VIDEO: Our Big Tech Holding Wants to Challenge AWS, Azure and Google Cloud

Chris Versace sits down and leafs through today’s economic data from ADP, ISM and S&P Global, explaining the positive development on inflation pressures and how it ties to our thinking about the market’s rate hike expectations.

He also discusses reports that Meta (META) is aiming to compete with Amazon (AMZN) Web Services, Microsoft (MSFT) Azure and Google (GOOGL) Cloud, and why we think it could be a good thing for the company and our META shares.

Chris also walks through Wednesday’s Portfolio moves, including the completion of our latest quarterly reconstitution for the EPS All-Stars basket, and our prudent move with Axon (AXON) shares. He also looks to clear up some confusion with the shares of the company formerly known as SuRo Capital as the company rebrands itself on Wednesday as Neostellar Capital (NSLR).

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At the time of publication, TheStreet Pro Portfolio was long AMZN, AXON, GOOGL, META, MSFT and NSLR.

TRANSCRIPT

Hey everybody, Christopher Versace here, July 1st. Start of a new quarter and one that follows a very strong one for the market and for the pro portfolio. Now, I hate to do this to you, but I’m gonna have a lot more to say about that. The month of June, the second quarter, the portfolio’s performance, all wrapped up for you in the June monthly roundup that’ll be out later this week. What I want to focus on with you today in our time together is the latest economic data and what it means, and touch on a few things for the portfolio. What economic data?

Well, today was you know being the first day of July, and that means a sizable amount of data came our way. I’m gonna stick to ADP’s June Employment Change Report, the back-to-back manufacturing PMI reports from SP Global and ISM. And like I said, a few things on the portfolio, including Meta, Axon and SuRo Capital, which has rebranded to Neostellar Capital. Let’s get to it.

We’ll start with ADP’s June employment report, 98,000 jobs created. That’s down a little bit from 122,000 the prior month, and it also missed expectations, which were somewhere between 105, call it 110,000 jobs. Now, some folks will say, weaker than expected, but if we trace the data back over the last several months, 98,000 was stronger than what we’ve been getting. And that’s true if we look at it on either the absolute reported basis or more importantly, on the trailing three-month moving average basis that the Fed looks at, we look at, and others look at.

So, it tells us that job creation is still healthy, not falling off a cliff. To the extent that we see a sharp drop in the upcoming data that would be something that we want to pay close attention to. But again, based on what we see in ADP’s findings for June, you know, the employment market continues to chug along rather nicely.

Turning to the ISM manufacturing PMI for June, clearly showing that the manufacturing part of the economy is growing, and new order growth says it should stay in that direction. Job creation in the manufacturing sector, according to what ISM had to say, was still a little bit of an issue, but measure it against the ADP numbers and what we’re likely going to see when ISM releases its June services PMI and what that says on employment, that’ll be far more telling. Remember that employment in the service part of the economy really is far, far greater and a far greater driver of economic data for employment than the manufacturing side. But again, ADP’s numbers still pretty nice.

So that brings me to the big focus in ISM’s manufacturing PMI report, and I’m talking about inflation. Here’s the good news. good news, not great news, good news. the ISM manufacturing prices sub-index fell to 73 in June. Now, 73 still rising. Remember the expansion contraction line is around 50.

But here’s the needed context. That 73 in June is down from 82.1 in May, 84.6 in April, 78.3 in March. Now, 73 is still above what we saw in February and the prior months, but it is trending in the right direction. And odds are we will see more improvement as oil and gas prices continue to fall and the flow through of the drop that we’ve seen over the last several weeks really flows through other parts of the economy.

Now, let’s look at the other June manufacturing PMI report that came out today, this one from SP Global. So, for June, I really want to focus here on inflation. Pretty much everything else lined up with ISM’s findings about continued strength in the manufacturing economy, continued strength and new order growth. And on inflation, S&P findings were also reinforcing the comments we found from ISM. Specifically, S&P found that month over month, excuse me, month over month, there was softening in both input and output prices. Again, you know, meshing them with ISM’s inflation findings that suggest that the worst of the inflation pressures are behind us.

Given my comments about the service economy and its overall importance to the economy and GDP, we will look for further confirmation in the June service PMIs from ISM and SP Global, which are out next week. All in all, I would say that the inflation data today is encouraging. The employment data out today is fine, soothing, nothing to be alarmed about, relatively healthy all in all. And it tells us that you know the focus should continue to be on inflation. I would also say that in our view, when we kind of assess the data, it really supports our view that the market and really overstepped, we would say, when you look at this CME Fed watch tool, because according to that, the market up through last night was still seeing the possibility of two rate hikes between now and the end of the first quarter of 2027.

I would also say that we’re seeing in the inflation data also explains a little bit why Kevin Walsh may be keeping his monetary cards close to the vest. When he was at the ECB summit this morning, as we suspected, he was rather tight-lipped on the topic of monetary policy and where it could go in the coming months. Christine Lagarde at the ECB also said that they too are gonna be forcing the markets to do a little more work. Excuse me, they’re not gonna be giving monetary policy guidance, but they will be talking about the monetary policy framework and how they’re making their decisions. This tells me that the ECB and the Fed, they’re pretty much on the same page. For us, no real change.

We’re gonna continue to follow the data and update our thinking as we need to.

Now, let’s shift gears a little bit and talk about some things in the portfolio.

Starting off with Meta, that stock is popping today. This had been kind of lagged during the second quarter, along with the other hyperscalers, but today Meta is popping. The catalyst reports that the company is developing a new cloud business called Meta Compute, which means that Meta would enter the market and compete with AWS, Azure, and Google Cloud.

Now, from our perspective, this is a smart move, assuming that Meta is indeed going down this path, largely because it’s going to help defray the cost of its massive capital spending program. And as we think about it, to the extent that hyperscaler capacity is tight, it means that Meta Compute could probably put up some quick wins.

Meta has yet to make a formal announcement about this, but our thinking is that if and when it does, most likely. with its June quarter earnings release, it’s going to lead Wall Street to rethink the business and more importantly, rethink how they see the shares. That, in our view, would be a positive catalyst for Meta stock. We, of course, continue to be long meta in the portfolio. and we’ll discuss you know more about our rationale for that in that June monthly roundup I mentioned several moments ago.

Today we completed the reconstitution of our EPS All-Stars basket. We picked up some incremental shares, and we added shares of SI Time and Seagate to the portfolio. You can see more about that in the alert.

We also took advantage of the continued grinding higher in axon shares, which are up considerably in really over the last several weeks, but even more so if we trace the share price back to very early in the second quarter. Why did we do this? One, obviously the massive move, I believe more than 44% or so, which was one reason. But two, the shares as a result of that move moved back into overbought territory. And this is the biggest part given our portfolio discipline, that combination of factors pushed the axon position size well past a 4.5% percentage for the portfolio. That led us to do some prudent and profitable register, registering, excuse me, with Axon shares. I will also say that given the technical setup, we also downgraded Axon Shares to a two rating.

Now, finally, before we get out of here, let’s discuss something that might be posing a little bit of confusion with some folks. I’m talking about Suro Capital and ticker symbol SSS.

Odds are some folks are a little concerned, fretting maybe, because they’re not seeing a stock price when they punch in the four Ss for the ticker symbol. Here’s the thing: when we added some shares of Suro Capital to the portfolio last week, we discussed the pending name change and ticker change that was going into effect today.

To recap, Suro Capital becomes Neostellar Capital.

The ticker symbol SSS shifts to NSLR.

Now, when we think about the company, even after the name change and the ticker change, the strategy remains the same, and so does our stance on the shares. Now, I would say it’s likely to take a couple days for these things to, you know, flow through the entire system. Whether you’re looking at, you know, stock quotes on a site like the Street Pro or Yahoo Finance or wherever, the name and ticker change might take a little bit to show up on your online accounts.

Nothing to be worried about. We will continue to point out this and continue to track the shares. We’ve got your back. No need to worry. And with that, my friends, I would say please remember to check your emails, your alerts. We want to make sure you’re getting our latest thoughts. And if we happen to make any moves with the portfolio, we want you right there with us.

Thanks for watching.