VIDEO: Getting Our Head in the Game for This Short Trading Week

In today’s Daily Rundown video, Chris Versace lays out what Fed officials are likely to say ahead of Friday’s April PCE report. 

He also discusses AI PC forecasts, the latest Apple AAPL news, and why Amazon’s AMZN price cuts for grocery has us taking another look at a Bullpen resident. 

Transcript

SPEAKER: Hey, folks. Welcome back from the long weekend. It is Tuesday, May 28. I hope you enjoyed the long weekend. But as you know, a long weekend means that we simply have a compressed trading week ahead of us, especially as we close out the month of May.

As we discussed in our opening comments this morning, May has been a very nice month for the markets, really reclaiming the lost ground that we saw during the month of April. It's also been a very good month for the portfolio as well. Now, we are starting off the week just four trading days in the week, but it is kind of a slow one. We don't have a lot of market moving headlines, not a lot of fresh economic data out today, and certainly very thin on the earnings calendar.

But all that's going to change as we go through the week. But again, today, relatively quiet with the main focus likely to be on the latest parade of Fed officials. Setting the stage for that, two things-- first, last week, the flash May PMI report showed the US economy reigniting both in manufacturing and on the services side, with orders suggesting we're going to see that continue into the last month of the current quarter.

At the same time, that report also showed a pickup in input costs and output costs-- in other words, inflation. And that brings us to our second point. We did hear some Fed officials last week start to talk about wanting to see several months of positive data before embarking on rate cuts. Early this morning, Minneapolis Fed President Neel Kashkari pretty much said that yet again. And I think we're going to hear more of that from the remaining Fed speakers that we have today, tomorrow, all ahead of Friday's April core PCE print. That's the number that the market's keying on this week. We will be too.

But ahead of that, we do have some other data coming. We do have some other earnings coming. But I just want to take a second and just talk about where we are with rate cuts in the US outside the US. Well, in the US, those Fed comments kind of signal maybe we could see a later than expected rate cut relative to what the market's been thinking. We, of course, have been continuing to say most likely one rate cut towards the end of the year. And I think more data is going to lean toward that. Certainly the Fed official comments are kind of softening expectations for rate cuts as soon as September. That would suggest November, December. Again, we continue to think very late in the year, call it December.

However, when we look outside the US to the Eurozone, even the UK, the European Central Bank is signaling that it could start cutting rates as soon as June. That's just a couple of weeks away. If that happens, we'll have a little bit of a disparity in monetary policy between those two central bankers. Odds are it's going to keep the dollar strong.

What does this mean? It means we're going to want to be mindful about the dollar for multinational companies, not only in the portfolio but also in and around the market, because a strong dollar could be a potential headwind to earnings expectations for the second half of the year. We'll have to see how strong the dollar gets and play it out, but that's something that will be on our minds as we think about the portfolio as well as bullpen candidates.

I also wanted to talk about real quick today, again, even though it's quiet, we are seeing shares of Apple rebound. Reports point to a rebound in China shipments. Remember, falling Apple-- falling iPhone shipments for Apple were one of the negative data points earlier in the year. And now it appears that that has stabilized, perhaps improving. That, of course, would be very positive for Apple's June quarter results. But it's also going to be very positive for our shares of Qualcomm and Universal Display.

I continue to think that the big event for Apple is going to be WWDC and what they say about AI. That event, of course, kicks off in just a couple weeks' time. But remember, folks, that as we tend to approach Apple's annual developer conference, speculation starts to run a little rampant. Yes, we do think that the event will be very much centered on AI, particularly across all of its various software platforms, and that will probably help spark demand and fuel an iPhone upgrade cycle, not only good for Apple but also, again, Qualcomm, Universal Display.

But I just want to say, let's be careful here, because speculation, as I said, does tend to run a little rampant. And they could get a little ahead of expectations, potentially creating a buy the rumor, sell the news event for Apple. So we want to tread carefully here. If possible, if we can pick up more Apple shares either before or soon after that event, before the big AI on device upgrade cycle really takes hold, that's something that we would love to do. So we'll have to stay tuned and see how that develops.

Just real quick, on AI on device upgrade cycles, two things-- one, Morgan Stanley came out, and they said that they see AI PCs accounting for about 2% of PC industry volumes this year, but ramping and growing significantly over the next three, four years. Case in point, they do see it hitting about 28% of all PC volumes by 2026.

Now, that's one forecast. There is another forecast out there from research firm Canalys. And it says that AI PC shipments should hit about 100 million units next year. That's about 40% of all PC shipped. So a very, very different forecast, far more robust than the one that Morgan Stanley sees.

But here's how we see it. Directionally, both of them are favorable. Both of them point to this looming upgrade cycle that we've been talking about, positive not only for Microsoft, but, of course, for Qualcomm, given the wins that it's seeing in Snapdragon. So, directionally, we like to see this. We think we're still in the early innings. I think we'll have a much better sense of what AI PC-- the market for AI PCs looks this year, next year, later this week when both HP and Dell report. And of course, that will be something that we're kind of focusing in on with both of those.

Now, before we close out, I do have one other comment for today. In recent days and weeks, we've seen Target and Walmart announce that they were cutting grocery prices and even expanding their private label food business. If you remember, that's something that prompted us to add the shares of TreeHouse Foods to the bullpen. Now we're seeing that Amazon is also getting ready to cut prices on, quote, "thousands of products" across not only national brands, but their own private label products as well. That gives us another reason to take a deeper dive on TreeHouse Food shares and see what a potential entry point might look like as we contemplate calling them up from the bullpen into the portfolio.

But as you saw when we gave Eaton and Meta Platforms a similar treatment, we're going to be very disciplined in our thinking. We will pick our spots, but we won't chase the shares. We'll want to, of course, have a favorable risk to reward entry point for either Eaton, Meta at the right time, or even TreeHouse Foods. So that means, as we do our homework, we'll also be mindful of what's going on in the market, making the prudent move when the time is right.

And again, while it's kind of a slow start to the week, we will be revisiting some price targets. Case in point, GLD shares. We'll also be revisiting other entry points for positions that are on our shopping list. Waste management is one in particular that we'll be doing a very hard look at. But we'll see. We'll see what we do. And that means, folks, I want you to make sure that you check your alerts, check your emails for our latest thinking, whether it's about the market, the economy, existing positions, or if we make any moves with the portfolio.

Also, remember that we have office hours this week, today, Tuesday, from 4:00 PM to 5:00 PM Eastern over in the forum, and then again on Tuesday, 12:00 PM to 1:00 PM, also in the forum. Thanks for watching today's video. Hope you have a great day.

At the time of publication, TheStreet Pro Portfolio was long AAPL and AMZN.