VIDEO: Let's Talk About Our Latest Trade, Cash Levels and Important Data

In today’s Daily Rundown video, Chris Versace discusses today’s trade in Marvell MRVL, what economic data the portfolio is focused on this week, and why.

He also explains why we may need to make some tough decisions given current cash levels and our mandate to position the portfolio for what lies ahead.

More Pro Portfolio:

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Monday, July 1st, start of a new month, start of a new quarter for the market, and of course, for the portfolio. And out of the gate, we made a move today, calling up some additional shares of Marvell into the portfolio, following a very reaffirming news report regarding Amazon, which is going to spend significantly over the coming years to further build out its AI and data center capabilities.

Now, you might be asking yourself, well, OK, but isn't NVIDIA going to benefit from this? And of course, they are. But we have a full position in NVIDIA shares.

But we had some room to pick up some additional ones of Marvell, so that is what we did, the reason being that this report about Amazon spending really shows that we're in the early innings when it comes to AI and the data center buildout that is not going to last one year or two years. It's going to last multiple years as AI ramps, and of course, as we see the continued shift to the cloud.

We of course see both positions very well benefiting from that. And we continue to think that as AI adoption happens over the coming quarters and in subsequent years, that Marvell's non-data-center business, in other words, its enterprise, networking, and carrier infrastructure businesses will also benefit because these devices will spur incremental capital spending demands. And of course, Marvell remains well positioned there.

So that's kind of the move that we made with the portfolio. But today, we also have a start of what we can only describe as the latest data deluge. And it's, of course, happening in a compressed week because, as we all know, US equity markets will be closed on Thursday for the Independence Day holiday.

But what you may not know is that on Wednesday, US stock markets will close early at 1:00 PM Eastern Standard Time. So we do have a even more compressed week than we did recently because of the Juneteenth holiday. But again, it's going to be a very busy one on the economic data front.

Already today, we received the May manufacturing PMI reports, which kind of showed a bit of a conflicting view on the manufacturing economy, ISM saying that it's contracting, but S&P Global showing it continuing to grow. On employment, ISM showed that it too was slowing. But S&P Global said that it was the best month for manufacturing employment gains since September of 2022, so very, very [? diaposed ?] views.

But what they both agreed on, and this is important, is that inflation continued to make further progress during the month of June. ISM's prices subindex fell to one of the lowest levels in several months. And the commentary out of S&P Global was favorable as well.

In our view, this sets up the likelihood for more positive data in the form of June CPI-PPI. But we want to make sure that we see something similar later this week when we get the June services PMI. Remember, services has really been kind of the thorn, if you will, in inflation progress over the last several months. And if we see further improvement in that report, that will, I think, make the market feel incrementally more positive about what the Fed is likely to do later this year.

Now, I just want to pause here and say that our thinking has been the Fed is likely to deliver at least one rate cut very late this year. But we have seen recent data that shows, yes, inflation progress is happening.

And to the extent that we get even more of that in June, July, August, possibly even September data, that's a string long enough that we could see the market-- again, if the data continues to be constructive, supportive, and sustained in progress on inflation-- that string could lead the market to get much more open about the potential for two rate cuts at the end of the year, November and December.

We, of course, will continue to let that data talk to us. We're not going to be fixed in stone. We will continue to update our views about rate cuts as the data comes in.

Now, we also have some other data this week that we will be mindful for. A lot of it will be on the employment front. I'm referring, of course, to the May JOLTS report, the June Challenger Job Cuts Report. We'll also get the ADP Employment Change Report. And then on Friday, we will get the June Employment Report.

So by the end of the week, I think we're going to have a much better sense about the vector, the velocity of the overall economy, the pace of job creation, what we're seeing in terms of wage pressure or not, as well as overall inflation pressures. And as we kind of pull all this together, that's when we'll start to look for revised expectations for GDP for the June quarter, but also initial GDP forecasts for the current quarter because some of the data will have new order information. And that, of course, will be an input for the month of July, and therefore, the start of the current quarter. But it will also be on inflation.

And remember too that this week, we have Fed Chair Powell speaking. And of course, the market's going to be leaning into what he says. My thinking, though, is that he will admit that, yes, recent data has been constructive. Great. But he's going to be mindful of a few things-- one, the uptick that we saw in core CPI last fall, but also, as I pointed out last week to you, when we look at the May PCE data, well, the April core PCE was revised higher to 0.3%, that means three months in a row at 0.3%

So I think, yes, he will be issuing encouraging. But they're going to want to see more of that good data. That's why we're going to continue to sift through all of the data points that we get so we can formulate our views on what the Fed is likely to say in advance and, of course, position the portfolio accordingly.

Now, one last housekeeping item for you just generally, regarding the portfolio, very simple, after today's trade in Marvell, we've got just a little under 9% cash in the portfolio. This does mean that we're going to have to be even more judicious in deploying our cash because we want to have the best opportunities in the portfolio.

This could mean that at a certain point, we've got to make some room for a new position that might offer even better growth prospects than what we have inside the portfolio. This does happen. So I just want to preface with you saying that we are aware that this might be the case. We want to make sure you understand this might be something that we have to do.

It does mean potentially making a tough decision. But again, this is not crock-pot investing, fix it and forget it. We have to constantly evolve the portfolio and our thinking as fresh data becomes available. And remember, the litmus test that we have is that we want companies that are poised to grow their earnings far faster than the S&P 500.

And as we look ahead for the second half of the year, just a quick note on that, the S&P 500 is expected to grow its EPS collectively around 11%, 12%, something like that. As I shared with you in last Friday's roundup, the portfolio is poised to grow its earnings in the second half of this year 20% on a year-over-year basis, even faster compared to the first half of the year.

That really speaks to the seasonal strength that we see in the back half of the year for a number of our positions. We've talked about them in the past, but just quickly to recap, companies like Apple, Qualcomm, Universal Display, and others, Pepsico, [? COTI ?] as well. So we continue to think that those are extremely well positioned.

But again, we are heading into the June quarter earnings season. And as we do, we will be updating our thinking as we start into the June quarter earnings season and move through it, making adjustments where we need to.

So I will say this, it might be a shortened week. You might be looking forward to hot dogs, pop, and maybe a cold adult beverage later in the week. But please, be sure to check your alerts, your emails. We want to make sure you're getting our latest thoughts. And if we make any moves with the portfolio, we want you right there with us. Thanks for watching.

At the time of publication, TheStreet Pro Portoflio was long MRVL.