VIDEO: Our Game Plan for a Nervous Stock Market

Chris Versace provides his take on what’s driving the renewed nervousness in the stock market and why the smarter move for longer-term investors is to slow things down, ask questions and not fall prey to knee-jerk reactions. That’s especially the case as part of the market pressure is due to the impact of leveraged ETFs that are helping foster the market’s overreaction.

Chris explains how the Portfolio is handling this and why we’re keeping a close watch on certain levels for the S&P 500 and Nasdaq Composite. He also discusses why quarterly results and guidance from Google (GOOGL) next week could have implications for the market as well as other holdings in the Portfolio.

We close out today’s video with Chris giving some thoughts on Netflix (NFLX), but as he mentions, more in-depth comments are available in our post-earnings Alert published today.

Transcript

Hey everybody, Chris Versace here, Friday July 17th. And odds are you have either seen or hearing about the continued pain in the market. We talked about it in our opening comments this morning, the variety of factors that are coming together. We’re referring to, of course, renewed questions about AI and data center spending, Chinese AI models, the potential disruption there on that spending, and of course the impact of leveraged ETFs that are exacerbating the market volatility, the market fall, tying back to the drop that we’re seeing in hyperscalers and corresponding chip stocks.

To that, we can add the renewed questions over potential rekindling of inflation pressures, which looks like what’s happening given what we’re seeing in the tick higher in diesel prices, gas prices, oil prices, and the like, and the uncertainty about exactly how long this renewed conflict could be going on for. So a lot of uncertainty, a lot of questions have really emerged or re-emerged in some cases over the last several days. And that, of course, is making the market extremely nervous.

And in our view, that really does help explain some of the reactions that we’ve gotten to either companies that have reported their quarterly results or have pre-announced them. We would argue that the shining example in that is really the catastrophic drop in IBM shares. Now, we’re not involved with IBM. Obviously, you know that. And we have had our concerns about the impact or the disruptive impact, I should say, over AI on software demand. But the point I’m trying to make is that the market is extremely nervous and as we move into an accelerated pace of earnings next week, the week after, we could see the market remain a little more volatile than usual. It’s going to hinge on the quarterly earnings season in and of itself. Expectations, as we’ve talked about, are high.

To the extent that companies are able to deliver better than expected top and bottom line results and guidance that is better than expected Then I think those stocks will work to the extent that we continue to see or see stocks that deliver in line results or fall short of expectations I do think that we’re going to see some continued pain in the market. But what do we do at times like this as investors? The knee-jerk reaction that we’re seeing, that’s not really the right thing to do in my opinion. What we want to do, particularly as folks that are not focused on day-to-day movement in the portfolio, although we can take advantage of that.

We tend to be focused more on managing the portfolio, as I said, not day to day, not week to week, but really over the medium to longer term. What that means is that at times like this, we want to slow things down a little bit. Let’s ask questions about some fresh data and signals, asking whether or not there has been a significant change in what is happening or, or,

Is the market simply overreacting to what it has heard last or is concerned about? My sense is that is really what we are seeing. And as we talked about in some of our opening comments this morning, our focus as it relates to AI and data center is comments about continued adoption and the widening usage and the demand that is going to place on compute and networking capacity.

Go back to the comments about IBM, about how it misread what was happening in capital spending and IT spending, really favoring AI and data center. That’s we’ll want to be hearing. We’ll be wanting to hearing more comments like the ones we heard from Jamie Dimon at JP Morgan about how they are leaning into AI adoption to drive greater productivity. Even he said in some instances, they’ve been able to dial back headcount 30, 40 percent. So as we pay attention to those signals, I think that things will become clear or more clear as to what is really going on and that some of the market forces here, the unwinding of those levered ETFs will start to pass us by. So as we think about all of that, there are a couple of things we need to be mindful of.

One, is the degree to which it’s an overreaction, like I said, but we also have to be mindful about the market mood as well as the individual technical setups for a particular stock. Now about the market mood, it can overshadow things no matter how good data points might be, how positive the number of signals we get, what earnings call commentaries are.

The market mood can overshadow those things and really say that yes, lot of positive signals out there, but sorry folks, this is where we’re going. I would argue that we saw that the last day with the quarterly results and guidance from Taiwan Semiconductor. As we saw at times like this, the market just looks past them. What that means for us as investors is that as much as we want to keep an eye on those data points and collect them and interpret them correctly, we also have to be mindful of what’s going on with the market from a technical perspective. Are we seeing room for the market to fall further? Are we bumping up against any support levels?

These are the things we have to ask ourselves.

And when we look at the S &P 500, what are we seeing? Well, with today’s move lower, it is flirting with its 50 day moving average. Pretty much back to where we saw it doing the same thing last month with the NASDAQ composite, it’s actually moved below its 50 day moving average. And for our perspective, that makes the 25,000 level the next one to watch. Here’s the thing, it bottomed at or near the 25,000 level twice in the month of June.

That 25,000 level for the NASDAQ Composite suggests that we could see further downside up to about 2%, but if we see that or start to see it move closer towards that 25,000 level, what I think is going to happen is that folks are going to roll up their sleeves and do some of the valuation work that we shared with you earlier in the week.

I’m specifically referring to when we shared our updated table of portfolio metrics, we talked about some of the valuations for these high-tech growth stocks, Palantir, NVIDIA, Marvell, Broadcom. And how when you look at them on not just a PE basis, but really on a PE to growth basis, given the expected build out in AI and data center, that is not just one year, but multiple years. When you look at it on those levels, the valuation levels are becoming arguably even more so in the ensuing days since we published that table with you.

We do have another leg up in quarterly earnings, like I mentioned, over the next several weeks. Next week, we at the portfolio, have United Rentals and Amex reporting, but the big one is going to be what Google has to say. Why?

Well, given all the questions over hyperscaler capital spending, despite what we heard on comments from Micron, SK Hynix, ASML, and TSM, there is some concern out there that there might be some overbuilding. And I would argue with you that even though some might think that it would be a good thing if Google came out and upsized its capital spending comments for 2026, I would argue

that the smarter thing for them to do would be to simply reiterate their existing capital spending guidance for this year, not upsize it, and talk about how it is being disciplined in its AI and cloud capacity build out. My point is, that given the market mood, if Google comes out and ratchets up its spending, another step, another two steps, if you will, odds are it’s just going to rekindle those questions that are weighing on the market.

That’s my advice to Google. We’ll see what they say, but I will also tell you that as we digest Google’s comments about capital spending, we’ll also be listening for what it says about its plans for AI custom silicon serving exterior customers.

Why? Well, for one thing, Google has talked about moving into this, which we do think is a good thing. It’s following what Amazon is doing. But the why behind why we’re focusing in on this is because of what it will tell us about demand for custom silicon at Broadcom and Marvell, which are two of its partners. Both of those stocks have gotten beaten up over the last trading sessions with Marvell in particular. And we’ve talked about wanting to rebuild the position in the portfolio using weakness to do so.

So we’ve already added a little bit. We have room to add more and these comments from Google could be a positive step towards doing more of that. So we will have to see and pay very close attention. In other words, we’re going to have a lot to talk about next week, whether it’s looking at the market’s technicals, individual stock technicals, the comments that we’re going to collect from the earnings calls that are happening, whether they’re companies in the portfolio or out. A lot, a lot, a lot. It’s going to be busy.

Before we get there, I do want to talk for a minute about Netflix. I know we’ve got some questions in the forum. I know folks are frustrated. Believe me, I am frustrated as well. And that is why we purposely took our time with the comments that we published this morning. Yes, we downgraded our rating to a three. Yes, we trimmed down our price target. But in that alert, we also explain why we took our rating to a Three for Netflix.

On the one hand, there are a lot of positives going on at the company, things that I think that are being overshadowed by the market focus on guidance for the current quarter, which was two cents shy of what the market was looking for. Again, a potential overreaction.

But there were some other things that we identified in there that foster the need to ask some tough questions. And we did that in the alert. And I’m calling this out to you because I really think that it would be prudent for portfolio followers, pro members to really take their time and digest that note because it talks about what we’re looking for ahead that could re-energize the market’s enthusiasm for Netflix shares. And we talk about what our potential response to that might be. But we also talk about how the size of what could be announced, and I’m referring to the company’s growing advertising revenue and the potential upsize in 2026 advertising revenue and what it could say for 2027, the size of those numbers are what’s going to matter.

So, with that lack of clarity in the near term and potential catalyst ahead of us, that’s the rationale why we downgraded the shares to a three. I know some folks might be frustrated with that, but here’s the thing. We have seen demonstrative pullbacks in stocks before, and the prudent thing has been to let upcoming data guide our action. In particular, there’s an example in the alert with United Rentals when we downgraded it to a three and later revisited as the clarity that we were looking for came and it was positive. And if you remember where the shares of United Rentals were trading around March 2025 compared to where they are today, it was the right move to make. Now that assumes that the clarity for Netflix will be positive. We will judge that when it comes and we will make decisions based on what we learn.

If it means that we have to take a different form of action with the shares, we will do so. So my friends, please be sure to check that alert out. Take your time. Read it. We’ll have a lot more coming your way today, especially in the Weekly Roundup. We’ll be getting you ready for what’s ahead next week, building on the comments that I just shared, but laying out some other things as well. Believe me, you won’t want to miss it.

Thanks for watching. Check your emails, your alerts, my friends. And always remember, if we make any moves with the portfolio, we want you right there with us.

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At the time of publication, TheStreet Pro was long GOOGL and NFLX.