VIDEO: Today's Profitable Trades and Our Plan for This Week

In today’s Daily Rundown video, Chris Versace discusses the market’s re-think on the pace of Fed rate cuts, Hon Hai’s September revenue report, and the very profitable trades we made with Axon Enterprise AXON and Lockheed Martin LMT.

Chris also shares what we're focusing on this week between earnings from PepsiCo PEP and the September inflation reports, and why we’re inclined to let the market come to us.

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. It is Monday, October 7. And I hope you guys had a chance to digest last Friday's monthly roundup as well as all that it entails, not only laying out what we're expecting to pay attention to this week, but also, as you know, it gives a really in-depth overview on all of the portfolios positions. If you haven't read it, I really suggest you go back and do so.

I also wanted to thank everyone for their kind thoughts, kind words, as we dealt with the passing of my father last week. But today, as you can see, I am getting back into the saddle.

And you should have received a few alerts already today discussing a few various things. First and foremost, we talked about the market recalibration, if you will, about the speed of rate cuts that's unfolding, following the much stronger than expected September employment report.

Now, you'll remember that leading up to it, we shared a couple different reasons why we thought we could see a stronger print in the report. But even we were not expecting the level of job creation that we got in September, as well as the revisions that we saw for the prior two months.

Without question, this is leading folks to question the rate of Fed rate cuts. Remember, going into the report, we had said that the market was looking for upwards of 325 basis point rate cuts before the end of the year. Now, it looks like the market is starting to settle around 2, which was what the Fed's set of economic projections hinted at. But we'll want to pay attention to a couple of different things this week, including the latest array of Fed heads and what they're talking about following the September employment data.

But also too, when we get the next update from the Atlanta Fed GDPNow model, we're going to want to take stock of what the September PMI services figures had to say from ISM and the September employment report, and what that does to that rolling GDP forecast. If you remember, it was revised lower to 2.5% early last week on the heels of ISM September manufacturing PMI.

But the back-to-back reports we got late last week, they are going to revise that rolling GDP forecast higher. I would be very surprised if we don't see that. When that happens, it's probably going to lead to the market continuing to rethink the pace of Fed rate cuts. So we'll have more on that when we get those Fed head comments and that updated Atlanta Fed GDPNow model.

Another alert that we had out today discussed Hon Hai's simply incredible September revenue report and its aggregated September quarter revenue. All of it points to very strong AI demand, simply supporting shares of NVIDIA and Marvell that we own in the portfolio. In that alert, we also shared our view why we're not seeing as strong of a reception for the shares of Apple, Qualcomm and Universal Display, given the positives that were found in that September revenue and September quarter revenue data from Hon Hai.

We also shared in that alert what we think the next catalyst is for Apple shares, but also why we continue to rate the shares of Qualcomm and Universal Display ones. The key issue for both that, is Apple a customer for them? Yes, it is. Is it the only customer, is it the only end market for them? No.

Remember, with Qualcomm, they serve pretty much every other major smartphone manufacturer as well. We are seeing a rebound in the overall market. But they also have that ramping opportunity with AIPC's and the differential between a Qualcomm chipset for an AIPC and that for a smartphone. Magnitudes higher. So we continue to think that as that AIPC market ramps, folks will at some point be forced to really rethink how they're valuing Qualcomm shares. That's one of the things that we want to capture.

With Universal Display, smartphone market continuing to move into organic light emitting diodes. That is good for Universal Display, but so too is the adoption in tablets, in PCs and notebooks, monitors and other end market applications, including auto. So we continue to the shares of both Qualcomm and Universal Display. With Apple, again, see the alert. There's the catalyst that we'll be looking for later this month that could start to accelerate the upgrade cycle for its latest iPhone models, and potentially Macs and iPads as well.

And another alert, we did take advantage of the sharp moves that we have seen over the last week to 10 days, but even longer when we trace it back and the shares of Lockheed Martin and AXON. Did we ring the register? Did we lock in gains? You bet.

Whatever you want to call it, we did. It was the combination of those outsized moves and being in overbought territory that really prompted us to make that prudent trade for the portfolio. Again, converting paper gains, if you will, to realized gains for the portfolio and for members.

We also laid out in that alert some of the items that we're watching as it relates to both Lockheed Martin shares and AXON shares that could lead us to revisit our current price targets. And for that reason, we continue to own pretty sizable positions in the portfolio.

Now, that was a lot, but that was just this morning. And we are working on some things for you this afternoon as well. But I also wanted to take today's video just to quickly outline some of other things that we'll be looking for in the coming days. One of them is going to be the September revenue report from Taiwan Semiconductor. That will, of course, tie into a number of the positions that I just talked about.

We also have another array of Fed speakers coming. The market and we will want to parse their language about what they see for the pace of Fed rate cuts coming off of some of the data that I talked about a few minutes ago. But if you're late to the video, that's going to be the trifecta, if you will, of the ISM September services PMI, the September employment report, and the coming GDP update for the Atlanta Fed GDPNow model.

We'll also be paying very close attention tomorrow with earnings from PepsiCo. It's the first earnings report for the portfolio. We are in what is traditionally the seasonally strongest time of the year for Pepsi's snacking and beverage businesses. But the key for us is going to be margins, margins and margins.

We want to see them improve, given a couple of factors, yes, ramping volumes, particularly on the international side. But also, we want to see if they're capturing some of the improving pricing on the input side for their respective businesses. As we take a look at that, we will be eyeing our 185 price target. In the roundup on Friday, we did note that several other folks on Wall Street are zeroing in on that 185 level as well.

With the shares at 167, 168, as we make today's video, we are mindful of that as well. And what that could bring, depending on what we hear from PepsiCo tomorrow. We also will this week have the September CPI and PPI reports. The market will be looking for further progress on those inflation indicators.

But let's remember what we pointed out in last week's September services PMI, the prices component hit the highest level since January. That is a big move higher, and it suggests that we may not see as much progress in the September inflation data as perhaps some are thinking. It's another reason to think that the market may need to.

I hate to say it, but rethink the potential pace of rate cuts. It's already, as we talked about, doing that now on the heels of the September employment report. But as we get ready for the September CPI and PPI data, let's consider that the August core CPI was 3.2% on a year over year basis, quite a distance from 2%. And that 3.2% figure for August was unchanged with July.

Turning to the August PPI, it was 2.4%, much closer to 2%, but it moved in the wrong direction compared to July's 2.3% print. So our thinking is that if the September data for PPI and CPI deliver more reasons for the Fed to slow walk the pace of rate cuts, that rethink in the marketplace could bring some additional pressure weight, if you will, on stocks.

Now, if you read last Friday's roundup-- and if you didn't, again, I encourage you to do so. --we've made our shopping list. And you know that we've raised cash levels coming into September. And we did so again today with that register ringing, that trimming of Lockheed Martin and AXON shares.

So here's our plan. We're going to be patient. Let stock prices come to us, if the data that we've paid attention to plays out the way it suggests it will. We'll also be keeping our eyes open. We'll let the data talk to us. And we'll make our move when opportunity knocks, pretty much the way we did in early August.

And that was a great time for us. We picked up shares of Meta, we picked up shares of Eaton and Dutch Bros. So that's what we're thinking. With that members, please remember, check your emails, your alerts. We want to make sure you're getting our latest thinking. And if we make any additional moves with the portfolio, we want you right there with us.

Also, folks, remember office hours, Tuesday and Thursday. Come bring your portfolio questions, bring your market questions. We will take as many as we can in the time allotted.

Also, this week, our postponed members-only call from last week will be held this Wednesday, October 9. Mark your calendars. We will see you there. And I will see you soon. Thanks for watching.

More Pro Portfolio:

At the time of publication, TheStreet pro Portfolio was long AXON, LMT and PEP.