VIDEO: Here's What to Watch for in Meta’s Connect Event

In today’s Daily Rundown video, Chris Versace uses the September consumer confidence report to explain the differences between soft and hard economic data, and covers how we’re positioning ourselves with the Portfolio based on the results. 

Versace also shares what we’ll be listening for at Meta’s META "Connect" event and our strategy for the shares.

"The shares have moved nicely higher and we have continued to see them benefiting from not only AI and what that means for the business, but also too we see them continuing to be a beneficiary of the overall shift towards digital advertising dollars," he says of the Portfolio's position in Meta. "If there is a pullback or there is a signal that Meta's spending is ratcheting even higher ... that could be an opportunity for us to build up what is still a somewhat small position."

Transcript

CHRIS VERSACE: Hey, folks. Tuesday, September 24, Chris Versace. And the stock market is continuing to trend higher, even though some of the latest data points to a little more sour tone, sour expectations, if you will, by the consumer. I'm talking about how September consumer confidence hit its lowest level in three years with declines across all five of the underlying categories.

What were the key concerns? Well, not really much of a surprise. In some respects it echoes what we've been hearing from retailers over the last few weeks about the consumer, jobs, inflation. It helps explain why consumers have continued to be selective. That's really the commentary that we've been hearing from retailers over the last several weeks.

On a positive note, there were somewhat positive, the percentage of folks that expect a recession to unfold over the next 12 months still remains very low. Now, when we think about consumer confidence and some of these other types of indicators like it, we have to remember that these are what we in the business call soft data, meaning depending on how the questions are asked, we might get one response or another squishy or subjective. Again, that's largely because of it's a survey. And while we tend to look at a lot of different surveys to gauge a variety of things, we always have to be mindful that these are surveys and that we really want to check how they play out against the hard data.

In the case like this, we look back at the August retail sales report that was actually a little stronger than expected, particularly on the headline numbers. So it seems as if that consumers might be feeling the pain, but that's not really slowing down their spending. We'll have to see if that continues in the coming weeks and months.

Remember, we are moving into, before too long, the holiday shopping season, which is a key time of the year for retailers. We will, of course, have earnings later this week from Costco, so we'll get an interesting beat on that, including not only tone for the consumer, but inflation as well. And then before too long, we actually have Amazon's October sale event, that's October 8 and 9. And I imagine right after that we'll get another reading on consumer spending. So while we're digesting this September consumer confidence report, we are going to lean a little more heavily into the hard data that will be coming.

However, there is one other thing I want to talk about that was shifting from the consumer more to business. Business expectations actually hit a two-year low as well. That comes from the September flash PMI report published yesterday from S&P Global.

And the key standout item was this, and this is a direct quote, "Heightened uncertainty ahead of the presidential election is what most people talked about regarding this decline in business expectations." Again, more survey findings. So we have to be a little careful here.

But there are 41 days until the election. And yes, while the market is a forward looking animal, it, like many people, does not like uncertainty. In fact, I would go so far as to say that the stock market abhors uncertainty.

Now where do we stand in the election. According to 538, candidate Harris is ahead by a small margin, but battleground states are still very close. Now, what does this all mean for the market and our plans. Well, the market, because it is continuing to chug a little higher, it's at, or near, all-time highs, depending on the index that you're looking at.

The S&P 500 overbought, and its valuation, no question about it, is overstretched, especially after the nice run in the market that we've had over the last two weeks. And it's against that backdrop of being overbought, stretched valuation. It is understandable that the market could be nervous given the uncertainty ahead.

Yes, that's in part because of the election, we just talked about that. But increasingly, the thought is this Longshoreman strike that could disrupt supply chains and potentially be a thorn in the Fed's progress on inflation, that strike increasingly looks to be unavoidable. There are a few days left, we'll see if something is able to be struck. But again, I think we might have to brace ourselves for what may happen.

And with the portfolio, you know that we tend to focus on the medium to longer term, but we like to use short-term or near term opportunities to make moves with the portfolio. In this case, because the market has had such a nice run, because the valuation is stretched, it does mean that, even though it's done nice for the returns of the portfolio, we may have to do some prudent portfolio management in the coming days.

Does that mean we will do something? No, it does not. But we will be taking a look at stocks that have had meaningful runs over the last several weeks. If the decision is that the outlook is potentially getting increasingly uncertain for the market, it might make sense to do some prudent trimming of select positions. So with that, I will say, please be sure to check your alerts. We want to make sure if we make any moves, you're right there with us.

But before we end today's video, I want to make sure that I share some of the things that we're watching in the very near term, meaning the next 24, 48 hours, something like that. Well, after today's close, we have quarterly results from KB Home. If you saw our opening comments this morning, you understand why we'll be paying attention to what they say.

We will be looking to see if they say something similar with their delivery forecast to what Lennar had said last week. That was up very strong for the second half of the year compared to the first half. If we see that, that will be a catalyst, as we pointed out in our opening comments today, for us to revisit price targets for several of our holdings. You know who they are, Builders First Source, potentially United Rentals, maybe Vulcan Materials. And at the margin, maybe Waste Management. It also means that if we make any moves with those price targets, we'll probably be revisiting our rating with Builders First Source as well.

But that's not the only thing that's happening in the next 24 hours that we'll be paying attention to. Yeah, we have another round of FED heads, but what I'm referring to is tomorrow Meta holds its Connect event. And we expect to see an update on its AI initiatives, as well as other investment spending projects and plans. What we will be looking to hear will be indications of how it is using that investment spending to drive greater productivity at its business.

We will also be looking to hear if perhaps the spending that Meta is talking about, and guides, could be larger than what was previously expected, larger than what the market consensus has penciled in for 2024 and 2025. If we hear that, that could lead to some pull back in meta shares.

And remember, coming into this event, Meta shares have been a strong performer since we picked them up in early August. That was a nice use of a pullback in the market to add a position at the right price. And again, the shares have moved nicely higher. And we continue to see them benefiting from, not only AI and what that means for their business, but also too we see them continuing to be a beneficiary of the overall shift towards digital advertising dollars. We have Trade Desk, we have Google, but we also see Meta benefiting from that as well.

So with the shares at lofty levels, and I'm afraid to say no real support until the 500 to 510 level, we're going to wait on the sidelines and see what tomorrow's event brings. If there is a pullback, or if there is a signal that Meta's spending is ratcheting even higher than previously thought and some earnings expectations might have to come out, the fallout of the event might lead to a pullback in the shares. That could be an opportunity for us to build up what is still a somewhat small position of Meta shares in the portfolio.

So with that, I would say, please be sure, check your emails, check your alerts. We want to make sure as today unfolds, and tomorrow, and the days ahead, we want to make sure you're getting our latest thoughts and insights. And if we make any moves with the portfolio, price target changes, rating changes, or we do some buying or trimming, we want to make sure that you are right there with us. Thanks for watching today's video.

At the time of publication, TheStreet Pro Portfolio was long META.