VIDEO: Fed Rate Cut Odds Improve But This Disruption Looms

In today’s Daily Rundown video, Chris Versace recaps the August PCE Price Index data and why August Personal Income and Savings data will keep the market focused on consumer spending prospects. 

He also explains why the Portfolio will be closely watching the potential October port strike, as well as our recent Meta META price target increase and Bank of America BAC upgrade. Closing out the video, Chris previews some Portfolio events for next week that you won’t want to miss. 

Transcript

CHRIS VERSACE: Hey, everyone. Chris Versace here Friday, September 27. End of the week, and almost, not quite, almost the end of the month of September and pretty close to the end of the current quarter. As we take a look at the market today, it is mixed, but it's looking to be pretty much a positive week for the market and for the portfolio.

And with again, a day and a half of trading left, I think we can say that at least, so far, the month of September has really bucked the historical trend, meaning that the market has moved higher, and it was not the pullback that many people were expecting for.

In terms of today, we did get the August PCE price index, and as we discussed in our note, that data does support further rate cuts by the Fed. The long and the short of it is that both on the headline PCE and the core PCE, we saw some nice progress, either on a year-over-year basis or a sequential basis.

However, that was the good news in the report. The not so good news, as we shared, is that personal income, personal consumption, and the savings rate were all a weaker than expected. In our view, this is going to either renew or solidify recent comments that we've heard about consumers being selective, discerning, choosy. Long and the short of it, folks, is that really keeps us positive on our shares of Amazon and Costco, especially as we go into the holiday shopping season.

However, there is a little bit of a item that we're watching, better known as the potential longshoreman strike, that could go into effect in early October. Here's the deal. It all will come down to length or duration, depending on the word you want to use. It could be a blip. It could be something that's very disruptive and be a real thorn in the holiday shopping season.

So it's something that we're going to have to continue to watch, not just over the weekend, but into next week, especially if it starts, see what the negotiating points are and what might happen. This could be, again, potentially disruptive as it impacts a number of east and Gulf Coast ports. We will have to be watching for it.

But I would also say, too, that it's likely to pull forward the holiday shopping season if we think about it. The strike is going into effect early October. That means that companies have been ordering goods to start putting on shelves a little earlier than possibly they have in the past to capture the holiday shopping season, pulling it forward as they do so. And remember, there probably is a good reason why Amazon's next Prime shopping event is October 8 and October 9.

| would also say that this could be an issue for Costco. They are, again, very skilled operators. And as we discussed in our alert following their quarterly earnings report last night, they have been planning, I should say, for it. They've been making moves.

But again, even they pointed out, it could be disruptive depending on the duration of the strike. But I would say, before we move on, please be sure to take a look at that Costco note that we put out today.

It is going to explain a couple of things regarding, not only the strike but also why the positive benefits of the membership price hike are going to be backend loaded. And for those reasons, the note also explains why we opted, at least for now, to keep our Costco price target unchanged, even though we are seeing others across Wall Street boost their price targets, in many cases, catching up to our 950 target.

Now let's move on, and I'll share that over the weekend, we will be monitoring that port strike, but we're also going to be starting to pay a lot more attention to the 2024 presidential election. There are only 38 days to go. Depending on the polling, It looks like it's pretty close, especially in some of the swing states. This is where it's going to get serious.

But because the race is tight, we do expect that over the coming four weeks, five weeks, we are going to see a pronounced marketing blitz. And that should be very, very good for our shares of Alphabet, remember YouTube, but also Search as well as Meta and of course, Trade Desk.

Now let's turn tables to some of the actions that we did yesterday. We did boost our price target on Meta, not because of the new hardware really that was announced coming out of the Connect event, but really much more because of its ramping AI business. And if you read the note, then you understand why we made that move, but you'll also understand why we're going to be focused on what Meta has to say about spending levels when it reports its September quarter results.

In the past, when Meta has lifted its spending targets, the shares have traded off. Why? Well, greater investment could weigh on margins, could weigh on bottom-line expectations. So in the past, when we've seen those comments, Meta shares have traded off.

If we see that again, if Meta comes around, in a couple of weeks, and says we have to continue to invest and spend for all these things that we're doing, as it relates to AI data center buildout and Reality Labs, we're taking our spending higher for 2024, and it's going higher for 2025. That could lead to a pullback in the shares, which for us, could present an opportunity. So that is something that we will be watching in the coming weeks.

Yesterday, we also upped our rating on Bank of America shares to a 1 following earnings and guidance from Jefferies that pretty much spoke to our thesis as it relates to investment banking and wealth management. Remember, we had previously boosted our rating on Morgan Stanley, and we see both Morgan Stanley shares and Bank of America shares continuing to benefit as the Fed moves further down the rate-cutting curve.

So that's some of the things we did over the last 24 hours. But I also want to share with you some of the things that we'll be watching as it relates to next week. I'm not going to break down all of the economic data and such that we will be paying attention to. But yes, as we move into a new month and kick off October, it does mean that we will be getting the usual start of the month data, including the September jobs data.

And as we know, the Fed is increasingly focused on job creation, and the levels that we see in the data, so we will be, as well. But next week, also brings the end of September, and that means that next week, we will have our next monthly roundup where we break down all of the portfolio holdings, sharing some of our latest thoughts on that, so that will be next Friday.

And then also, because it's the end of September and the end of the quarter, that means that next week, we will also have our quarterly members-only call sharing that with you on Wednesday. So next week, is going to be a big week for us. We want to make sure that you tune in and get all of that.

But remember, between now and those things, be sure to check your alerts. Be sure to check your emails. We want to make sure you're getting our latest thoughts. And if we make any moves with the portfolio, we want to make sure you are right there with us. Thanks for watching today's video. Have a wonderful weekend. And we'll see you back here on Monday.

At the time of publication, TheStreet Pro Portfolio was long META and BAC.