VIDEO: Our Road Map for the Year's Final Full Week of Trading

As we kick off the last full week of trading for 2024 and with the S&P 500 short-term oversold, the Pro Portfolio's Chris Versace previews the Fed’s December policy meeting, explaining why our focus will be on what the central bank telegraphs for rate cuts in 2025. Versace also explains why he'll carefully dig into the November retail sales report — and look for data on Black Friday "week," and why the Fed’s updated outlook for rate cuts will overshadow the November housing starts report. 

Finally, he touches on the data points to watch when Micron MU, FedEx FDX, and Nike NKE report this week. And with Qualcomm QCOM and Arm Holdings ARM heading to court this week, Versace shares what we think will be the likely outcome.

Transcript

CHRIS VERSACE: Hey, folks, Chris Versace, Monday, December 16. The last full week of trading is what we have this week. And as we get ready to embark on that, the S&P 500 is up just shy of 27% year-to-date. But following last week's action, the market is technically oversold. Now, that could mean we see a rash of bargain hunters coming in, especially given record inflows that the stock market has seen over the last few weeks. And that combination is likely to fuel chatter about a Santa Claus rally emerging later this year.

But as you know before we get to any of that, we do have to contend with the Fed's December policy meeting that concludes on Wednesday. Market expectations are that the Fed will deliver another 25 basis point rate cut, bringing its total to 100 basis points since September. Now, that's a lot of easing in what will be a 4-month period of time. And as a result of that and some other factors, the debate is now shifted to what the Fed will really telegraph about the pace of rate cuts as it looks to bring monetary policy back, as we know, to a neutral level.

Our suspicion is that what's next for monetary policy is going to emerge over time. And we say this, given not only the strength in the economy, but also what we saw in the October, November inflation data. That's right, whether it's the consumer price index, producer price index, wages, that data that we got for October and November confirmed that at a minimum, inflation is sticky, and in some cases it's simply moving in the wrong direction relative to the Fed's 2% target.

Now Wednesday, the market will be focusing on, yes, the policy statement, but really more about Fed Chair Powell's tone and language, as well as what we see in the updated set of the Fed's economic projections. What will we be focusing in on in those updated set of projections? Well, obviously what's the Fed funds rate exiting 2025 and 2026? Because some simple math will tell us how many rate cuts the Fed has kind of penciled in for 2025 and for 2026.

We'll also be focusing in on the updated projections for GDP and the employment rate. GDP, why? Well, we know the economy has been stronger than expected. Even at the deal book summit recently, Fed Chair Powell said the economy is performing better than the Fed thought it would back in September. So that probably means their GDP expectations for 2024, 2025 will come up. But because the Fed is focused on its dual mandate, we will also be closely watching what it says or thinks it could see when it comes to the unemployment rate in 2025.

Again, those updates come Wednesday afternoon. Currently, though, the CME FedWatch tool shows two more rate cuts in 2025. And yeah, the Fed's September projections showed more rate cuts than that. But here's the thing, as long as the Fed's updated set of projections on Wednesday show at least two rate cuts next year, that's what the market's expecting. I think the market will be fine with it.

If, however, the Fed only shows one, that could be a little upsetting to the market. So we're to want to wait and see. My gut here, based on the data that we've seen, kind of suggests that the Fed will deliver what the market expects. So that could lead us to put some capital to work this week. And it could also mean that we finally start to unwind the portfolio's position in 4-rated PepsiCo PEP.

Remember, our thought here is we want to use some market strength to start unwinding that position. And if we see it this week or in a Santa Claus rally, that would kind of prompt us to do so. Now, as we get ready for the Fed's meeting, we do have a couple pieces of economic data we'll want to be poring over. The November retail sales report for one. And it should show a nice pickup just given what we've heard about the holiday shopping season, especially for non-store retail sales, better known to you and me as e-commerce or digital shopping.

Candidly, I think the November retail sales report will be more of a point of confirmation for the strength in digital shopping. I say that because we have gotten a lot of data about the Black Friday holiday shopping weekend, and really the strength that we saw in digital shopping for that. But let's remember, too, that a lot of retailers, even Amazon, weren't just running Black Friday sales specials. They had a Black Friday week.

So odds are we should see a nice print for digital shopping. But we also have to realize that when it comes to retail sales, there are a lot more categories than just digital shopping. So we'll want to parse that report very carefully. And here's the thing, if the headline November retail sales figure misses expectations, that is likely going to reignite some concerns about overall all holiday shopping and about brick and mortar retailers. Remember, when we heard from Target and others, some of the comp sales figures that they were kind of guiding for the holiday shopping quarter, not very strong.

And that has us concerned for brick and mortar retailers in particular, about margins and bottom line performance because of what's likely to be a greater use of promotional activity, discounting sales efforts, that sort of thing. As we step back from all of it, though, we continue to see ourselves well-positioned with Amazon and of course, with Costco COST. Also, this week, we've got the November housing starts and industrial production data coming.

We will pore over all of that as it relates to Builders FirstSource BLDR, United Rentals URI, Vulcan Materials VMC and Waste Management WM. But candidly, I think what the Fed has to say Wednesday afternoon and what it shows in its updated set of economic projections will probably be a bigger driver of that collection of stocks that we have in the portfolio. Keep in mind, too, that all of this data is going to come before the Fed concludes its policy meeting on Wednesday, which means that when we get an updated set of figures from the Atlanta Fed regarding its GDPNow model on Tuesday, that comes just as the Fed is kicking off the 2-day policy meeting. So we're going to want to focus in on that.

The last update on December 9 pegged the current quarter at 3.3%. Now, if it comes in a little stronger, obviously that's good news for the economy. It's another reason for the Fed to issue more cautious comments about forward rate cuts in 2025. But even if it comes down a little bit, call it 3%, maybe even high 2%, that's not going to be enough to spur the Fed into action with more. So I think we'll want to see the number. But by and large, I think it's going to continue to show a healthy economy.

Good news obviously for the consumer, good news for the market. But we'll have to see what it means for what the Fed may or may not say and do when it comes to 2025. We also have some quarterly results out this week. We've got FedEx FEDEX. We'll want to be listening to what it says about the pace of the global economy, but also currency and the dollar.

Any comments on the holiday shopping season, we have Nike. And kind of setting up that report, we learned early this morning that China's November retail sales missed expectations. So that could be a little bit of a headwind for Nike. But we'll also want to see how the company is doing when it comes to battling Lululemon, which benefited nicely from its China business in the most recent quarter. But also, how is it contending with Adidas ADDYY, HOKA, and On? And of course, given Nike's presence across the globe, what is it seeing in terms of currency headwinds?

We also have earnings from Micron MU coming. And yeah, it's going to give us an update on memory demand. But as we think about it, it's going to be the comments on capital spending levels, but also end market comments, data center smartphone, PC and others that I think are likely to be a greater focus. From our perspective, we'll be mining Micron's comments regarding our positions in Apple AAPL, Qualcomm, NVIDIA NVDA and Marvell MRVL.

And finally, as it relates to smartphones and chips, Qualcomm and Arm ARM are heading to court this week. Remember, that Arm has accused Qualcomm of breaching a licensing contract. Ultimately, because they're going to court, we do suspect there could be some saber rattling and messy headlines, that sort of thing. But ultimately, we continue to think that a fresh deal is likely to be struck between the two companies. And it may take a little bit of time, but ultimately that's where we think we're going to get.

Remember, Qualcomm is a major customer for Arm, so I rather doubt that Arm wants to lose that revenue stream, simply tossing it out. So we'll look for that. And here's the deal, an eventual reworked licensing agreement would be positive most likely for both, especially for Qualcomm. It would remove this overhang that's on the shares and it would allow folks to really start to refocus on Qualcomm's diversification efforts into IoT, AI, PC, and of course, automotive.

And we think that as they deliver on that, Wall Street will have to revisit, rethink how they value Qualcomm shares. And it's that opportunity that we want to capture by owning the shares. So that's our roadmap for the week. I would say please be sure to check your email. We're going to have a bunch of other comments coming obviously this week. In particular, over the weekend, there was some conversation about Apple's foldable efforts. We do think that will be a positive for our shares of Universal Display OLED, and we'll be having an alert on that.

But we'll have some other items as well. So please folks, be sure to check your emails, your Alerts. We want to make sure you're getting our latest thoughts. And if we make any moves with the Portfolio, as you know, we want you right there with us. Thanks for watching. 

At the time of publication, TheStreet Pro Portfolio was long QCOM, PEP, COST, BLDR, VMC, BLDR, WM, AAPL, NVDA, MRVL and OLED.