VIDEO: Our Game Plan Going Into CPI and Why Walmart's Earnings Are So Important

In today’s Daily Rundown video, Chris Versace discusses why the hotter-than-expected April PPI report will raise questions about tomorrow’s April CPI report and shares what the Fed will focus on in the April PPI data. 

He also gives his thoughts on Home Depot’s HD earnings but explains why tomorrow’s results from Walmart WMT will be much more insightful when it comes to the consumer. 

He closes out today’s video with expectations for Google’s (GOOGL) IO event this afternoon, and why it should be a positive for two portfolio chip holdings. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. It is Tuesday, April 14. Kind of a big pickup in activity today after several market days of, let's be honest, being rather quiet. What did we have? Well, out of the gate, we had the April PPI report that surprised to the upside both headline and core PPI accelerated relative to market expectations, not really supporting the notion that the Fed is going to be interested in cutting rates as soon as September.

There were a couple of things inside the report that kind of stood out. But I would say that the biggest one was that the index for final demand services increased 0.6%, the biggest jump since July of 2023. And that is going to catch the Fed's attention. And when Fed Chair Powell speaks later today, I suspect he's going to have to say, look, we're simply not seeing the good data that we need to see to make progress towards the start of a rate cutting cycle.

Here's the deal. Tomorrow brings the April CPI report. And going into that print so far, the market expects to see declines on a year over year basis compared to March. Now, look, we've had our concerns about that. We've discussed this several times. And certainly, what we saw in the PPI report is going to add to the concern that we have, that we're going to see the restart of meaningful declines in the CPI data.

If we're right on that, it means that the market's going to have to wrap its head around the fact that we aren't likely to see that September rate cut that is currently reflected in the CME FedWatch tool. If that is indeed the case, the market's going to have to reset those expectations. That will likely pressure the market a little bit. That could be the opportunity for us to put our shopping list to work. We've talked about sitting on the sidelines in the near term waiting for this reset to happen.

And again, if we see the market trade off in response, that could be the time for us to wade into some of the names on the shopping list will also keep our eyes on the bullpen as well. So that's kind of our game plan for the very near term, but there are a few other things that I want to talk about with you today. First, Home Depot, obviously one of the first big box retailers to report. Sales were down year over year. And they're citing a soft start to the spring season.

We'll have to see. My take on this compared to Target, Walmart, Kohl's and others, Home Depot is a very specific type of retailer, repair remodel, construction projects, that sort of thing. So we'll want to pay attention to what their comments about the consumer. But I do think that the more important retailer report to pay attention to will be tomorrow's report from Walmart.

When we think about what Walmart has, yes, they have general merchandise. They have grocery. They have private label. So what they have to say about the trends that they're seeing in consumer spending, trading down smaller baskets, fewer items in the cart, smaller ticket sizes, that's going to be, I think, a lot more insightful to us as a read through on the consumer. And remember, as it relates to their private label business, yesterday, we added the shares of TreeHouse Foods, THS, to the bullpen.

Why? Well, we are seeing that kind of across the board. We're seeing a one-two event of one, consumers are indeed trading down, particularly lower income consumers, to private label brands. But we're also seeing more retail companies, Amazon, Walmart, in particular, but Target and others embrace the use of private label brands. It helps them capture greater wallet share of consumers. Obviously a positive for them.

But they're looking to meet their consumers also where they want to be in terms of price points, so no surprise here. As it relates to Walmart and TreeHouse foods, Walmart is their largest customer north of 20% of sales last year. So what Walmart has to say about private label in general and then about its new product line that it's launching later this year, that's going to be very important for our thinking on TreeHouse Foods, so we will, of course, be paying very close attention to that.

And then finally, just in terms of events for today, this afternoon brings Google's I/O event. This is their big developer conference. Typically, it tends to fall ahead of Apple's WWDC Conference. And that is the case yet again this year. But what's different this year is yesterday, OpenAI showcased the latest iteration of ChatGPT for O, O for Omni. What's interesting here, it's text, speech, and video.

In my opinion, it's going to up the ante for what Google has to show today during I/O, an event that is likely, as people have joked, should not be called Google I/O. It should be called Google AI because AI and Gemini are likely to be the focal points of the event. Yes, there will be some updates for Android in its various iterations from smartphones to auto and other things, but I think what we're going to see here is similar to what we expect Apple to do with AI at WWDC.

And by that, I mean showcase how Google is bringing AI across all of these different software platforms and really leaning in on Gemini to do so. So that's kind of the expectation. I do think that-- well, we should suspect, because of the nature of the event, that Google is probably going to brandish around some partnership relationships alongside some of the examples that it's going to be showing this afternoon.

The way I think about that, that's actually very positive because it's going to showcase use cases for AI. And I think that's going to help foster adoption as that happens. I think that's very, very good for our shares of NVIDIA and Marvell, especially Marvell because remember, AI adoption is going to spur data traffic. That's going to congest networks. That bodes well for incremental spending in network infrastructure, carrier infrastructure, which is, of course, some of the key businesses for Marvell.

So we'll have our thoughts on all of this, PPI, Powell, and the Google I/O event, as well as comments on those retail facing stocks coming at you today, tomorrow. So please, be sure to check your emails, your alerts. We don't want you to miss any of our latest thinking and especially if we make any moves with the portfolio. Thanks for watching.

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