VIDEO: Morgan Stanley and Bank of America Get Different Reactions on Wall Street

In today's Daily Rundown video, Chris Versace recaps today’s economic data and what it means for first-quarter 2024 GDP expectations and how it is likely to shape the Fed’s next move. 

He also reviews the portfolio's plan for SPDR Gold GLD and Energy Select Sector SPDR Fund XLE, explains the differing reactions to earnings from Morgan Stanley MS and Bank of America BAC, and why today’s UnitedHealth UNH results are a positive for the First Trust Nasdaq Cybersecurity ETF CIBR. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Tuesday, April 16. And after several pieces of economic data this morning and a handful of earnings reports, equity markets have been bouncing around, and as I share these thoughts with you, they're currently mixed what we have seen is the 10-year Treasury yield continuing to inch higher today following economic data over the last two days that really shows the economy for the March quarter being on stronger footing than previously thought.

Just to quickly recap, yesterday, we had the March retail sales stronger than expected. Today, the March housing starts were weaker than expected, and we have a detailed alert walking through that as well as our thoughts on some of our bullpen holdings as well. So please be sure to check your email, your inboxes, or just look at the website for that. On top of those two, the March industrial production, data was out, and it showed that the manufacturing economy expanded during the month, really reaffirming what we saw earlier with the March PMI reports, again, from ISM and, of course, S&P-- S&P, excuse me, Global. So what's the net effect of this?

The Atlanta Fed GDP now's forecast has bumped up yet again, now sits at 2.9% for the March quarter. That's up from about 2.3% earlier this month. So again, the economy performing better than previously expected. Good news, but that also means that the Fed has a little more time to contemplate cutting rates, especially given the inflation data that we saw last week. Put those together, that is why we're seeing the 10-year yield move higher yesterday and today.

Now after those three reports, we start to look at next week. We will get the first reading on first-quarter GDP. We'll see how accurate that Atlanta GDP forecast is. We'll also get the April flash PMI data, and we'll get the March PCE price index, personal income, personal spending data. Now I point all of this out because as you can see, there's only a handful of data points coming before the Fed embarks upon its next policy meeting, which concludes on the afternoon of May 1, pretty much right around the corner as of tomorrow, two weeks away.

Now as we think about the comments I just made about the data that we've been seeing, we know the Fed is seeing it too. We know the market is kind of recalibrating rate cut expectations. It's just hard to see the Fed at this juncture softening its comments because it's not seeing the type of good data that it's looking for to embark upon that rate cutting cycle, and of course, the economy remains stronger than expected, even though according to the Fed, its monetary policy is in restrictive territory. So how are we going to react with this? Well, we think we know what's coming. We'll plan for it. But at the same time, we do have two other things to conside.

The first is that-- look, we're waiting to see what the response out of Israel is. Will it be further escalation, de-escalation? We know that Treasury Secretary Janet Yellen is saying that she expects to see incremental sanctions on Iran in the next couple of days. The question that we have to wait and see is. Is that good enough?

So that's the air of uncertainty as we think about this. If we see further escalation, well, our GLD and XLE shares are likely to go higher. If we see de-escalation, they're likely to give back some of the big gains that they've put in most recently. We will want to be nimble with those two positions and reevaluate eating almost on a day-by-day basis, not that we're going to exit the positions but we would like to at a minimum, lock in a slice of some of those outsized gains, particularly those that have come more recently.

Now let's also think about one other topic. We're moving deeper into earnings season, and our concern has been about guidance. Again, just to quickly repeat, the market expectation is for just under now 11% EPS growth for the S&P 500. March quarter earnings are expected to be relatively flat compared to the last several. The reacceleration in earnings growth is expected to begin in the current quarter and strengthen in the back half of the year.

Again, rates higher for longer could bang up that expectation a little bit. But as we start to get the guidance, we'll get a better sense as to how likely the reacceleration is in the current quarter, and we had two companies report this morning that are in the portfolio, Morgan Stanley, Bank of America. And if you take a look at them, and we will have more in depth comments to you this afternoon on them, really Morgan Stanley shares are trading higher because they gave favorable guidance. They see their net interest income on par with the first quarter.

By comparison, Bank of America said that their net interest income would bottom in the second quarter and looks to improve in the second half of the year. So guidance is key. Now the positive in those two reports is pretty much what we were looking for played out. What I mean by that is investment banking, asset management. Those were the shining stars in those reports. Again, that explains why Morgan Stanley in particular had a nice quarterly report for the March quarter. But again, we'll get into more of that in more detailed comments coming to you this afternoon.

There was one other earnings report that I wanted to talk about quickly that was for UnitedHealth. Now we don't own UnitedHealth shares. But we do have shares of Elevance Health, and the fundamental picture for Elevance Health-- sorry, for UnitedHealth should be favorable for Elevance health when it reports on Thursday. The other thing, though, is something that really surprised me in UNH's press release. It actually talked about its recent cyber attack calling out to the bottom line the impact that it had.

This is what they said-- total cyber attack impact in the first quarter amounted to $0.74 per share, and the company estimates full-year 2024 impact between $1.15, $1.35. That's about 5% of its expected earnings this year. Now again, I'm rather surprised that a company would call that out. But it also reminds us how important that protecting the crown jewels and other secrets and data, especially data that could be in trouble on the privacy side of things. So it really is a great wake up call for companies about cyber security and spending on it.

We think it's extremely positive for our cybersecurity shares in the portfolio. Ticker symbol CIB are. And as we look at them, they are trading off the last couple of days and again today likely in response to rates moving higher. But if we consider the backdrop of almost every week, we continue to learn of more cyber attacks, a widening array of cyber attacks, and then we factor in what unh had to share with us, I think the outlook for cybersecurity remains extremely bright in our increasingly connected world. One that is only going to get increasingly connected.

So we want to pick our spots here. What I mean by that is we do want to own a little more cyber shares. Our strategy has been really to use pullbacks to do that, and currently those shares are indeed pulling back. But they have passed through the 100-day moving average. The next layer of support looks to be around the 200-day, right around 50. That could be a very good place for us to pick up more shares of the CIBR ETF. And finally, early tomorrow morning, we are going to get the March quarterly results from Taiwan Semiconductor, TSM as we call it. That is going to have implications for several of our holdings, Nvidia, Marvell, Qualcomm, and, of course, Apple.

Now based on what we've seen thus far, we do think that the quarter will be favorable. Remember, they've reported their January, February, March revenue, which is really what we're going to be concerned about, but also their guidance. That's what we need to pay close attention to echoing back to my comments just a moment or two ago. The outlook for data center and AI looks very favorable. But what we're going to want to see and learn is what Taiwan Semi sees for smartphone.

Typically, the March quarter is the bottom. We'll be looking to see if their guidance reaffirms that. As that happens, we will start to take another look at our Qualcomm shares, which we recently bumped up our price target to $200. We'll take another look at Universal Display shares. We just added a little bit to them yesterday, and we do have some more room, and we'll take another look at our price target for Apple as well. So that will be tomorrow morning. And again, throughout today and tomorrow, the rest of the week, because we are going into earnings season, please be sure to check your inboxes your emails, and thank you for watching today's video.

At the time of publication, TheStreet Pro Portfolio is long GLD, XLE, BAC, MS and CIBR.