VIDEO: PPI's Trend, Our Nvidia Trade, Costco and Early Earnings to Watch

In today's Daily Rundown video, Chris Versace explains why the trend in PPI data doesn't support rate cuts anytime soon. 

He also reviews the portfolio's trade rationale for adding more Nvidia NVDA shares earlier today, Costco's COST stellar March revenue report, and why we will be breaking down earnings from JPMorgan Chase JPM and Wells Fargo WFC tomorrow.

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. Thursday, April 11th. The report the market was waiting for for today, the March PPI report, is out. You remember this follows the hotter than expected March CPI report that we got yesterday that kind of led to a sobering moment, as we like to think about it, for the market, realizing that the prospects for rate cuts really falling by the wayside.

Just to quickly recap, remember, started off the year five to six. Then it was three. Increasingly looking like two, maybe one, potentially none, depending on the inflation data we get in the next couple of months. But what did the March PPI report show? Well, I have to say while the numbers were in absolute sense lower than what we saw in the March CPI report, the direction that we saw, both in the headline and the core PPI, were certainly not constructive when it comes to rate cuts.

And we would argue it does not fall into the Fed's good data camp. So what did we see? Well, if you trace back the core PPI data, it came in at 1.8% in December, 2% in January, 2.1% in February, 2.4% in March. So when we draw the line, that's obviously a rising trend line, something that we don't want to see, especially since we know the relationship between PPI tends to lead CPI.

So again, just not really what we want to see. And while that was the core, if we look at the headline PPI data over the last couple of months, we see something not exactly the same, but a similar trend line, rising month over month on a year-over-year basis. Again, not really what we want to see.

We do have about four Fed speakers today, another two more tomorrow on Friday. I don't really see how they can continue to justify rate cuts, numbering the three that they talked about. I think they're going to continue in aggregate to kind of walk back, slow walk, whatever you want to call it the notion of rate cuts this year. And the market's continuing to come around to that thinking.

If we look at the CME FedWatch tool, last I looked, obviously, there's no rate cut expected in May. June off the table. We're seeing the rates fall for a July cut as well. Question about September. My thinking continues to be that it's just simply too close to the election. And candidly, if the economic data continues to be call it GDP above 2% and the inflation data is continuing to be just not trending the right way, or not making a lot more incremental progress, I don't really see how the Fed can do much.

So that really means to me potentially November, December timing. We have a long way to go, a lot more data to get. But that's our kind of current thinking right now. So two, maybe one, maybe none. Have to see about more of the data. But that's kind of the overall view.

Let's get to some portfolio-specific stuff. If you saw your alerts this morning, then you know by now that we added to our position in NVIDIA. We did this really kind of using a combination of three things. The first was the recent pullback in NVIDIA shares. Coming into earlier this week, they were down low double digits, 10% or 11% or so.

That's enticing, given the upside to our price target. But also, there was that very positive report that we talked about yesterday from Taiwan Semiconductor, not only for their March revenue, but for the March quarter revenue as well. We'll get more insight into the split between its end markets when Taiwan Semiconductor reports next week.

But there were also a number of other positive AI-related headlines. We did kind of quickly talk about Google's Cloud Next event, where they had a number of positive announcements, really showing the adoption of AI. And then again today, we have Marvell's event in New York City. It should be well attended by Wall Street.

I expect we will hear obviously a lot about AI, both for the industry as well as for Marvell specifically, what the impact is on data center. And I do suspect that Marvell will kind of support our way of thinking about the adoption of AI, the adoption of AI on-device that will turbocharge the need for incremental capacity and therefore, capital spending for network infrastructure, as well as carrier infrastructure.

So we look forward to those comments. We expect that there should be some bullish comments on Marvell coming out tomorrow. But all of that also supports our positive stance and the reason to add to NVIDIA shares this morning. We also had an alert out talking about Costco. Man, talk about stellar, stellar March revenue.

Even if we adjust for Easter, which fell earlier this year, had a modest positive impact to the figures that they released. When you look at the comp sales year over year, clearly the company is continuing to take wallet share. We will get confirmation of that when we size up Costco's March comp sales against the March retail sales report. That's out early next week.

But simply stellar for Costco. It's one of our largest positions. We're going to continue to own it. If we have to boost our price target from 800, the determining factor for that will be when we see the April revenue report from Costco. But if we have to, that would of course be a positive catalyst, not only for the shares, but also potentially could give us some opportunity for members that are lighter on the shares to pick them up as well.

Remember, the looming catalyst that we continue to wait for is the much anticipated, much awaited yet to happen membership fee price increase. We continue to wait for that. That would obviously be a very big positive for a high margin business for the company. It's a key component to not only their differentiated business model, but also to their bottom line.

So we continue to wait for that. That would be another catalyst for earnings expectations to move higher and for price targets to move higher. We look forward to eventually making that decision, that determination and sharing that with you. When we get the March revenue report, we will also be sizing up what it says about grocery, restaurant spending, overall spending, digital shopping.

So in terms of the portfolio, we'll have a little more insight, if you will, for what that means for our shares of PepsiCo, McDonald's, Mastercard, and of course, Amazon. And remember, this is a March report. It will include the prior months as well. So we'll not only get a good snapshot of the month of March. But we'll get all the corresponding data for the March quarter, both compared to the December quarter, but also compared to the year ago quarter.

So that will allow us to kind of fine tune our expectations for each of those companies for the March quarter earnings season before they report their quarterly results. And finally, talking about quarterly results, early next week we're going to hear from Bank of America, Morgan Stanley. Ahead of that tomorrow, Friday, we will get quarterly results from JP Morgan and Wells Fargo.

We will be digging into what they say about loan activity, about the ability to grow their assets in their respective wealth management business, and of course, investment banking. There you know that we're continuing to watch very closely the IPO market. We'll be interested in what they have to say about their expectations for it, really coming off of a couple higher profile IPOs that so far seem to suggest that windows should stay open.

But again, we want confirmation of that from JP Morgan, Wells Fargo as we roll into earnings next week from Bank of America and Morgan Stanley. And with that, I would say, members, continue to check your inboxes, check your emails. We want to make sure you're getting our latest thoughts in any portfolio moves that we make. And if you've got questions, you got thoughts you want to share, march on over to the forum.

I really encourage you to do that. I'm over there several times a day answering questions. But if you've got thoughts, you've got comments on any of the alerts, please use the comments sections down below. I will do my best to answer them as well. That is today's Daily Rundown. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long NVDA and COST.