VIDEO: I See an Economic and Rate-Cut Wild Card Lurking

In today’s Daily Rundown video, the Pro Portfolio's Chris Versace explains why the market is in a holding pattern today, as we watch retail earnings from Macy's M, TJX Companies TJX and others, as well as talks from Federal Reserve leaders.

Versace also discusses a wild card he's eyeing that could emerge later this week for the economy and potential Fed rate cuts. Finally, he reveals three holdings he’s watching closely as they inch toward their price targets and what could prompt the Portfolio to ring the register on some shares.

More Pro Portfolio

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. Tuesday, August 20. If you saw my opening comments this morning, then you saw that. I think we're kind of a little bit of a no-man's-land again today. We have some earnings from Lowe's, disappointing, kind of reaffirming what we heard from Home Depot, not incrementally surprising, to be candid. We do have a couple of Fed speakers later today, Bostic and Barr. So we will pay attention to what they have to say. But by and large, I think the market is, like I said, in a holding pattern.

And still, until we start to get the things that will really matter this week, that's the rash of retailer earnings that we've talked about-- Macy's, Target, TJX, BJ's, Williams-Sonoma-- in the next couple of days. And others will also get the Fed meeting minutes from the most recent policy meeting, which, as I shared in my alert with you this morning, it'll be interesting reading, but I just don't think there's going to be that much that's incrementally new.

But of course, we'll pay attention to it and dig into it. And then, of course, on Friday, the big day, that's when Fed Chair Powell takes the center stage at Jackson Hole. And we've shared our thoughts with you on this. We do think that there is some risk that Powell may not be as dovish as the market is hoping he will be. Some folks out there are saying he could lay the groundwork for a 50 basis point rate cut in September. Others, like us, are a little more reserved, thinking it's potentially more like 25.

But I think what's most important is picking up on Powell's body language, his language, the word usage, making sure that he is on path and that much closer to the start of rate cuts in September. However, I will say that not only do we have a lot of data to go between now and that culmination of September policy meeting, but we also have a potential wild card that we will be watching as it relates to the economy, potential supply chain disruptions, even a potential reinflation issue.

And of course, I'm talking about what's happening North of the US border in Canada with the rail strike. It's a dual rail strike that does really have the potential to disrupt a lot of trade, not just in Canada, but really across North America. So we'll have to see A, does it happen; B, if it does, how long will it endure? Because that's really going to be the key. If this is a relatively quick strike, the disruption will be minimal.

If, however, it is prolonged, that could become a bit of a problem and a bit of an uncertainty for the market, as well as questions about GDP in the back half of the year. And to be clear, we're already getting some signs that, yes, the economy is slowing, but, so far, nothing that suggests it's rolling over, falling out of bed, veering towards a hard landing. But again, we're going to have to continue to watch the data and maneuver the portfolio accordingly.

So, what will we be doing with the portfolio today? Today is going to be one. We're going to watch the market. It's been extremely strong, up for eight sessions, possibly a ninth session as we do this. And yes, we are enjoying the benefits it's bringing to the portfolio, but we have to be mindful that there are positions out there, some of which are moving even deeper into overbought territory, some of which might be bumping up against their price targets.

Two in particular-- Axon has made very good progress towards its price target, as well as Elevance Health. So we'll be watching those very closely. I did get a question this morning about Lockheed Martin. Look, the shares are overbought. And we'll have to watch and see if that escalates further. But we also know that we do have to revise our price target for LMT shares higher.

That's really going to stem from what we learn in the coming weeks as the company shares-- it's not one year, but it's multi-year delivery forecast. That's going to be key as it relates to F-35s. That has been kind of the big shift in enthusiasm, momentum for Lockheed Martin and their shares over the last couple of weeks. So the question to us is, if we annualize what's expected between now and the end of the year, that's one thing.

But what about the accelerated ramp? That could mean an even larger price target move than we might be thinking. So we're going to take our time and figure that out. But we will intend to continue to own Lockheed Martin shares simply because the number of F-35s to be delivered in 2025 will be far greater than they are in 2024. The question we'll be wrestling with is, in the near term, if the shares continue to get overbought, do we do the prudent thing and lock in some gains?

That could be something that we do. So I will say, as I like to end all our videos with, please be sure to check your alerts, check your emails. We want to make sure you're getting our latest thoughts. And most importantly, if we make any moves with the portfolio, we want to make sure that you are right there with us.

Thanks for watching today's video. And remember, it is Tuesday. We have office hours in the forum from 4:00 PM to 5:00 PM Eastern. I will see you there, answering your questions about the market, the economy, and the portfolio. Bring them.