VIDEO: These Are the Next Hurdles for the Market
Chris explains why we're watching overbought levels for the market and the portfolio's holdings.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
In today’s Daily Rundown video, Chris Versace discusses the current market mood and what it will take to drive the market higher on a sustained basis.
Chris explains why Thursday’s June CPI report and the next several days of earnings results will be important for the market and its next move.
He then shares which indicators we’ll be watching when it comes to some of our portfolio holdings and if some prudent trimming might be in the offing.
Transcript
CHRIS VERSACE: Hey, folks. Chris Versace here, Wednesday, July 10th. And yes, the S&P 500 and the NASDAQ composite are moving higher yet again today following the strong revenue report from Taiwan semiconductor, the same report that led us to boost our price targets of NVIDIA and Apple earlier today. But also, lending a helping hand is the second day of Fed testimony by Fed Chair Powell in front of congress, and he is reiterating the comments that he made yesterday, not giving us any indication as to when the Fed might actually start cutting rates.
But if we read between the lines and parse his comments, we can say that he's incrementally closer to cutting rates. At least that's our view. But we also have to recognize that this continued move higher in the market, something that we've been talking about the last couple of days, we have to be prudent stewards of the portfolio, even though we are enjoying the continued gains that we're seeing in a number of different positions. Remember, when we manage the portfolio, we want to position it for the long term, but we also want to make sure that we are avoiding any potential pitfalls that may present themselves.
And with the S&P 500 and the NASDAQ composite back, well, not just back in overbought territory, but they're even further along in overbought territory than they were when we were coming into this week. All you have to do is take a look at their RSI levels. And you can see that is simply the case. Now, we recently shared our thinking that we could be in, for another period of time, that closely resembles what we saw this past April. Now, ahead of that April pullback, what did we see?
Well, we had a very strong move in the market. It was led by big tech-- excuse me, and AI. Expectations for rate cuts were building and the S&P 500 is multiple was getting stretched. Now, folks, I'm not looking to be a downer, far from it. But we just have to recognize this all sounds pretty familiar. Are there some differences, though? Yeah, there are. Inflation is improving. The economy is cooling. And yes, as I just mentioned, the Fed seems to be much closer to rate cuts compared to where they were earlier in the year.
But we're also going to enter very soon the June quarter earnings season, which to us is a window for overall EPS growth for the second half of the year. And we also have the June CPI and PPI reports coming. Indications as we've talked about from the June PMI data, suggest that we should see further improvement in the CPI and PPI data. More good progress that Fed Chair Powell wants to see. And if we see it on Thursday, particularly in the June core CPI, the market's enthusiasm for rate cuts will likely grow, giving some additional lift to the market.
But make no mistake, past a certain point, the markets-- the market excuse me, will steer its view back to one of valuation, especially given the double digit moves that we've seen in the S&P 500 since late April. Now, over the last couple of days, we have discussed the market's PE and the message is that in order to see a sustained move higher in the S&P 500 from here, i.e. its PE, we will need to see even stronger EPS growth relative to markets-- to the market's expectation for the second half of 2024.
In other words, if we want more PE, we need way more E. What this tells us is that the next couple of days, the start of the June quarter earnings season is going to be important because what we hear is going to shape the reports that we will be getting in the coming weeks. This means the next couple of days, these earnings reports, Thursday, Friday, early next week, that will be a key hurdle for the market. Now, in an alert out earlier today, we shared that if we see the market punch ahead, move higher, further stretching that valuation, pushing it-- pushing it deeper into overbought territory.
But we don't get the sense that second half earnings expectations are going to move higher. It could be prudent to take some chips off of the portfolio table, locking in some of the big gains that we've seen over the last few months in several positions. Now, we did do that recently with Universal Display. And if we decide that we have to make any additional moves like I just described, odds are the positions that are meaningfully overbought will be potential candidates. So we will be watching the technicals, not just for the market, but for our holdings as well as we decide what our next moves are with the portfolio.
Remember, we will be watching the data over the next few days very closely as well as those earnings reports. So please be sure to check your alerts, check your emails. We want to make sure you're getting our latest thoughts. And if we happen to make any moves with the portfolio, we want to make sure that you are right there with us. Thanks for watching.
