VIDEO: Our Reaction to Powell’s Policy Comments

In today’s Daily Rundown video, Chris Versace discusses Fed Chair Powell’s comments Tuesday about monetary policy and the two-sided risks the central bank is facing. While we continue to see one rate cut in the cards for 2024 with more in 2025, Chris explains why the pace of the economy will become increasingly important when assessing potential Fed policy.

He also talks about Needham’s price target increase for Universal Display OLED, and why the portfolio sees a bright future ahead for the shares even though continued strength near-term could lead to some prudent portfolio action.

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Transcript

SPEAKER: Hey, folks, it is Tuesday, June 2nd. And if you look at the market currently, it's kind of treading water, mixed, but not really moving very much. And I think the reason for that is we've just finished listening to Fed Chair Powell's comments speaking at a conference on the international stage.

And by and large, he said what we thought he was going to say, something we outlined to you in our early comments this morning that, yes, the Fed has seen some progress on inflation. But they are going to need to see more of that good data. Powell was very much noncommittal about the timing for rate cuts before the end of the year.

Again, no major surprise. What I did find rather telling was how Powell really, throughout this presentation, talked about the risks of moving too soon with rate cuts versus moving too late. And really what this gets to is the notion of that, if the Fed moves too soon, it fears that it could very well reignite some of the inflation pressures that it's been so desperately trying to fight and tame and bring down.

On the other hand, the Fed is very much aware that, past a certain point, if it remains too restrictive, which it continues to think it is, it runs the risk of leading to a sagging economy or, as Powell put it, threatening the expansion. So as I'm coming out of this, those comments from Powell, this this two-risked concern, if you will, too soon, too late, it really means that the Fed is going to continue to watch the economy like a hawk.

Because as long as the overall US economy continues to grow above trend, maybe even slightly less, the Fed can continue to patiently fight inflation. Now, we have seen some good moves on the inflation front. But it was interesting to me as well that Powell said that, in a year's time, he sees the PCE price index somewhere between 2% and 2.5%. Now, the most recent reading was 2.6%, but Powell clarified his comments by saying, sustainably between 2% and 2.5%.

Now, if we continue to see data like we've gotten throughout the month of May and early indications that we got in the manufacturing PMI for June, could we get there sooner? Certainly possible. And I talked about this yesterday sharing that, while we continue to think we're likely to see one rate cut this year, if we see more data like we've seen May and so forth for June, could the market come around to thinking that, yes, maybe two rate cuts late this year are increasingly possible.

I continue to think that's the case. But as you know, we will have to continue following the data very closely. Again, the Fed's going to be doing that as well. So as we look forward for the rest of the day to this week and that which we'll be getting in the next couple of weeks, it's going to continue to be a focus on really two things.

First, are we seeing continued and sustained progress on inflation? And two, is the overall economy healthy enough that it can continue to afford the Fed sufficient time to wait? And if it doesn't, if, all of a sudden, we start to see the economy roll over, that could be a factor that pulls forward rate cut expectations.

But so far, we haven't really seen that. The most recent forecast from the Atlanta Fed GDPNow model rolling forecast, 1.7%. But we're going to get a lot of data between now and the end of the week that could alter that forecast.

The two big pieces are going to be, of course, the service PMI data for June published by ISM. That'll be out tomorrow, and then, on Friday, the employment report. And while I know that folks will be reacting to those numbers, I almost think that a comprehensive view, taking all of that data together will be the right way to assess the June quarter GDP. And remember, too, we're going to get much more data next week on the docket. We will have eventually retail sales, CPI, PPI.

So of course, the datapalooza will continue, and we will continue to watch it very closely sharing our thoughts with you and making any moves with the portfolio that we might have to. Remember, though, that our thought process is that the Fed will start cutting rates later this year. We'll see additional rate cuts next year. That is one of the key drivers behind our positions in Builders FirstSource. And that, of course, will be helpful for our more infrastructure-related plays. Call it Vulcan Materials, call it United Rentals and in, indirectly, waste management.

Now, before I wrap up today's video, I did want to share one other price target increase. We had an alert out this morning that talked about a bunch of them for, for example, Nvidia, Costco, as well as Bank of America. But the other one that I want to talk about a little bit more is Universal Display ticker symbol, OLED. It has been strong. It continues to flirt with that 4.5% level in terms of an overall position size. So you know, we're watching it closely.

Even though the market, I said earlier, is little change. OLED shares were up nicely today because of a price target increase from Needham. They're kind of the big bull, if you will, on the story. But they increased their price target to 242 from 198. Remember, we were already at 225 with our OLED price target. So in some respects, they are kind of catching up.

The thesis, it's going to sound familiar to you because it's the one that we've been talking about, about how they are poised to benefit from the smartphone upgrade cycle, but adoption in organic light-emitting diodes in other end markets. So the other one that I'll toss in-- and I'll talk more about this in an alert-- is what we are seeing because of Apple and its move with the iPad Pro to organic light-emitting diode displays.

So again, Needham upped its price target. But we're going to continue to watch this position closely. If we see it creep much above 4.5%, it could be time to do some prudent trimming. But given what we see in the back half of the year from the smartphone upgrade cycle and adoption in other connected devices, as well as growing penetration in autos, we're likely to continue to hold a large-size position for Universal Display for some time to come.

So be watching your emails, watching your alerts for that. And again, we want you to make sure that you're getting our latest thoughts in any moves that we might make with the portfolio. So again, please be sure. Check your emails. Check your alerts. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long OLED.