VIDEO: Powell's Policy Admission Keeps Us Bullish on These Holdings

In today’s Daily Rundown video, Chris Versace shares his reaction to the Fed’s latest 25 basis point rate cut and Fed Chair Powell’s corresponding press release. 

As we suspected, Powell shared that the Fed will remain data-dependent but acknowledged that the central bank has yet to figure out the path to neutral monetary policy. Powell did say that the current policy is still restrictive, suggesting more rate cuts are coming, but upcoming data will determine when. 

Chris also games out a likely scenario for those cuts and explains why that keeps us long-term bullish on the construction-related names we have in the Portfolio. 

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here. It's the afternoon of Thursday, November 7. As you've probably seen, we had a number of actions that we took today with TheStreet Pro Portfolio, making it a rather busy day. All in all, there were four trades to lock in gains where we rang the register on Bank of America, Morgan Stanley, and Marvell, principally after the big move that they had yesterday.

And then we also dialed back the portfolio's exposure and downgraded the shares of Dutch Bros to a two rating. We did this because of the post-earnings pop that we saw in the shares. I mean, it was simply phenomenal, far better than I really thought was going to happen.

But again, as we discussed in the alert, there was a short squeeze that was going on, given the size of the short position that was in the market on Dutch Bros shares going into the earnings report. Of course, the company delivered a beat and raise quarter, reaffirmed its expansion plans. And that really keeps us bullish on the shares of Dutch Bros longer term.

But we do realize that when we see such a pronounced move in the shares, we have to take some shares off. Lock in a slice of those gains, as we like to say. I do think the shares will settle out over the next couple of days as that short covering subsides, and then we'll start to think about where it might make sense to rethink about adding back some additional shares.

But I also wanted to talk a little bit today about the Fed's policy meeting. And that's really why today's video is a little later than usual. In the policy statement, if you haven't seen it by now, yes, the Fed did deliver another 25 basis point rate cut, widely expected. That brings the total number of rate cuts between the Fed's September and November meeting to 75 basis points.

Now, outside of that action, again, widely expected, the policy statement didn't really have a lot of things that were different compared to the September policy statement. The answer there is no. However, the language ultimately means that the Fed is going to remain data dependent about the forward path of rate cuts. Pretty standard stuff.

Turning to Fed Chair Powell's press conference. Again, here too, not a lot of new ground was covered, but the Fed chief did acknowledge the strength of the economy. And he shared candidly that the Fed is still trying to figure out the path to its ultimate destination with the Fed funds rate.

And when he says that ultimate destination, Powell's, of course, referring to where policy is at a neutral footing. And he did share that even after today's 25 basis point rate cut, excuse me, the Fed still sees policy as somewhat restrictive.

As we read between the lines, it's pretty much as we suspected. Again, the Fed will be data dependent, making decisions meeting by meeting. What does this mean? It means all the incoming data is going to be important.

But let's step back and game this out just a little bit. Let's say that the neutral rate is 325 to 350 basis points for the Fed funds rate. That's roughly five more 25 basis point rate cuts for a total, including the 7 to 75 we already got, of about 200 basis points.

Here's the deal. While the path to get there could be a little longer than some expect, and it may not be very consistent, we might have some policy meetings in a row with rate cuts like we did September and November. There might be a pause. There might be more than one pause, depending on the number of policy meetings and the data. But we're more concerned not so much about the path as where we will be when the Fed gets policy back to neutral footing.

If we think about it, like I said, it's in total about 200 basis points below where the Fed funds peaked out. And if we game it out, it likely means that it's going to be sometime late 2025, maybe 2026. Again, depending on how the economy and the data evolves.

But our thinking is that as the Fed does continue to cut these rates and we get closer and closer to that neutral policy, it's going to help stimulate mortgage demand. It's going to reduce borrowing costs, which should help stimulate further activity not only in the overall economy, but also, too, in non-residential construction, especially while the infrastructure dollars are flowing.

So from our perspective, when we think about the construction related names we have in the portfolio, United Rentals, Vulcan Materials, Builders FirstSource, indirectly Eaton, indirectly waste management, we do see a path forward where the economy continues to improve as it relates to overall construction activity. That keeps us bullish.

And we continue to think that as the Fed moves down this path and gets closer to this neutral rate, 2026 is probably shaping up to be a very, very good year for housing and non-residential construction. Our thought on that hasn't changed. If anything, what we heard from Powell's comments today, we continue to think that is the likely outcome.

And for those wondering about the election and comments that Powell may have made, he did not touch anything when it came to policy. There was a question about whether Powell is concerned that President Trump has the authority to remove him. I would say that in an almost dirty, like Harry, way.

Powell's response said that there is simply no room for President Trump to dismiss him or demote him before his term ends in May 2026. I actually think that's very good news. Powell, I think, has done an admirable job navigating monetary policy and communicating the thoughts behind it, and I look forward to him continuing to do the job until the job is done.

So what does this all mean for us? Well, we've got just over a month to the next Fed policy meeting. We will have to continue to dig into the data as it comes. And as we do that, if we need to update our thinking about the pace of rate cuts and those implications, we, of course, will be sharing our thoughts with you.

Let's remember too, folks, that after the close today, we do have quarterly results from Trade Desk and Axon and we'll have our comments and any corresponding actions that we might make once we've digested their respective earnings calls. That likely means you'll be hearing from us tomorrow morning.

So I know it's been a busy week, but we do have another day to go. I would ask that you continue to check your emails, check your alerts. We want to make sure you're getting our latest thoughts. And if we have to make any moves, perhaps with Trade Desk, perhaps with Axon, I don't know yet, or with any other names in the portfolio, we want to make sure that you are right there with us. Thanks for watching. We will see you tomorrow.