VIDEO: The Market Is Moving Higher, But the Fed Won't Overlook This

In today’s Daily Rundown video, Chris Versace explains what’s powering the portfolio higher today, including our newest holding, ServiceNow NOW. 

He also sums up how the Fed is likely to view the May data published so far this week and shares some interesting data points on Axon AXON. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Wednesday, June 5. Happy hump day.

We look at the market. Stocks are rebounding today with the NASDAQ leading the pack, pulling, yes, a number of our portfolio holdings higher. In particular, Applied Materials and Marvell are particularly strong.

Reasons for that were bullish comments from Baird and Argus, particularly Argus, saying that Marvell stands extremely well positioned to benefit from AI. No surprise to us. But it's always nice to see someone else come along and reiterate why we like one of our portfolio holdings.

I'd also say that Qualcomm and Trade Desk are also rebounding today. And our newest addition to the portfolio, ServiceNow, is also moving higher. And that has it up about 5% since we started the position earlier this week.

Now, our price target on ServiceNow is 840. But I will share that once we see the shares start to get to 750 or so, we're only going to have a low double-digit upside to that price target. So just keep that level in mind as you start to think about adding Now shares to your holdings, much the way we did earlier this week.

Now, when we think about the market moving higher, I just want to talk about the 10-year Treasury. It's right around 4.3%, maybe slightly higher, depending on when you get this-- the lowest level it's been since April. Well, what's going on? The market is keying off the slightly weaker than expected figure for ADP's may employment change report.

We talked about it this morning. But if you missed it, it came in around 152,000 jobs for the month of May. Consensus expectation was around 175, so that's the weaker number. And it's down from 188,000 in April.

Now, we understand that the weaker number sends a signal, along with the ISM May PMI for manufacturing that showed it contracting. And those two things are going to feed into the notion that the economy is slowing. But remember, context is always important. And we also know that when it comes to monetary policy decisions, the Fed is going to look at a multiple of data points, so let's do that as well.

We kind of talked a little bit about this on the ADP employment change numbers today. Yes, that 152 is weaker, like I said, on a month over month basis. But when we trace the data back and we look at the average number of jobs that ADP found were created between July and January, a six-month period, 126,000. So 152,000 really isn't that bad of a figure compared to where we've been-- if anything, it's higher. And I think it supports the notion that the economy is performing.

What I did not so much love inside the ADP report was what we saw on wages for job stayers, still up 5% year over year. Kind of flat for the last four months, kind of holding that line. We've seen that before with other inflation data. Fed's not going to miss that.

And you might say, well, but isn't that a positive for consumer spending? And I would say, well, yeah. It's real wage growth. That is good news. But again, we have to consider the argument for what monetary policy might be doing, and why the 10-year Treasury is trading off.

I'll also quickly point out that ADP found that wages rose 7.8% year over year for job changers. Now I want you to put a pin in that. Because when we move and talk about the May services PMI, that wage data becomes important.

Now, when we transition to the May services PMI, clearly showed an acceleration in the services part of the economy. That's going to continue to be the driving force for the overall economic landscape. And it'll help tick up some GDP revisions, as well.

But when we look inside of this, a couple of things. It really confirmed that the higher wages are taking a toll on the services sector, so much so that there was softer hiring on a month over month basis. But again, digging into the data, what did we find? It's that companies are not replacing people who are leaving. Why? Well, because the wage demand is high.

So the overall picture, I think, when we puzzle through all of the data that we've gotten from May so far this week-- which was the May manufacturing PMI, the ADP report for May and the May Services PMI-- the aggregate picture shows the economy is continuing to grow at a healthy clip. Job creation might be a little slower, but inflation is not backing down-- not only because of wages, but because inside the services PMI reports and the manufacturing PMI reports-- there were other higher input costs and that led output costs to accelerate in May compared to April. So I can say, based on the data that we're seeing, inflation is not really backing down. And that is what the Fed is going to focus in on.

Quickly before we move on with some other things, I just want to quickly talk about the portfolio. Again, a number of positions are higher. But I also wanted to focus in on AXON, because that has been a position that's been under pressure. We are waiting for the management team to give a investor conference presentation today. We'll be sharing our thoughts on that.

But there were two other things that really caught my eye as they relate to AXON-- kind of interesting, and it's not necessarily something that you're seeing in the mainstream financial media. So what are they? First, TJX Companies said that they are rolling out body cameras to thwart shoplifting and shrinkage. We know shrinkage has been a very big issue for retailers over the last year or so.

And this is kind of confirming some of the comments that AXON has been making over the last one two quarters about other markets embracing body cameras. It also talked about health care doing that, which I suspect has a lot to do with aging and assisted living and caring for that. Trust me, I'm going through that now with my dad. So that's the first thing.

But the second thing is other reports that we're starting to see law enforcement departments embrace the use of AI. First for non-emergency calls and fielding them, but also through collecting other data. And remember that AXON has talked about investing in AI over the last year, and bringing some of that as part of its solution set to law enforcement.

So the fact that we're starting to see the adoption of AI in law enforcement is another positive for AXON. We still want to understand a little bit more how they're going to embed AI in some of their offerings-- whether it is going to be body camera and productivity reports or other aspects, and how that all fits into its cloud business.

But remember, one of the key things for us is the acceleration of the business shift towards cloud. Body cameras help that, taser helps that. It's a higher margin recurring revenue stream. And I suspect that that's what we're going to hear from the management team today. They might also touch on some of their drone efforts, which also feeds into that.

Now, clearly you can tell that we're expecting a positive and upbeat investor conference presentation. But in terms of the shares, as I mentioned, they have been hard hit. We've walked through the reasons for why that is in alerts to you.

I will say this, that while the portfolio has a full position around 4%, the current price point offers a great position for newer members or other members. It offers you the ability to true up your position, match the portfolio's weighting around 4% of its total assets. So I would encourage you to take a look at that. And we will be having our comments to you later, once we've got management's comments from AXON and Cody during their investor presentations later today.

And then finally, before we wrap today's video, just a quick reminder, Bob Lang is going to be giving a webinar presentation on options at 4:15. There's an alert on the portfolio page. You can find it.

It spells out exactly what he'll be talking about, where you can catch the webinar. Again, that's at 4:15 today. Check out that alert. I think if you're interested in options, this is going to be a great way for you to dip your feet in and learn about how you can use them to help augment what you're doing here.

And then finally, I would just say that is today's video. Thanks for watching. Please remember, folks, check your alerts, check your emails. We want you to have our latest thinking. And if we make any additional moves with the portfolio, we want you right there with us.

Thanks for watching.

At the time of publication, TheStreet Pro Portfolio is long NOW and AXON.