VIDEO: Here's Why 2 Holdings Are Making Big Moves Today

In today’s Daily Rundown video, Chris Versace shares how the stronger-than-expected retail sales report is influencing Fed rate cut expectations and benefitting a series of portfolio holdings.

"Stock market moving nicely higher. Why? Well, the July retail sales report was much better than expected," Versace said. "We like to dig into this report because it gives us a lot of touchstones about the economy, of course about the portfolio."

Versace also discusses which holdings are on his radar for some potentially prudent register ringing, and why shares of Marvell MRVL and Dutch Bros BROS are making big moves today.

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Transcript

CHRIS VERSACE: Hey, folks, Chris Versace here. Thursday, August 15. Stock market moving nicely higher. Why? Well, the July retail sales report was much better than expected. The consensus forecast was for a modest increase, but we saw something that was better than that. And if you read our morning comments, we shared that we could have seen a stronger than expected print relative to what the market was looking for. And indeed, that is what we got.

What is this doing? Well, it's effectively giving some reassurance about the current pace of the economy, kind of pushing back a little bit on the doom and gloom that we saw earlier this month on the heels of the July employment report and that July manufacturing PMI report. So from our perspective, we like to dig into this report because it gives us a lot of touchstones about the economy and, of course, about the portfolio. No surprise to us.

Again, if you read our opening comments from today that digital shopping was a barn burner of a month, no surprise. I say, why? Well, as you know, we had Amazon's 2024 Prime Day smack in the middle of July, and it reported some very nice results. But we also had those competing offers from Walmart and Target. So again, not a surprise that digital shopping did extremely well. Grocery also did extremely well. And we continue to see slowing year over year spending at restaurants compared to what we have in recent months.

Some of that is, of course, lapping and tough comparisons. But as we see grocery picking up, this tells us that people are shifting where they're eating back home. We continue to see this as very good for Costco as the company has significant leaned into fresh food and sundries. But also for PepsiCo as well given the one-two of its beverage and snacking business. Some other areas that were also very strong in the report was health care. We see that boding very well for our shares of Labcorp.

And then, of course, just stepping back from the overall retail sales report, man, oh, man, does it show that Costco continues to win consumer wallet share. And all we're doing here is sizing up Costco's US comp sales for its July sales report up against the July retail sales report published by government statistics. So again, just very easy to do, but it just keeps us extremely bullish on Costco. And as a result of that confirmation of ongoing wallet share gain, we are seeing Costco shares move higher.

Now I also want to talk a little bit about what this retail sales report means as it relates to the economy and Fed cuts. So our thinking and our opening comments this morning was that we would see, as I said, a stronger than expected print. And we did. We said that if we saw that, we were likely to see it pushing back on concerns about the economy, and GDP expectations would have to be revised higher. Well, we'll see that when we get the next Atlanta Fed GDPNow model update. But what we did see was a real pivot in the expectation by the market for September Fed rate cuts.

Remember, leading up to this report, the consensus had been for about 50 basis points. Totally flipped. If you look at the CME Fedwatch tool now, it's just one rate cut. Now remember, we have a lot of other data coming. We have the July housing starts report later this week. Next week, we'll get the flash August PMI reports. And then we'll have some other consumer spending reports, the PCE price index and the like. And then we're going to start to get a whole array of data for the month of August.

In other words, we're going to have a little back and forth in these GDP expectations for the current quarter over the next couple of weeks leading up to the Fed's eventual rate cut. So I wouldn't be surprised if we see some back and forth. But remember, to us, it's the totality of the data that really matters, not any one particular data point. And based on what we've seen thus far, when we do get the Atlanta Fed GDPNow model update for the third quarter, odds are it's going to have to be revised higher.

Not exactly bad news is good news. But in this case, a little bit of good news is good news for the economy. But again, we will continue to evolve our thoughts on the timing and the number of Fed rate cuts that we'll get in 2024 as we get more economic data. But let's turn to what's unfolding elsewhere in the portfolio because a couple of other positions are moving nicely higher today. One of them is Marvell. That really stems from what Cisco had to say on its earnings call last night, talking very positively about network spending.

That's pushing Marvell shares up considerably. And I have to say that we will have to watch the position size for Marvell shares with this accelerated push in the shares. If it crosses the 4.5% level, you know that's the level at which we do some prudent register ringing. And in this case, that would mean locking in some big double-digit gains on at least a slice of Marvell shares. So we'll continue to watch that.

As I mentioned in our opening comments, too, we said we would be closely watching Axon shares as they are on approach to our 385 target. And they are north of 4%. If they get closer to the price target or get even closer to that 4.5% level, some prudent action might be warranted there as well. And then finally, I just want to touch on Dutch Brothers. We added to that position earlier in the week, building on it, taking advantage of that recent post-earnings weakness. Well, it seems we're not the only one. Today, UBS came out and they upgraded Bros' shares to buy from neutral with a $39 price target.

What's the reason or the rationale? Well, UBS says that the concerns over slowing growth appear overblown, while catalysts exist for the company to accelerate same store sales into 2025. And that was one of our points that we message to you that when the Fed enters its rate cutting cycle, hurdle rates, and according cost of capital decisions will probably come down.

So we could possibly see, as I said, in the trade and even yesterday-- in yesterday's video when I was talking to Sarge-- we could very well see the pace of acceleration in geographic expansion at Dutch Bros possibly be revised higher next year. But even if it doesn't, I think it's a little more certain that they're going to continue to expand their footprint.

We ran the numbers with you recently. One of our notes comparing the number of locations that Dutch Bro has against Starbucks, McDonald's, and others. And there is ample room for further geographic expansion, both in the existing footprint, but also as it continues to expand west to east. As I pointed out to Sarge, that is the time tested formula for companies like this.

So that is today's video. I did mention that we will watch a couple of different positions. And if they continue to melt up, we might have to take some prudent action. So please, folks, be sure to check your emails, check your alerts. We want to make sure you're getting our latest thoughts, but also any moves that we might make with the portfolio. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long MRVL and BROS.