All Eyes on Fed Chair Powell
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A warm welcome to the Risk Reversal Podcast. I'm Guy Adami, always joined by the great Dan Nathan. Dan, how are you today? I'm doing great, Guy Adami. You know, as a saying that we have here around risk reversal media, you cannot keep

a good market down. - Cannot. - I just want to be really clear about that. It doesn't seem like this market will ever go down again. And just for some of you guys that we hear in the comments, "We're not rooting for this thing to crash or anything like that. We just like to see a little bit of fear put back in the market." And if you can't have a war in the Middle East, and I don't mean to say that in a manner that sounds insensitive to the hardship that's going on there and the like, but if the stock market in the US

as we contemplate our potential involvement what does oil mean in this whole thing right a protracted sort of situation if that can't put a little fear in the market guy what will that's the point you know the market's looking past theoretically everything you have to

you have to come to the realization, to come to grips with the fact that the market is pricing in every potential bit of good news and discounting any potential bad news. And that's why we have an S&P that's 2% off the prior all-time high that we made five or six months ago. And here we are. Still a VIX, even though we're down today, a VIX that is still, in my opinion, somewhat elevated and obviously still things to be concerned about. But in terms of the performance of the broader market through the lens of the S&P 500,

it's pretty unbelievable in my opinion yeah no doubt our friend uh doug cass had an interesting piece out this morning he has an expanding series on just the level of complacency um in the market and i think that listen that makes sense i think a lot of folks as they were thinking about trade and tariff and you know the potential for tax and this they've just gotten you know through the difficult parts of all that and you know geopolitics is not something that you and i look back over the course of our career that has had too much of a kind of

if you want to call it a headwind, if you will, markets. And, you know, usually it causes a little initial sort of volatility. And then you see it kind of, you know, back to business as normal. And I guess that's what we saw on Friday. You could say it was a summer Friday. This was something that wasn't particularly telegraphed. That is the

you know, basically the bombing of Iran by the Israelis. But you had that spike in oil. You had that move lower one and a quarter percent in the S&P 500. You had a VIX above 20. You know, you had 10 year yields guide that didn't really move a whole heck of a lot. You've seen the dollar rally a little bit. Bitcoin was kind of stuck. Gold, you know, was right back up against those prior highs. But in general, a pretty benign environment for macro risk assets.

I think the market dealt with it over the course of maybe 12 to 16 hours and then seemingly business as usual. And the fact that you didn't see a significant move in yields, yields moving lower in some flight to safety or the dollar going higher and some again, flight to quality, flight to safety.

almost told you everything you needed to know the S&P obviously had the knee-jerk reaction which I guess made sense but it's right probably back to where it was prior to this whole thing starting maybe you'll leave them a little bit higher now so

Yeah, the market seemingly looks past everything. And that word, that complacency word that Doug used, that we've used, that Jamie Dimon used a couple of weeks ago, I mean, it's clear as day, I think, if you're just looking at vis-a-vis the market. Yeah. So if you're looking past trade deals, if you're looking past, let's say, this sort of unease situation in the Middle East, then you got to get focused on what the Fed is going to say this afternoon, right? So we have

two-day Fed meeting coming to an end in just a few hours. Fed Chair Powell is going to come out and speak to, you know, basically the fact that they are going to remain paused here on the rate cutting cycle that began, you know, a little more than obviously or a little less than a year ago and expectations for when those cuts are going to start to come is going to be on the tips of everyone's tongue, if you will, as you kind of think about what all the pundits are going to say

Afterwards, we have the dot plots. Expectations here, Guy, because we've been tracking the CME Fed Funds futures for a while, really only pricing in 225 basis point cuts between now and the end of the year. We're going to have to look at July. That's the 30th. There's no meeting in August, but we do have that Fed confab in Jackson Hole late August. Are you going to be out there for that?

No, not going to make it this year, unfortunately. The invite got lost in the mail, and then we get September. And September is the main event for rate cuts, which would be one-year anniversary of their first cuts last year, obviously their first cuts since COVID.

Well, the cries and the noise, the cacophony of sound that keeps coming from a number of different people that the Fed is going to be late again and that they're miserable at their jobs. I'm somewhat paraphrasing. And, you know, I would be a better Fed chair. And can I appoint myself? And they should be lowering rates. I mean, that's going to continue. And I think

As we get further into the summer, we're going to hear names about the next Fed chair that'll definitely be thrown out, whether it's Scott Besson moving from Treasury and Kevin Warsh taking over at Treasury or vice versa, something like that. But it's clear that Jerome Powell's days are numbered and numbered because he does step down early, I think the spring of next year. And I don't think anything's going to happen prior to that. And he's going to continue to hear this, but I also think he's going to continue to stay steadfast

in his belief that they're doing the right things. And if look, if things were to turn in a precipitous way, I think they would act. But I don't see anything necessarily that's begging them to be lowering rates here. And again, lowering rates does not mean that the yields that they need to get lower are going to go lower. And maybe there's some misunderstanding or

Maybe they conflate the two. But I would think, and this is just my opinion, the Fed could lower rates today and surprise everybody and maybe get a knee-jerk reaction in the back half. But I think at a certain point, yields in the back end from 10 years on are going to continue to go higher for all the reasons we voiced earlier.

for a number of months now. Yeah. And a couple of things there, you know, last year in September when we did that 50 basis point cut, that's what Fed Chair Powell did. And at the time he talked about a weakening labor market. That was the concern there. And, you know, at the time we were also like, OK, we're still at like 4% unemployment, right? Which was very near, you know, 50, 60 year lows or something.

think a lot of folks were like wait really right and so i guess a lot of um you know if you're a market participant here and you're listening to what the fed has to say about the current um environment you're going to be very focused on what he thinks is going on uh with the jobs market right and then if you put that together with what we saw yesterday on tuesday with some of those

retail sales data for May that was a little disappointing. You could have explained that away, guy, if you think about March and the kind of, you know, you know, the hoarding that you saw or just kind of folks getting in front of tariffs and the like here. But you put together, you know, what we heard about May jobs

You put together what we have about retail sales. What do you think the feds take away right now as they look at another sort of geopolitical situation where there is potential for inflationary pressures? Because right now, it really is going to be the commentary that drives, I think, a lot of focus as it relates to the cutting cycle and what we might see for the balance of this year. It's the commentary. I mean, it's a Q&A today, and it's the commentary, and it's the...

i guess it's the takeaway from the market and this is what we've seen i think you would agree with this i'd say for the last couple years now typically the first move post fed is the wrong move so you know we'll see how it plays out today obviously have a market the s p is up half a percent or so right now uh we'll see if this is some sort of front running what the market anticipates but what i

What I've learned is that first move, that hour and a half or so move into the close is typically the wrong one. And things typically get reversed, whether it's the upside or downside the next day. And the Q&A to me is what's going to be, I think, the most interesting, because in terms of the statement,

In my opinion, I think we all sort of know what it's going to be. Yeah, well, the next day guy is Juneteenth and we are off tomorrow, which I do think is one of the more, you know, unique situations as it relates to, you know, a Fed meeting and the like. So, you know, the one thing I'll say, and we're talking about Fed Chair Powell. So the term ends in May of 2026. And I went to the perplexity guy to think about the last time or ask the question, you know, when Fed Chair Powell

was the nominee, right? It was three months. Trump did it three months before the end of Yellen's term, which I think I would suspect that he does it much sooner than three months, right? Because you just used the term shadow fed chair. The sooner that he puts that person out there, the sooner that you're going to see market participants digging in what their commentary has been and what their history has been as it relates to

you know, interest rate policy and the like here. So that'll be really, that's the one thing as we get into the fall, you start saying to yourself, well, maybe it's six months and maybe you do put that sort of pressure. Maybe that neuters, you know, Fed Chair Powell, the sooner that he nominates that new, you know, successor.

Yeah, I don't know how it plays out. You know, I don't think it's necessarily going to change how this chairman views things or how this chairman operates. You know, I do think, and again, I've been a critic for a long time. I've come to

like him over the last year or so for a myriad of different reasons, not least of which, I think he's sort of learned the job a little bit better. More importantly, I think he's learned how to speak to the market and to stand up for himself a little bit better. And I think the Jerome Powell of 2018, I think that's when he first started

spring of that year is a much different Fed chair than here we are in the summer or about to be in the summer of 2025. So yeah, I think you're going to get the names and you're going to hear all the chatter around it, but I don't necessarily think it's going to change anything. By the way, I think Jacob just was able to find the picture of me at the last time I was at the

the woods hall or jackson hall i mean maybe we can put that in the show really i mean it's pretty good stuff right there um that was that was a cc lagader creation which is uh quite beautiful we will put that in the show notes guys before we get to some of the the stocks and the sectors driving uh the market today um

This was an interesting article. And we just mentioned gold. You know, gold is just below thirty four hundred. And that is isn't that the prior all time high? Thirty four forty ish. But yeah, yeah. Yeah. And which is interesting because, you know, obviously, you know, we're waiting to hear whether the Fed remains a bit hawkish about their policy or if they were to kind of get a bit

more dovish, you would think under both scenarios, I could see gold rallying, by the way. So, but there was an article in Bloomberg and we'll throw this one in the show notes. And it was talking about the chief investment officer of XBTO. And this is Javier Rodriguez Alacron, or I think I nailed that. I don't know. - Nice job. - So he was talking about it in a note this morning, a hawkish signal from the Federal Reserve could strengthen the US dollar and trigger a test of the psychological 100,000 mark

in uh bitcoin simultaneously the geopolitical situation remains a wild card and any credible de-escalation in the middle east could serve as a significant risk on catalyst while further deterioration would likely trigger another move down across risk assets so how do you think about that through the lens of let's say gold and bitcoin you know that is an interesting setup with you know what

what expectations are for what the Fed might do or say and set the stage for the next few months. - So I'll discount Bitcoin for a second because I understand why people would say 100,000 is a psychological level for obvious reasons, the number itself. But I think the real number, I think you would agree with this, is the fact that in Bitcoin, we've traded up to 110,000-ish again, and seemingly, and I want to be clear,

have sort of petered out at those levels. Here we're trading at about 104,000 or so. So Bitcoin, I'm not really sure exactly what's going on, but in terms of the way they game this out, yeah, I think it's pretty clear that if there's a de-escalation in the Middle East for whatever reason, Iran decides they're gonna come to the table and completely surrender, and I'm doing it in air quotes, then the market will react on the back of that without question.

But I think what is unquestionable is regardless of outcome there, you still have a market in terms of valuation, in terms of the metrics we talk about, especially oversold, overbought conditions. I mean, the overbought conditions today are as drastic as the oversold conditions were in early April. So there's no denying the fact that the market, in my opinion, has already priced that into a certain extent.

Again, I have no idea, hawkish, dovish, what the dollar does, what yields do, what gold does. It's actually one of those really, I think, confusing situations, if you will.

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All right, let's talk about some of the sectors in the market here today. What sticks out to me is some of the deregulation as it relates to capital limits that banks can hold of treasuries here. Let's think about this because coming into the year, you know, we talked about this Trump administration, a pro-growth agenda. Deregulation was a big part of it.

We haven't seen a whole heck of a lot, but I think banks were one of the sectors that people thought would be almost immediately impacted, not just the large money centers, but also the regionals. When you see a headline like this, we're getting to this, you know, nearly, you know, five, six months into the administration, you see bank stocks, which we've talked

about have been laggards as the S&P has gotten closer to that prior all-time high. Is this the sort of thing, Guy, that gives the gusto to the banks to kind of take over as leadership, especially as folks were looking to broaden things out away from the generative AI trade? It certainly has given it today. I don't know, and I think you would agree with this. I'm not certain that banks, given their weighting in the S&P, can be

the leadership the market needs to take it to the next level, but it certainly doesn't hurt. And, you know, you look around at the banks and, for example, a Citibank, which traded, I think, north of $84 in February of this year, which is the highest the stock had seen in quite some time, only then to sort of cascade lower into April like everything else.

I think, Dan, we traded as low as 57 or so. And now here we are today trading north of 78, approaching the levels that we last saw earlier this year. So I think they're all sort of

in terms of formation, they all look very similar to what the S&P 500 is doing. A huge move lower in a short period of time and this sort of V reversal over a longer period of time, but no less impressive in terms of what it's done. And, you know, there's some tailwinds for the banks here. The headwind for the banks, again, in my opinion, is the fact that things are slowing down.

I think the lending environment or the desire for capital environment in a slowing economy is probably going to be a headwind. And I don't think that's priced in at all. But here we are right now. People are getting excited once again about some of the tailwinds for the banks. Yeah. And so this one, I think...

What's interesting to me about it is when we talk about demand for treasuries, and this is something that you've been mentioning now, I want to feel like over a year, and especially now that you have this sort of sell US trade, right? We've seen that price action over the last couple of months or so. When I'm looking at this Bloomberg article, it's talking about the top US bank regulars plan to reduce a key capital buffer by up to one and a half percentage points for the biggest lenders after concerns that it constrained their lending in the 12th

in the $29 trillion treasury market. So my question to you is kind of by lowering those thresholds, you're creating more demand for treasuries, which actually creates another potential buy, not, not an incrementally higher, you know, level of potential buying, right. And which would also lower yields, which would, you know, is something that the, the,

white house what they want i mean it's clear that that's exactly what's going on here if you know if the international buyers specifically the chinese and the japanese are no longer the the buyer of last resort or if clearly their appetite for our treasury has treasuries have waned then you need somebody else to sort of pick up the slack and how do you do that by doing exactly what we're seeing here and hoping that the banks can sort of pick up the slack that

Japan and China are sort of putting out there. Will it be enough? Well, it doesn't hurt clearly, but I think there's some macro factors that still override all of this. And, you know, I think this is clearly a bandaid. I just don't know if it's going to stem the tide for this trade that is well in place now. Peter Buchvar on Fast Money last night talked about it. You know, he thinks it's some secular shift.

getting away from U.S. assets. And that's not to suggest the dollar is not going to be the reserve currency. I don't think that's what he's saying at all. But it does suggest there's going to be less and less demand for our treasuries and our currency. Yeah. All right. So away from banks, maybe that leadership is important as you think about the S&P marching back to its prior all-time highs. You know, we've also seen some leadership away from the MAG-7 to some degree. We highlighted

earlier in the week that, you know, four of those names are still down on the year. Apple and Tesla are still down 20%. Google is down 7%. Lots of headwinds there. And we've talked about it from a fundamental standpoint. One of the reasons why some investors have kind of focused on some

other names to express their views as it relates to generative ai and amazon's about unchanged but there was an article in bloomberg and you know guy remember when there was like mag seven mag seven you remember when you came up with this kind of this other name to kind of express you know what i mean like what these mega caps tech stocks you know could be outside of just those seven eight what was it you came up with um this was kind of in mid to late um december

It was the fateful eight. Yeah, that was exactly it. And so the point was Broadcom member had this two day rally of 40%. It got over a trillion dollar market cap. That was something that was fairly consistent with those mag seven names, right? Tesla was one of the ones that was kind of going back and forth with that kind of trillion dollar market cap level.

And so when you started talking about the faith late, it was like that the fate of the markets were in the hands of these eight stocks because they had so much of the performance of the S&P 500 over the last two years. So the addition to another trillion dollar club name, that's why we kind of broadened it out. And so I think it's interesting that Bloomberg now is just starting to come around to this notion that Broadcom, this is the

the story we'll put in the notes here. Broadcom's 340% rally has Wall Street debating if it's Magnificent 7 material. One of the things that was interesting to me about this is like, yeah, you know, that stock had that huge rally in December.

It wasn't able to make a new high, especially as we got into the new highs in the S&P 500. But then the stock went from like 250 bucks to $140, you know, from those highs in December to the lows in April. And now it's come back. It's up like 5% or something, which is a pretty astounding move here. So talk to me about the idea of

broadening out the mag seven and adding some of these other names. You could have thrown it Taiwan Semi in at any point. That's over a trillion dollars. Um, thoughts here, mag seven gone the way of the dodo. Well, you, I mean, you coined it and you were right. I think more and more people coming around to it. As a matter of fact, I think it was two weeks ago, uh,

on I think Closing Bell or one of the shows where the lower third talked about Broadcom, you know, basically becoming part of the Mag7. And I turned to you and said, take a look at this. And you sort of snickered. And I think you're right. I mean, Taiwan Semi definitely deserves to be in that

as well. And I think, look, is it a good sign that more and more, well, that more and more companies are participating? Yeah, but it still doesn't stop or doesn't change the fact that it's an extraordinarily, in my opinion, top heavy market, the top of the market, just adding a few names over the last couple of years. And it's still dominated by, again, five, eight, 10 different names that we seemingly talk about all the time. But you've also pointed out correctly that

below the surface, you know, within that fateful eight, and I just say that because you brought it up, there's some deterioration going on. I mean, Apple has not traded particularly well now for a while. I mean, Google's off the mat, but really not performing all that well. You know, Amazon is meandering along. Tesla has bounced clearly, but, you know, still seemingly has some issues. So

There's still a lot to be concerned about, I think, around the edges in this market, Dan. Yeah, and we spend so much time talking about semis and some of these names, the server names that go into the data centers and some of the components there. And Micron caught a bid, ARM caught a bid, even Intel and AMD caught a bid. The one that sticks out to me today, though, is Marvell. And Marvell...

actually also had a similar move to Broadcom late last year. So what do these two companies do? They make custom silicon. And this is something that if you think about Nvidia's main customers, it's OpenAI, it's Microsoft, it's AWS from Amazon, it's Google, and it's Meta. All of those companies

are building their own chips or designing their own chips. And they do it with companies like Marvel and Broadcom. So that was one of the reasons for that late year strength. And I think at the time, a lot of folks were looking to broaden out the trade. They were too full up on an NVIDIA. There weren't too many other ways to play high-end GPUs. And as you get through the training of the models and you get more into this inference phase, more specific chips is what a lot of these hyperscalers are going to want. So the fact that Broadcom and Marvel got

killed the way that they did. I mean, think about Marvell from its highs in early, I want to say in January, was trading at $125. It got down to below $50 in early April. So now it's come back. Today it's up 7.5%. It's got a flattening 200-day moving average, about 83 bucks. The thing is trading right now at a level where it's back to a breakdown level from its earnings, I want to say, in early March. And there's a big gap there, Guy. It's up to maybe, let's call it

the mid 80s or so. We have a stock who's come this far back, but like I think it's important. So it's at 75 bucks. You're really playing for a gap fill guy that's, I don't know, another 10% or so. Doesn't seem like a great risk reward, but this is only a $64 billion market cap. We were just talking about trillion dollar market caps. So in the grand scheme of things, it doesn't matter.

Yeah, well, no, not to the broader market. It doesn't matter. But I mean, I know you know that obviously to Marvell shareholders, it does. And, you know, in terms of that gap fill, it also that gap fill will coincide with where the 200 day moving average is. And, you know, we also mentioned the fall of 2023 a lot, October specifically, because that's when 10 year yields probably hit their peak.

for that cycle it's also when the stock market sort of troughed and a lot of these names also did as well and marvell is one of those names you just said below 50 well that's exactly where the stock bottomed out at back in the fall of 2023 so you have this little bit of a double bottom in marvell as well that we've actually talked about on fast money so it gave you a logical place to stop i think the logical place to stop now on the upside is exactly what you just talked about that gap fill

Let's call it $85 just to round up a hair, which again will coincide with the 200-day moving average. Yeah, and one other thing I just mentioned about this is like, okay, so they're coming for some semis that they think might be able to kind of, you know, kind of, I don't know what you're going to stop up some of the slack as you will, right? You know, in the hardware component of this trade. The next leg of this trade was meant to be on the application level.

in the software level. And I'm just going to go look at a bunch of names or it's going to rattle them off year to date. Salesforce is down 21% of the year. Adobe is down 14% of the year. Workday is down 7% of the year. ServiceNow is down 7% of the year. HubSpot is down 22% of the year. You know, Twilio is down. Tech,

Trade Desk is down. DocuSign is down. So there's a lot of names that were meant to benefit, right, from some of this generative AI technology on the software, on the application level. And they're not trading particularly well. And I think if you're not kind of connecting some of these dots, I think in the near term, especially when there looks like to be a level of enthusiasm that we have not seen, let's say, going back in a year, and then you have a core week.

that went public at $38, you know, just a few months ago is trading at $175. It's got a market cap now guy of $84 billion. This is a meme stock. So there is some behavior in and around this trade that should make you a little nervous. Now, with that question, and now you point out the underperformance of so many of those names. And I think for good reason. The

the market's not taking that into consideration at all in terms of what it actually means for the broader market and what is it saying below the surface and potentially in terms of the economy, because they continue to focus on the performance of the S&P 500 and those names that we talk about all the time. And in my opinion, that's just sort of clouding or hiding the fact that below the surface, there's this weakness going on that nobody wants to pay attention to, Dan, because they don't have to pay attention to it. In terms of core, we've

Yeah, I mean, Carol, Karen talked about it last night on Fast Money. You know, she brought up the fact that it's nearly impossible to short this stock in any number of ways. The short interest is such that people are just getting sort of their faces ripped off. And, you know, it's going to sort of have to sort of sort itself out and get to some level of normalcy before I think the fundamentals take over. But as you've seen before, this can last a lot longer than I think most of us realize.

All right. Let's talk about energy, the complex here. And there's an OPEC Plus meeting in early July. So just a few weeks from now, you think about what's going on. I mean, the Israelis are obviously targeting energy complex as it relates to Iran. You've seen this kind of back and forth with oil over the course of the last week. It had that spike on two occasions, I want to say to 76, 77 or something like that. So here we are now. We've come in

a little bit here. There's still obviously a lot of uncertainty, but I mentioned OPEC because there's not a lot of excess capacity right now. So if you have some sort of situation with the Strait of Hormuz, which 20%, I think, of energy or oil goes through there each day. So if you have some disruption to the oil fields or the pipelines or the Strait of Hormuz, that sort of thing, you could actually have a really difficult situation as it relates to global

supply here and if opec plus doesn't have a lot of excess supply is this something that you think could be really important for let's say global growth for the balance of this year if there's like a decent amount of demand but there's not supply or vice versa you know

demand lessens. And then you also have a, you know, a tight supply situation. I'm just curious. Well, I mean, yeah, again, we're right to bring this up. And JP Morgan had a note on this earlier this week, exactly what you're talking about. And look, I think in terms of what we've learned about the energy market, and I've probably learned it the hard way more than anybody is that

geopolitical bounces are typically short-lived. And to a certain extent, you're seeing it now. I mean, oil does bounce or does spike higher on the back of these headlines, but just as quickly as it bounces, it comes right back down to earth. Of course, I think the wild card in all this, if God forbid something were to happen in the Straits of Hormuz, if that was somehow closed or blocked, or if they sank ships or something, which created a bit of a, basically, a blockade, and that would create, I think,

a huge disruption in the energy industry which would make crude spike to levels we haven't seen in quite some time and would be in the short term at least extraordinarily problematic

not only for the broader market, I think, but for the inflation picture as well. Short of that happening, I think a lot of this in terms of the commodities trade is just sort of noise and theater. I mean, I don't mean to be glib about it because I understand what's going on on the ground, but in terms of the trade itself, the market has a way of sort of sniffing all this stuff out.

out. Yeah, so we're going to be, you know, this is top of mind what's going on over there and the uncertainty about whether we join the fray is going to be something that could create a lot of volatility one way or another for the markets. Obviously, we're going to be really focused on the Fed this afternoon. Peter Bookvar of Bleakly Advisors is going to be joining you and I right after the

Fed presser. We're going to break it all down, get his takes. What are the smartest kind of Fed watchers that you and I know out there? That's going to drop in the Risk Reversal pod tomorrow morning. So a lot of ground covered. Thanks a lot, Guy.