santa Claus rally, as stocks sell off to close out the week. And with just a few days left to go in 2024, are markets setting up for a painful start to the new year? Plus How you should play 2024’s biggest gainers and laggards. The traders make their picks with a good old fashioned game of “Trade It or Fade It”. Fast Money Disclaimer
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- [00:00]
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- [01:03]
Melissa Lee
Live from the NASDAQ markets out in the heart of New York City's Times Square, this is fast money. Here's what's on tap tonight. Holiday hangover stocks limping to the finish after another blockbuster year. Is today's slump just a case of investors selling their winners or the start of real volatility ahead of the new year? We'll debate that. Plus a winners and losers edition of America's favorite game is a time to keep names Vistra and United Airlines or dump them for dogs like intel and Humana will spin the trade it or fade it wheel coming up and later, charts of next year from a quantum leap to opportunities abroad to healthy returns returning to health care. We'll go around the horn to find out what the traders are watching in 2025. I'm Melissa Lee, come to you live from Studio B at the nasdaq. On the desk tonight, Courtney Garcia, Steve Grasso and Mike Koh. We start off with the search for the Santa Claus rally. So far it hasn't materialized this year. Major markets off their lows of the session but still all down to close out the holiday shortened week. The Dow's 333 point pullback breaking a five day winning streak. The tech heavy Nasdaq the only index in the green for December. The S and P and Dow both pacing for their worst month since April while the small cap Russell 2000 with its worst month in over two years, Steam coming out of the momentum trade in a big way too. This year's best performers Palantir, Vistra Energy and Nvidia all in more seeing outsized gains. Excuse me outside losses. Is this just a sign of profit taking after this year's rally or is there more volatility and pain to come in 2025? Seagrassa what do you think? You're a big believer in seasonality and where is it?
- [02:33]
Steve Grasso
Yeah. So if you think about it though, what did the market do from the election? We had tremendous amount of uncertainty. We pulled forward a rally. Market was up basically 8%. Bitcoin up 35%. So where do you go from here? I think everything gets pulled forward. So January usually, what's the dynamic? January, half the month is positive, half the month is negative. So flip a coin on that one. You have a new president coming in. Lower regulation, lower taxes, pro growth. So where do we go for here in the market? Higher. And if you think about where we started from in October, we had no clue, or I should say September, we had no clue where rates were going to be. So we had that surprise 50 basis point cut. Then the markets rallied and then the markets said, oh my gosh, let's hold back on the election. We have no clue where anything is going to fall. So let's just see where the chips are going to lie. The market said let's buy, let's buy everything and anything and everything. And then who pressed pause on the rally? Powell. So when you start to really sit there and say let me pull the reins back on the rally on the bulls, that's where we're at.
- [03:48]
Melissa Lee
Yeah. January 20th obviously is a big date, Inauguration day and we are just about 10 basis points away from this year's high in terms of yields on the ten year treasury. I mean that can't be overlooked either. Yeah.
- [03:59]
Courtney Garcia
And I think that's what investors have been looking at. Right. So when you look at post election, I think you bring up a lot of really good points here where all of a sudden there was a lot of this broadening and this breadth in the market and that quickly reversed. Right. Everybody had this risk on rally. They were right back to the Mag 7. But we are likely looking at this higher for longer. Rates are not going to come down as fast as everybody hoped. And that's really where you're seeing the market today. People are selling the Max 7 which means they're taking profits from those things that have done really well. You're seeing a lot of your interest rate sensitive areas. So think of things like commodities, things like oil, those are actually pricing higher or holding up a lot better in this market. I think that is what you're going to start to see in early 2025 where I don't think this is necessarily concern of where the tech trade is going forward. But are you going to see some rebalancing and see some profit taking? Absolutely. I don't think it's a bad thing for that longer term. But you absolutely want to have those inflation hedges. I think that's going to continue to be a story next year.
- [04:48]
Melissa Lee
And Mike, volatility, The Vix was up 8%. We can't overlook that on a Friday.
- [04:54]
Mike Koh
Yeah, I mean I have said before that sometimes if you think that a rally is overextended, that one of the things that you might want to look for are more of these sort of unusual moves where you're getting, you know, a one, two, maybe even a three standard deviation move in, you know, within a given day. I don't know that I'm really that concerned about what happened today. We've had a heck of a run. As Steve was just pointing out. I wouldn't expect to see a lot of people paring their winners right before the end of the year if it's in taxable accounts and institutions don't typically take them off their sheets, you know, right before the end of the quarter, their winners, that is. So I think I'd be more inclined to be concerned about some selling in those winners. I think we're just in a relatively thin period here between Christmas and New Year's and that could be contributing to it a little bit as well. I mean, if we get too many of these days though stacked up where we get these big moves on a relative basis like we saw today and like we saw earlier, then I would get a little bit more concerned. Two, within the last 30 days, 45 days, not a big deal. But you start Getting up to 4 or 52 plus standard deviation moves and typically that correlates to worse performance over the ensuing 30 days.
- [06:01]
Melissa Lee
All right, so in the month of January, as we look ahead, Steve, what are you expecting?
- [06:05]
Steve Grasso
So I would think that you start to see a little follow through with the pullback that we've seen right now and then you're going to start to see those wild horses being set free. What does that mean?
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Melissa Lee
Yes. Which stocks are the wild horses you lost? Me?
- [06:19]
Steve Grasso
Yeah, I lost myself. But I figured if I stop right there, no one's going to hold me accountable. So I think you're going to see, unfortunately, I think you always get pushed back into the Mag 7 stocks. I don't think that the mid cap, small cap names are going to rally the way everyone wants them to.
- [06:34]
Melissa Lee
So you are still in the mindset of a pullback. And the Mag 7 is a pullback to buy. Yeah.
- [06:39]
Steve Grasso
Because even if it's almost. Remember how we used to have the Fed put the Powell put where. Why do people buy the Max 7 cash on balance sheet? So if you fear that things are getting worse with the economy, where do you go? You go for those stores of cash and if you feel that you're in a high growth environment, you go for the highest growth companies. Either way that points you to max that.
- [07:06]
Melissa Lee
Well, I thought you're going to say not just cash on the balance sheet but, but secular growth. A growth story that is intact no matter what. If you think about I, you can make the case that that is an area that will grow, that will continue to be expanded, invested despite economic times because that is what the, the next thing is to, you know, capitalize on productivity gains, etc. So is that the mindset of your clients? Is that your mindset that Mag7 is great in growth and greatest defensive play?
- [07:33]
Courtney Garcia
So it's somewhere that we absolutely want to maintain exposure to. But there's something we've been talking about for a while where if you have not made changes to your portfolio, most people are overexposed. I mean we're seeing people at 40, 50% more than they plan to just because they haven't taken any profits. They're saying why would I do that? It's done so well. But I do think there's a lot of other areas of other opportunity. Like I think energy has kind of fallen off the sidelines a lot of people aren't paying attention to. But that's one of these huge beneficiaries of artificial intelligence.
- [07:58]
Melissa Lee
Right.
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Courtney Garcia
Where they need the energy for these data centers for electric vehicles and all these other, these other items that there's just not enough on the grid. So I think there's these secondary beneficiaries of artificial intelligence which are much cheaper that I think as you have all that cash on the sidelines or Steve points out, there's other places to add it. So I want to own the Max 7, not bearish on it. I just want to get this broader rally and I want to have a broader portfolio in order to take advantage of that.
- [08:21]
Melissa Lee
Yeah. Mike, are you looking to rotate, you know, pair some of the, some of the gains in Mag 7 and move it to some of the underperforming areas of the market? I mean, Courtney had mentioned energy for the year. A laggard. Materials. A laggard. Staples.
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Mike Koh
Yeah. And health care. A laggard. I Mean, so, I mean, yeah, I mean, actually energy and health care, first of all, health care as a segment. And, you know, I think we're kind of front running some other things that we probably want to talk about here a little bit. But, you know, the fact is that this has basically been dead money now for, you know, a couple of years and you know, the multiples haven't expanded. And there's some reasons for that. Some of these areas are under some, some pressure and are kind of, you know, not very well liked. But I have, you know, it's going to be a bigger segment of the economy in 2030 than it is today. And so if we're thinking that it's going to be 20% of GDP, kind of have to own it and you know, it's going to continue to grow and some of these companies are actually looking pretty cheap to me.
- [09:14]
Melissa Lee
Let's move on to banks here. The KBW Bank ETF is up almost 34% in 2024, on pace for its best year since 2011. Our next guest thinks M and A could be a big driver for the group in the new year. Let's bring in Chris Marinac of Janney Montgomery Scott. He's the firm's director of research. Chris, always great to see you. So you are a believer that less regulation, a lighter touch that's going to allow a lot of bank M and A. What kinds of banks are going to join?
- [09:41]
Chris Marinac
I think the banks Less than 100 billion, Melissa, are much more likely to merge. I think the big mega bank deals are going to be hard to do. We may eventually have that happen in the new administration in another year or two. But I think below the $100 billion line of demarcation, there should be a fair amount of activity. And I think what we've seen the last two months actually is a pretty good precursor of that deal activity.
- [10:04]
Melissa Lee
The last two or three months. In terms of which deals, in terms.
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Chris Marinac
Of deals announced in late October through mid December, there's been a fair amount in the small midsize banks.
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Melissa Lee
So when you take a look at the landscape, how are you thinking about how the deals will be pieced together? Will it be geographically, will it be kinds of lines of business, the banks that have a troubled real estate portfolio, all of the above, maybe.
- [10:28]
Chris Marinac
I would say it goes back to deposits. Deposits are the lifeblood of the industry. You have great organizations around the country who have excellent deposits that could get you into the Southeast, into the Southwest, perhaps in California. There are very good places where banks can take Those that funding and lend it out to a greater rate and make a bigger spread the next five years. At the same time, you're also taking out costs. And that cost takeout is very meaningful to earnings in the long run.
- [10:55]
Courtney Garcia
Hey Chris, this is Courtney here. So when it comes to banks, we do get a lot of questions from clients where they're saying how much really should I be concerned about rate pressure and the fact that rates may not be coming down as fast as one had originally hoped? And is that something we should be concerned about with the banks or is the fact that the yield curve normalizing better for the banks? Maybe this shouldn't be as much of a concern. Like what would your take on that be?
- [11:14]
Chris Marinac
So I think first off, the 100 basis point Fed cut in the sense September has been huge for deposit and funding costs. You're going to see that in better margins in Q4 and Q1. I think the yield curve turning positive the last three weeks is a big plus. It's going to improve investor confidence. It's going to bring more money back to the sector. I think overall the Fed slowing down, the easing is probably bullish because it allows banks to reset loan yields at a slower pace while their cost of funds has come down much faster. That's where the margin expansion is really happening.
- [11:46]
Mike Koh
So Chris, I just had a quick question on the HTM books. I mean, obviously as the long end of the curve has sort of stayed a little bit elevated here, then obviously if banks are looking to merge and that's going to be a meaningful concern, something that they probably look at more meaningfully than sometimes investors even do.
- [12:01]
Chris Marinac
Well, you're correct. And in fact, this quarter, as we finished on Tuesday, we should see the marks go right back to where they were at the end of June. We're sort of doing a complete reversal of the positive marks in September. But at the end of the day, the banks are seeing pretty good payoff of the HTM portfolio. A lot of those are in residential mortgage banks that are paying off about 10 to 14% per year. So those are coming off slowly but surely. A lot of the high issues on marks that were hurting banks from the 20, 20, 21 purchases have started to come down and are acting. So the marks are important on the deals for sure, but I don't think they're going to threaten the transactions like they would have 18 months ago.
- [12:43]
Melissa Lee
Wells Fargo potentially could have its asset cap lifted as soon as the first half of next year, Chris. That's been reported in Wells Fargo. We've Seen the stock respond to those reports and I'm wondering if that, if that clears away in your view for some acquisitions, even if it's smaller acquisitions just to bolster the deposits or other lines of business.
- [13:03]
Chris Marinac
So I would see Wells doing other lines of business before they jumped into banking. They've got a great deposit franchise around the country, really low cost of funds. I see them adding other business lines before they went back to banking. But if you think about the next three or four years, could Wells do a bank acquisition? Sure, they absolutely could. I'm just not sure it's going to be a 25 event.
- [13:23]
Steve Grasso
Chris, what are the minefields? We saw the regional bank collapse a couple of years back. What are the minefields that we're not paying attention to now that could create some chaos or is the rates issue off the table for them and it's an all clear sign?
- [13:38]
Chris Marinac
Well, I think at the end of the day the banks have to grow and they have to have some type of positive loan growth to really maximize the lower funding costs and get margins to expand. We see loan growth in the 3 to 4% range for the big banks and 5 and 5 and a half for the midsize banks. That's sufficient. I think you do have to achieve that growth to, to be success in the industry. The other landmine I would point back to is credit. Credit is always the issue in this industry and whether it's commercial real estate or CNI or some surprise on the consumer, we have to be mindful of that. The good news is the banks have great earnings. They can cover loan loss provisions if they need to go there. Right now it's been pretty stable the last few quarters on losses. But if we get a surprise, the earnings are there to cover that. That's really the silver lining for the industry. But that credit landmine is always something to pay attention to.
- [14:29]
Melissa Lee
Do you think regionals next year can match their performance this year, Chris?
- [14:34]
Chris Marinac
I think they can because of the M and A theme and the attitude that the investment spread business has improved overall. The lower cost of funds is such a big deal for the industry that really was threatening the industry in 23 and first half of 24. So I think they can. I think the multiples are still low relative to history. We're still, you know, roughly 60% of the, of the S and P. There's a lot more that can happen there on a relative history.
- [14:59]
Melissa Lee
All right, Chris, great to speak with you. Thank you.
- [15:01]
Chris Marinac
Thank you.
- [15:02]
Melissa Lee
Chris Marinac of Janney Maiko. You were asking about HTM held to maturity portfolios obviously bank of America was one that really felt the pressure from its own portfolio. And I'm wondering where you see the problems here, if any.
- [15:17]
Mike Koh
Yeah, yeah. I mean obviously bank of America amongst the money center banks was sort of the worst one. When we think about sort of the big disasters in the regionals that was often where the trouble was. Silicon Valley, of course that was a big part of their problem as well. But speaking to Chris's thesis that this could continue. If you just take a look at the regional bank space, obviously they've had a good run recently, but take a look at where they are in the long run. They're basically dead sideways to where they were in 2017 or thereabouts. So if they do catch fire, there is a lot more room to run than what we have seen over the course of the last 12 months.
- [15:53]
Steve Grasso
You know when you look at the regional bank index carry, it's up 15% or 16% year to date. Then you look at, look at the big, bigger banks, XLF up 30%. Look at JP Morgan up 40%. So why do you have to make it complicated? Because I think there always are more minefields in the, in the regional banking industry. You might have more upside potentially if you pick the right one. But there seems to be a lot of, a lot of unknown for me and when I really look at this, what's going to improve M and A And if M and A improves, you're going to get the likes of Goldman Sachs and Morgan Stanley do better. I'd stick with Goldman.
- [16:30]
Melissa Lee
Yeah. How about.
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Courtney Garcia
It's funny, you actually stole the words right out of my mouth. I was going to say, I think that one of the biggest beneficiaries here would be something like a Goldman Sachs because we talk about M and A, who's going to be the buyer, who's going to be the seller, who's doing all those transactions. That's a Goldman Sachs. I think they're arguably one of the biggest beneficiaries of less regulation and more M and A with the new administration coming in. So I like the bank space a lot here but I think that's going to be one of the biggest stories. I think it's absolutely something you want to play here.
- [16:52]
Melissa Lee
Coming up, Energy's New Year's resolution. Crude still negative in 2020 for the excellent, just barely in the green book. And energy turnover a New Leaf in 2025. Gas buddies Patrick DeHaan will join us next for the oil outlook. Plus a record year in the options pits the names taking volumes to new heights and where traders are poised to focus after the fall drops. Don't go anywhere. Fast Money's back into this is Fast.
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- [19:22]
Melissa Lee
Welcome back to Fast Money. The average price for a gallon of gas briefly falling below $3 on Christmas. That's the lowest cost on the holiday since 2020. Prices on average have been on the decline in the past five months. That's according to GasBuddy. Per what's Next for Gas, Gas, Energy and oil in 2025? Let's bring in Patrick Dahan. He's the head of Petroleum Analysis at Gas Money. Patrick, great to have you with us?
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Patrick DeHaan
Yeah.
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Mike Koh
Good to be with you.
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Melissa Lee
What sort of surprised me is your prediction that WTI would actually be lower by a couple of dollars or so. What are the dynamics behind that?
- [19:54]
Patrick DeHaan
There's going to be a lot of cost pressures on WTI and oil prices in the coming year. And make no mistake, I think it's well known right now President Trump's drill baby drill mantra. But there's a lot of other question marks surrounding OPEC. They've ob been cutting production continuously since 2023, kicking the can down the road now to April of 2025 to resume that oil production. So there's about 5 million barrels of spare oil capacity globally and that's keeping a lid on oil prices currently. We expect that will likely continue into the new year. In addition, the Chinese economy, which may be turning away from oil as they accelerate their EV transition, is likely to see a lower demand for oil in the year ahead. So overall the price of oil, we're expecting it to be modestly lower in the year ahead. There certain some risks with the potential of tariffs, but at least on oil, I think things will be pressured, especially when you consider that OPEC's spare capacity that lies dormant for now.
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Melissa Lee
How, how, how should we factor in the administration and their sort of push for less regulation, fewer cost fees, et cetera for producing oil and gasoline? I mean, how does that factor into your forecast for gas products and sort of the downstream?
- [21:08]
Patrick DeHaan
Well, especially for the midstream and downstream, pipeline operators are probably going to have a more conducive atmosphere for more mergers and acquisitions. Even on the upstream, you could see a little bit more consolidation as well as the downstream towards retail. There's been a lot of talk of major acquisitions at C store chains in the past year. I would expect that to accelerate. And so I think for the midstream and downstream, the future is rather bright. In fact, downstream retailer margins have been above average ever really since the COVID pandemic. So. So midstream operators, pipeline operators and C stores themselves are likely positioned to take advantage of what could be a very positive environment for doing business. Of course, those risks aside, there's a lot of, as you mentioned, deregulation likely coming a more fruitful environment for some of those mergers that potentially have been waiting the last couple of years.
- [21:57]
Steve Grasso
Patrick, only because you brought it up, opec, are they even really something we should pay attention to anymore? If you look at the U.S. brazil and Canada, they basically produce the same amount as OPEC. So in a lot of ways we've circumvented what OPEC's reliance used to be. And with China sort of, as you stated, pulling back, with most of Europe in recession, is it really even something to be concerned with?
- [22:28]
Patrick DeHaan
Well, you know, I think there's a lot that we're keeping an eye on. But when you come to it, OPEC's relevance likely has been reduced. I mean, they're, they're continuously fighting lower oil prices. Today, WTI at about $70 a barrel, really struggling to get anything above that level and hold it. And we still have this potential of OPEC increasing production again in April of 2025. It would not surprise someone if they continuously push that to July or potentially all the way to the end of 2025. But as you mentioned, Canada is producing more. I think there's a lot here. With the mix of potential tariffs that Trump has threatened to put on Canadian and Mexican crude oil of up to 25%, how the door could open then for potentially a Keystone XL pipeline to be resumed, if TC Energy even wants to see something like that. So there's a lot of potential wild cards here. But really, ultimately, I think next year could be a bit more of a struggle for the upstream than it would be for the downstream.
- [23:22]
Melissa Lee
So given all that, Patrick, what's your outlook for gas prices at the pump next year?
- [23:27]
Patrick DeHaan
Well, I think an environment which is.
- [23:28]
Mike Koh
Going to be weaker for crude oil.
- [23:30]
Patrick DeHaan
Is likely to deliver good news for consumers. In fact, next year, while we put our final numbers together, it's looking rather optimistic that, that aside from some of these risks, the talk of tariffs or unexpected geopolitical tensions that broadly speaking, US consumers are going to face a 2025 with relatively lower gasoline and diesel prices. And that's good news for companies like airlines as well. Any large end consumer should be fairly happy. The environment we are looking forward to in 2025.
- [23:58]
Melissa Lee
Patrick, great to speak with you. Thanks.
- [24:00]
Patrick DeHaan
Thanks for having me.
- [24:01]
Melissa Lee
Patrick DeHaan of GasBuddy. Michael, how do you want to trade this? A lot to go here in terms of the names and the stocks.
- [24:07]
Mike Koh
You know, I think that as far as the sector is concerned, you know, it is one of the sectors that I think could be potentially poised to rebound. Look, you know, in the Biden administration depleted the SPR or depleted a lot of it anyway in mid 22, ahead of the midterms. And Trump criticized that at the time. And I can kind of see if OPEC or OPEC plus countries essentially decided that they were going to go forward and get rid of those production cuts that they have in place that he was talking about being suspended until April. If the prices fell substantially, I would hope that they would talk a little bit about potentially putting a little bit more back in the spider and that could actually create a measure of support. We'll see if that happens. But to me I think that that's a potential area of stability that we haven't really mentioned yet.
- [24:50]
Courtney Garcia
Yeah. And I think the idea that gas prices are lower is a very good thing for the consumer. Right. Because every saying is the consumer too stressed out with higher inflation. But if we have lower gas prices, that is going to help. But also when you look at a lot of these energy companies, think like an Exxon or Chevron, their break evens are so much lower. Right. It's like 30 to $50 a barrel depending on the company that we don't need oil prices to go higher for them to be profitable. They have just had to become so much more efficient. So I think this is a good thing for a consumer. It can continue to be a good thing for the energy companies, but I think China will continue to be a big part of the story. Who's the largest importer of oil now actually pointed out how they use a lot more EVs so less demand towards oil, but they have a higher percentage of oil for industrial production. So if any of their stimulus actually does come to fruition, I think that actually could be the catalyst that pushes it higher. So I think that is something to watch here.
- [25:37]
Melissa Lee
All right. There's a lot more fast money to come. Here's what's coming up next.
- [25:40]
Discover Representative
It wasn't just the S and P hitting records this year. Options volume surging to new heights with some key names leading the charge. How options traders are positioning for the new year next + 2024 is nearing an end and there are some standout leaders and laggards in the market. Did you stick with winners in 2025 or bet on a comeback story for the new year? You're watching Fast MONEY live from the NASDAQ market site in Times Square. We're back right after this.
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- [27:14]
Melissa Lee
Welcome back to Fast Money. Another record year in the options pits as volumes continue to hit unprecedented levels. And some of this year's most popular stocks were behind the increased interest. Mike has got the action here, Mike?
- [27:26]
Mike Koh
Yeah, I mean, and that really, it's the Mag 7 that has the action, it has to be said. So if you take a look at the unprecedented growth that the options market has been experiencing now for quite a number of years in a row, what is also very interesting is the increased concentration that that volume represents. So if you take a Look at the MAG7 single stocks, they represent about 17.6% of all daily options volume, and that includes ETFs and indexes and things like that. If you take a look just at The S&P 500, they represent more than 50% of the contract volume over the last 20 days, for example, versus everything else. And if you look at it on a notional basis, so that means that you're counting the contract volume in a $400 stock like Microsoft more than you might in, say, a $40 stock like Comcast, then that actually increases to almost 68%. So what you're really looking at is that in terms of dollars moving around, two thirds of it in the S&P 500 single stocks is happening in just those seven.
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Melissa Lee
Is there a sense, I mean, I would imagine it's retail traders behind the continued surge?
- [28:34]
Mike Koh
I think that's definitely true. You know, one of the things we saw and probably will remember this before, for example, the big stock split that happened in Apple a number of years ago and before splits in names like Tesla and so on, is that sometimes when the dollar price of a stock gets very high, people who are looking to trade a stock during the day and are trying to control a larger amount of shares with a smaller amount of capital will turn to the options markets. So I think that's certainly part of it. But I also think that it's just the fact that, you know, this is where the frenzy is. This is where everybody's interest is. And I will say that if anything has me A little bit concerned going into the new year. It's just the fact that there is so much concentration in a relative handful of names.
- [29:13]
Melissa Lee
All right, Mike, thank you. Mike Koh, of course, our options guru here. Coming up, the ups and downs of 2024. Should you stick with the winners or bet on a big comeback? Or traders are debating some of this year's biggest movers with a good old game of trade it or faded. Fast Money's back into missed a moment of fast.
- [29:31]
Discover Representative
Catch us anytime on the go follow the Fast Money podcast. We're back right after this.
- [29:48]
Melissa Lee
Welcome back to Fast Money. Stocks selling off to close out the week but finishing off their lows of the day. The S and P falling more than 1%, the NASDAQ down nearly 1 1/2% and the Dow dropping more than 300 points, snapping a five day winning streak. But it was up for the first week in four. Bitcoin pulling back as well, trading around $94,000, well off its record of 108,000. And of course what a banner year grass though for crypto.
- [30:11]
Mike Koh
Yeah.
- [30:12]
Steve Grasso
And it's well above its 65,000 pre election level too. So if you, if you think about it, it probably should revert back to a certain level here and you either got to hold it it and have the stomach to hold it and believe in the long term ability for Bitcoin to move higher. And this is the most pro growth bitcoin administration will ever have.
- [30:31]
Melissa Lee
Yeah, I would imagine, Mike, that the options activity surrounding Bitcoin ETFs, Bitcoin products, it's pretty, pretty high.
- [30:40]
Mike Koh
It's very high. You know, when options came out on ibit, which is the Bitcoin etf, I mean this thing basically came out of the gates trading a half a million contracts, contracts a day, that's 50 million shares worth, which is really substantial. So there's obviously a lot of activity there. And of course there's a lot of activity in microstrategy as you would imagine because that's even more volatile than Bitcoin itself since it's a levered play on it and options are a way to make levered plays on stock. So there's obviously a lot of volume in there as well. And I think we should expect to see some of these pullbacks. I mean it's going to, that's going to happen. There was a lot of good news baked in and you know, you need some periodic sort of corrections to basically create a healthy market going forward. Forward.
- [31:18]
Melissa Lee
Yep. Well, the market may be up in 2024. But not all stocks were treated equally. Vista and United Airlines, two of the top five performers in the S&P 500, while Humana and Intel, among the biggest laggards, each about cut in half this year. So how should you tackle these trades now? Let's find out. The game of trade or faded. That's right, America's favorite game. So let's kick things off here with Vistra. Shares of the power company more than tripling in value this year, up 250, 60%. It's the second best performer in the S&P 500 behind Palantir. Courtney, Trader Fader. You're talking about energy plays adjacent to AI. Here's one.
- [31:54]
Courtney Garcia
Yep. And I would trade this. And actually for a lot of those reasons, right. I think there's a lot of beneficiaries right now. There is not enough supply for the amount of demand of energy that's going forward. And they had a merger earlier this year which actually increased their nuclear power. And that's going to be something that's really, I think, going to be the answer to this. And they have a really strong balance sheet, high free cash flow, and they're likely going to have pretty strong buybacks over the next two years. So the question is, has a lot of this been priced in some of it, yes. But I think this is a larger secular story that's going to play out over the long run. I would continue to play this.
- [32:25]
Melissa Lee
Mike, what do you say?
- [32:27]
Mike Koh
Yeah, I absolutely agree with the secular story, but I wouldn't be chasing Vistra here. So I'd have to say faded on this one. Look, I mean, if you take a look at the overall utilities sector, one of the things you can go back about seven, 10 years and you're going to see that these things are maybe a turnover forward, more expensive than they have been on average over that period of time, meaning that they really haven't seen much valuation expansion. This name is a part of that index. But you could buy a lot of other cheaper ones as well, and a lot of them are probably poised to benefit. So I think you could take some profits in Bistra here if you own it.
- [32:59]
Melissa Lee
All right, now let's get to United Airlines. Flying high this year. Shares up 140% year to date, on pace for its best year since going public in 2006. Six, Steve, trade it or fade it.
- [33:10]
Mike Koh
I'm going to say fade it on this one.
- [33:11]
Steve Grasso
And this was, this was a tough one for me because I believe that outperforming stocks continue to outperform and vice versa. With underperforming stocks, there's only so much you can get out of efficiencies. And the rush to have everyone come to your airlines. They've outperformed the airline industry by a country mile, I don't think. Continue. That's why I would be a fader.
- [33:32]
Melissa Lee
Of the stock, Mike. I don't know. The airlines seem to be pretty tough on their own capacity in terms of curbing it. And then Patrick to Han was talking about prices coming down, jet fuel prices coming down next year.
- [33:44]
Mike Koh
Yeah, I mean, that can represent anywhere from 25 to 40% of the operating cost of an airline and a lot of the outperformance that you've seen in United since August. The lows that we saw in that time were really catch up in United vs Delta, which is arguably, I think, one that people like most in the space. This thing is still cheap though. I mean, and they seem to be managing capacity very well. It's still trading at, you know, high euro, but still single digit multiples. So I think you can continue to own this one.
- [34:10]
Melissa Lee
All right, so you're trading it. Let's move on to the laggards here. Humana down 44% in 2024, trailing behind its health insurance peers and erasing $25 billion in market value. Steve Grasso, trade it or fade it.
- [34:22]
Steve Grasso
Fade it. This is going to be a bipartisan focus. I think these types of companies are going to have to pay out more. With the tragedy that we saw with the unhappy, all these companies are going to be kept under a microscope. I don't know if their margins can hold, Mike.
- [34:37]
Melissa Lee
Trade it or fade it.
- [34:38]
Mike Koh
Yeah, I would say we are going to trade this one. I mean, look, I get it. This is not a very well loved space right now. The PBMs are obviously under a lot of scrutiny as well. So the managed care space in general is, is one that isn't particularly well liked, I think, by the public. But the fact is it's very much needed and it's also trading at a big discount to the market. And it continues to grow and even if it doesn't, it's still cheap.
- [35:01]
Steve Grasso
Cheap.
- [35:01]
Mike Koh
So I think you can own this one here.
- [35:03]
Melissa Lee
I'm kind of surprised, Mike, given even before all the scrutiny, medical loss ratios continue to stay sky high.
- [35:11]
Mike Koh
Yeah, I mean, you know, it's interesting. Both humana and probably UnitedHealth obviously is the one that's been getting the most sort of scrutiny recently. But you know, this is an area where you have to sort of take a look and say, okay, is that kind of a cyclical trend and are they going to ultimately get that under control? And I think the answer to those questions is yes, they will.
- [35:27]
Melissa Lee
All right, and finally, let's get to Intel. The stock is down nearly 60% in 2024, getting booted from the Dow amid growth concerns for the chip maker. Courtney, traded or faded?
- [35:38]
Courtney Garcia
I would say this. I mean, as much as I want to buy something that's down this year on a dip, I think they do have a lot of issues in the short term. Right. So they're more than 50% exposed to pieces, which as we're seeing that PC refresh cycle we're all waiting for, just keeps getting pushed out. They really aren't competitive in the air space right now, now. So I think longer term, their foundry business, that is absolutely going to be their big beneficiary. But I think it's a little too far down the line at this point for me to be a buyer of the stock.
- [36:00]
Melissa Lee
Steve Grasso, I'm going to say traded.
- [36:02]
Steve Grasso
I know we've been talking about some of the parts being the tailwind to this dog.
- [36:06]
Melissa Lee
Stay dogs.
- [36:06]
Steve Grasso
Yeah, I know, I know. I said I fight. I fight with myself. Right. That's, that's the best trader. So, so this one, I think that going forward, AI hasn't been a tailwind to them. Quantum computing. I think they have a place in some of the parts. Eventually, this one's going to be a buy. I think it stabilizes very.
- [36:22]
Melissa Lee
All right, coming up, private credit has become an increasingly popular trade in 2024. What's been driving the interest and what is in store for the loan market in the new year? One expert will weigh in. Don't go anywhere. Fast money's back into. Welcome back to Fast Money. Financial heavyweights have been raising concerns over the private credit market. Check out today's New York Times article. Wall street is minting easy money from risky loans loans. What could go wrong? It dives into what they call a shadowy world that lends money to high debt, risky businesses at high rates for fast cash. But our next guest is urging investors to tune out the noise. Cause private credit a very compelling asset class. Alona Gordick, a senior investment strategist at Churchill Asset Management. Alona, great to have you with us. You say now is a great time. So what about the environment right now makes it a great time, whether it be the interest rate backdrop or the macro backdrop up.
- [37:14]
Alona Gordick
So it's a really interesting time in private credit Right now we're seeing a transition to its really next era of growth. Certainly the first part of growth here being evolutionary and structural. But really big drivers here are the race for retail. I'd say opportunity to bring private credit to individual investors. But if you step back and you think about the real origins of private credit, it's been around for over three decades. Long standing managers like Churchill and others have really been financing small to medium sized businesses through different cycles and rate environments. So today we're looking at private credit nearly 2 trillion, up nearly 10 times from 2009. But going forward we think the opportunity set here addressable market, more like 30 to 40 trillion including investment grade and assets on balance sheets of banks, which really may belong on the private credit side. So on top of that we do see a lot of white space here. 200,000 businesses considered middle market in size for the private space and really only 5% of those today with private capital investments. So huge white space opportunity.
- [38:11]
Melissa Lee
You know, I think that the headlines, you know, came out about when interest rates were very high and you're hearing about 12% loans because people can't get, or companies can't get access to traditional credit alone. So what sort of environment is it if the interest rate environment is more benign and interest rates are falling?
- [38:30]
Alona Gordick
Sure. I think interest in the asset class continues to be steady and growing despite what we're seeing in rates rates. While we did see a cut and then at least 100 basis points now from 2024 here, we do think that investors do think that the all in yields here are still quite compelling as you think about a premium to your public alternatives. And if you think about that, the premium has generally been somewhat steady in that 150 to 250 basis points range. So really an attractive all in yield that may come down. But our conversations with advisors today have really centered around education about why all in yields are historical highs right now. And that's really from the lift of base rates, right? Not necessarily spreads widen out as much, but base rates. So it's been about when, not if rates come down and really getting advisors and their clients comfortable with that longer term picture of a nice attractive all in yield despite where rates are going.
- [39:26]
Melissa Lee
Where are all in yields now versus at their peaks in, in the last year or two.
- [39:33]
Alona Gordick
Last year or two, I'd say we probably touched that 11 12% arena. And if you think about 100 basis points of base rates coming down, you get that in there. Plus spreads have tightened up across the board, across all credit asset classes. So you're seeing rates all in yields really coming in that 8 to 10% range and arena. But historically what we've seen in private credit deliver more of that 6 to 8% asset class, recall it the last 13 to 15 years, really attracting a lot of interest, interest in that low rate environment that we had been in. So I'd say coming in about 8, 9% is still quite attractive to where we've been at before.
- [40:11]
Melissa Lee
But even the worst case scenario in your view, I mean, in terms of going reverting to historic all in yields, it would still be 6 to 8%, which doesn't seem that bad. But how does that compete with returns on the stock market? I mean, how should investors view this as part of their portfolio?
- [40:26]
Alona Gordick
Sure. What we think about at Churchill is not necessarily where rates are at, but really the best credit selection that we can make. Because what we want to deliver at the utmost is really minimizing or limiting loss. Right at the end of the day with debt, you're really just going to get your principal and interest back. So when you think about all in yield, it's more of a relative game than absolute value here. So if you're 6 to 8 or 8 to 10, what you want to make sure you do is minimize losses and losses and defaults. And this asset class historically over the last 22 years has shown resilience in terms of showing a much lower loss rate versus broadly syndicated loans or the public alternative for loans or high yields as well.
- [41:05]
Melissa Lee
Alona, great to speak with you. Thank you.
- [41:07]
Alona Gordick
Thank you so much.
- [41:08]
Melissa Lee
Alana Gordon. All right, Courtney, are you getting questions about private credit?
- [41:13]
Courtney Garcia
Questions? Yes, but we are also one of these beneficiaries where we are getting pitched this all the time as an ria and I just, you know, we have not been able to, I think, buy into this as for our clients at this point in time, I think when you're looking at any of this, when you're getting like 11, 12% yield, there's a reason that it's paying higher interest dangerous than a typical bond is because there's higher risk that's attached to it. So that's not something that we put our investors into because our whole viewpoint is if I'm going to take risk, I'm doing the markets where I have a better upside. So this isn't something that I use, but it has quadrupled in size, I think, over the last decade.
- [41:42]
Melissa Lee
Right.
- [41:42]
Courtney Garcia
I mean, it's about as big a business as your syndicate loan business of traditional banks. So, you know, there's clearly a lot of outpouring in here. I think those content, they're going to continue to bang at our door and convince us why we should be having that, that, and do that to all the other areas out there. It's not something that, you know, I'm jumping into at the moment.
- [41:57]
Melissa Lee
Michael, how about you?
- [42:00]
Mike Koh
Yeah, I mean, first of all, look, equities have had above average rates of total return over the course of the last several years. And while it would be nice to think that that can go on forever, it most likely won't. And if you look at the fixed income market, the opposite has been true. And there has been for a very long time this idea that you balance a portfolio between, you know, fixed income and equity. And I think that people should be taking a look at this. You know, an important thing to remember is that on the credit manager side, you know, a retail product, I'd be more concerned. But on the institutional credit manager side, I've always found that fixed income investors tend to always be looking for the cracks because they're much more exposed to things like credit risk, whereas equity managers are always looking for, you know, the next big thing and a lot of growth. So, you know, if you're going to start thinking about risk a little bit, I think actually going into fixed income, including an allocation of private credit, makes some sense.
- [42:48]
Melissa Lee
Sense, right. Coming up, new year, new charts. The traders are laying out the names and spaces to watch in 2025. Can their picks ring in some gains for your portfolio? We'll debate that when Fast Money returns. Welcome back to Fast Money. Even with the recent volatility, broader markets poised to finish out the year on a high note. But what trades could be the big winners in 2025? We are asking each of the traders for their chart of the new year. The idea there may most excited about in the year ahead. So, Mike Ko kick us off.
- [43:21]
Mike Koh
Yeah, you know, we've been talking about it a little bit already and that is health care. You know, you can take a look at something like xlv, which is the ETF that tracks the health care index. You know, this is an area where you haven't seen a lot of valuation expansion. It is a growing portion of the economy. And if you're looking at the whole sector, you're going to get a decent amount of diversification. You're not just playing on Lilly, which is its largest constituent, but you're going to get things like hca, which is the hospital operator, and Resmond. You know, companies like that in the Mix as well.
- [43:50]
Melissa Lee
All right, Steve, So we've been doing.
- [43:53]
Steve Grasso
The show for quite some time, 18 years in January.
- [43:56]
Melissa Lee
So think about this.
- [43:58]
Steve Grasso
What's the furthest back we can go with a theme? Was it rare earth?
- [44:03]
Melissa Lee
Was that early fertilizer? The early days of fast. Yeah. There's so many different fads.
- [44:08]
Steve Grasso
Right. And then it went to crypto.
- [44:10]
Melissa Lee
Sure.
- [44:10]
Steve Grasso
And then it went to AI.
- [44:12]
Melissa Lee
Don't forget potstop stocks. Fly that stock.
- [44:14]
Steve Grasso
All right, great. And then it went to AI. And now we're seeing just a little bit of a sniff on quantum. So I think there's going to be a lot more quantum in 2025, even.
- [44:26]
Melissa Lee
Though that's so far down the road in terms of commercialization.
- [44:29]
Steve Grasso
Oh, it's never stopped the market from buying things up when it, when there's really no profitability.
- [44:34]
Melissa Lee
A decade.
- [44:35]
Steve Grasso
Yes.
- [44:35]
Melissa Lee
Not like next year.
- [44:36]
Steve Grasso
And that's the beauty of quantum computing, that it collapses on each other. So maybe, maybe what we're thinking about is a decade becomes a two to five year time span. So there's not really a lot of ETFs.
- [44:49]
Melissa Lee
So qt u in this Alphabet.
- [44:53]
Steve Grasso
Well, I'll tell you, I'll tell you. I'll tell you what it is because.
- [44:56]
Courtney Garcia
You don't know anything.
- [44:56]
Steve Grasso
You don't. There's D wave in it. There's Rigetti in it. I thought he pitched for the Yankees quite well. And then, and then you have ionic. So there's a lot of things that. And there's not any one of them that has an outsized percentage.
- [45:10]
Melissa Lee
All right, Courtney, what is your chart of the year? New year, I should say.
- [45:13]
Courtney Garcia
I think one thing to take a look at here is emerging markets, which I think a lot of people have just kind of thrown to the sidelines because everything that's going on in China right now. But keep in mind that is only a portion of this index. There are ways of playing this. China. I would actually include this in here, but this is an index that trades about 45% discount to the US markets. It trades, it has about three times the yield of the S&P 500. And when you look at emerging markets, I mean, that's 65% of the world, I'm sorry, 85% of the world's population, but only like, what is it right here? 10% of market cap. Right. So I think this is something that is really well positioned here. And especially if we do see any of the stimulus in China come to fruition, I think it is going to benefit. So I think you want to make sure you have a piece of this.
- [45:52]
Melissa Lee
All right. Up next, final trades. Want to let our fast fans know that we are nearly at the finish line of this year's acronym challenge. Two of the traders on the deck desk tonight, Mike Koh and Steve Grasso are number one and number two. With just two trading days left to go. Mike's brave being powered by the huge move this year in Bitcoin is leading the way. He is up 35% and Steve's right now the runner up with Sage. The Smurfit Westrock merger has helped juice Grassley's returns. Alphabet and ether as well. The big reveal of the winner coming on January 9th. So mark those calendars. Time for the final trade. Let's go around the horn.
- [46:32]
Mike Koh
Micah yeah, Albertsons. You may not be all that hungry, but the grocery store is trading less than nine times forward earnings and is yielding more than 8% on a cash flow basis and a very good dividend as well.
- [46:44]
Courtney Garcia
Courtney Goldman Sachs. We talked about the banks earlier and I think the M and A activity next year is likely going to pick up. They are a big beneficiary. You want to make sure you have a piece of that.
- [46:52]
Steve Grasso
Steve Uber the stock is right where it usually bounces.
- [46:55]
Melissa Lee
Uber thank you for watching Fast Money. I'll see you in the new year. I'm off next week. Don't go anywhere though. Mad Money with Jim Cramer starts right now. All opinions expressed by the Fast Money participants are solely their opinions and do not reflect the opinions of CNBC, NBCUniversal, their parent company or affiliates, and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information the Fast Money participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy and it should not be relied upon as such.
- [47:42]
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Melissa Lee
Please visit cnbc.com fastmoneydisclaimer Is it time.
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Melissa Lee
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