VIDEO: Let's Discuss Today's Market, Our New Position and Broadcom

In today’s Daily Rundown, Chris Versace explains why the market is incrementally bullish on Fed rate cuts but is trading off today.

He also discusses the new position in Builders FirstSource BLDR and why earnings last night from Broadcom AVGO were positive for these two holdings.

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Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. June 13, Thursday, the market's trading off a little bit after hitting an all new high yesterday for the S&P 500.

I think when we step back, we've seen an 8% move in that basket since late April. It's a little understandable that traders and more short-term oriented investors are likely harvesting some profits. But you know that we are longer term in our thinking. And yes, we will remain disciplined investors, you know, trimming back positions that balloon relative to others when it comes to the portfolio. But by and large, our intention is to let our thesis play out, to capture the upside that we see over the medium to longer term.

Keep in mind that these folks are making these moves, even though the Treasury yields, particularly for the 10-year, are moving lower again today. The why behind that, I think we all know, was the better than expected CPI report yesterday. The comments that Fed Chair Powell made yesterday during the post-monetary policy press conference that suggested the Fed's latest updates for its economic projections may already need some updating.

And even Powell admitted that some of the components in the updated projections were probably a little too conservative. But to that, we can add what we saw this morning in the May PPI report, both headline and core better than expected. So it's another set of data today that should help build the Fed's comfort level towards the start of rate cutting later this year.

Now, when we think about the market, though, and I talked about this in our alert this morning, the market is going to see all of this as perhaps there might be more rate cuts than the Fed is currently telegraphing. As I noted, that we're starting to soften our view, if we get more data like we got in the May CPI and May PPI reports, the odds of more than one rate cut are going to continue to move higher in our opinion. But we're going to want to see that in the June data, the July data, the August data, not any one data point.

To mimic what Powell said, we will be watching the totality of the data. But as we did communicate in our alert this morning, that we added the shares of Builders FirstSource into the portfolio, calling them up from the bullpen. I just wanted to mention that even though the market's at all-time highs, shares of Builders FirstSource are not. In fact, they are down 28% from their March highs.

And remember, that was a time when the market was thinking that we had multiple rate cuts this year and multiple rate cuts next year. So now over the last few months, as the expectations have been reset, dialed back, we wisely stay to the sidelines with the shares of Builders FirstSource. But now that we're starting to get the data that could actually potentially pull forward an additional rate cut, we opted to start a fresh position in the shares of Builders FirstSource with a $200 price target-- sorry, $205 price target. And that led us to initiate with a one rating.

Now, as I said in the Alert, we may be a little early on this, but the more data that shows further progress on inflation and builds the Fed's comfort and confidence that it can start cutting rates, our conviction level on the shares of Builders FirstSource is going to rise. So we're going to continue to monitor the data there.

We will stick with the time tested strategy for the portfolio that if we see Builder shares trade off and the data continues to support our thinking and our thesis, we will incrementally add to the position improving our cost basis. We'll also be mindful of our panic point that we set. But as the shares move higher, we will ratchet that up as well.

Now, I also want to talk a little bit about Broadcom shares. Yes, we're not involved there, but you know how we like to connect the dots across customers, suppliers and competitors for the companies that we own in the portfolio. And there was one really big thing that stood out to me when it came to Broadcom, not the 10 for 1 stock split, but more along the lines of what it said about its networking business. Up significantly year-over-year, it did bang the data center and the AI drum.

But here's the thing, it sees that strength continuing so much so that management raised its networking revenue guidance to up 40% this year from its previous up 35%. I know that we've been hearing a lot about data center and AI, but from my perspective, this is simply another data point that shows the strength continues. And if we track these data points back all the way to even what Taiwan Semiconductor reported with its May revenue sales, which were, as we discussed, monster year-over-year numbers, this comment from Broadcom is just another that tells us we have more legs to go as companies continue to adopt the cloud, as they continue to bring AI applications to market, and overall data center growth continues.

So it keeps us obviously very bullish on the shares of NVIDIA-- have had a great run in it even after we trimmed them back, but obviously we see more upside ahead. The same is true with Marvell. Remember, Marvell benefiting from the data center buildout. But networking is one of its other businesses. We see Broadcom's comments giving some added support to our thesis on Marvell shares as well.

After the close today, what do we have? It's really just Adobe reporting. And again, not in the portfolio, but we will want to pay attention to what it has to say about cloud and of course, about AI. I'm also kind of interested on the conference call to see how they handle the little kerfuffle of late that suggested they might be using user data of Adobe products to train its AI tools. And then they backed off on that.

So I'm very curious to see how management kind of talks about that aspect of data privacy. And with that, members, I would say please remember, check your emails, check your Alerts. We want to make sure you are there with our latest thinking and any moves that we make with the portfolio. Thanks for watching.

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