VIDEO: What We're Watching for From Amazon, AMD and Super Micro After the Close
Chris Versace discusses the Q1 Employment Cost Index and what it means for the Fed, positives from Samsung and Corning results, and key results after the bell.
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In today’s Daily Rundown video, Chris Versace discusses the first-quarter 2024 Employment Cost Index and what it means for Fed monetary policy.
He also discusses why quarterly results from Samsung SSNLF and Corning GLW are positive for several portfolio holdings, while comments from Citigroup C and McDonald’s MCD are bullish for two other holdings.
Chris closes out today’s video sharing which earnings reports we’re watching after today’s market close.
Transcript
CHRIS VERSACE: Hey, folks. Chris Versace here. April 30, end of the month of April. And boy, has it been a very different month for the markets compared to what we saw in the December and March quarters. With just about a handful of hours to go until we close the books on the month, what do we see? Well, both the S&P 500 and the NASDAQ composite are down around 3%. Again, a very different picture.
We had talked about this earlier in the month that we could see April be a pause to refresh, digestion. Call it what you will, and that's kind of what we have seen. And we have seen, however, some nice movement in a number of our holdings. But the one that I'm going to call out here and now is just as you think about the declines in the overall market during the month, it tells us that our inverse ETFs were a positive factor for the portfolio during the month of April.
And as we get ready to embark upon the month of May, well, we have a tremendous amount of April economic data coming at us starting tomorrow. We've also got the Fed policy meeting, and we of course have a number of high-profile earnings reports yet to come. This tells us that we're likely going to continue to hang on to those inverse ETFs a little bit longer, even though our plan is still to eventually start dialing back the portfolio's exposure, putting that capital to work in positions that should be driving their earnings far faster than the S&P 500.
That's the plan. We're still sticking with it, but in the near term, the next couple of days could be kind of tumultuous for the markets. We want to keep those inverse ETFs in play. Now, I did just mention that tomorrow we have the outcome of the Fed's next policy meeting. And with that, I wanted to review the really only major economic data point that came out today. That's the employment cost index for the first quarter.
Was it hotter than expected? Yes, it was. Did it show acceleration compared to the December quarter? Yes, it did. That just in my book reaffirms the fact that the Fed is going to say tomorrow, look, we're going to slow our way to rate cuts. Higher for longer. Call it what you will. So no real surprise. Again, that's kind of backward-looking data at this point.
The data that I'm a little more focused on is going to be what we get starting tomorrow. We get the manufacturing PMIs for April. We'll also get ADP's employment change report, which not only gives us the first look at job creation, but it's also going to give us some insight into wages as well. Regarding the manufacturing PMIs, yes, we'll be looking at those relative to the manufacturing economy. But we'll also be very focused on what they say about inflation via input cost and output cost comments.
Based on what we learned, we'll continue to rethink our expectations for not only the speed of the economy but also the timing for rate cuts, which, as you've seen, have really slipped towards the very end of the year, possibly even early 2025 at this point. But again, we'll have a better read on that as we get more data. With that, let's take a look at some of the earnings reports that we were chewing through this morning, points that we want to discuss with you regarding the portfolio.
First up, Samsung. You know, strong, strong earnings report, really driven by memory, which, of course, being fueled by AI-related demand. Samsung came out and said they see this demand as well as overall chip demand continuing to improve, again, because of AI. No real surprise. I would argue it's just another point of confirmation, point of affirmation for our positions in NVIDIA as well as Marvell.
The other thing I wanted to call out from Samsung because they are the number two player in the smartphone market, depending on the quarter, is what they said about the looming AI-on-device upgrade cycle. And what Samsung said is this. They are going to bring AI to more smartphone models, moving past just the Galaxy S24. That's their flagship model.
If we think about how smartphone companies tend to respond to a first mover advantage like this, they tend to follow suit. That tells us that, yes, we are on the cusp of that AI-on-smartphone upgrade cycle. It keeps us bullish not only for the shares of Qualcomm and Universal Display, but it also speaks to what we think will be a positive force for iPhones and therefore Apple in the second half of the year.
Remember with Apple we have earnings later this week. We're not going to step in front of that. We do have some concerns about either the quarter or the guidance. We could potentially be buying some Apple shares ahead of the AI upgrade cycle at better levels. That's what we'll be looking for. That is our plan, but as we think about smartphones, we should also talk about what Corning, ticker symbol GLW, had to say.
Their specialty materials business, which houses the glass for smartphones, was up 12% year over year. And they see that business growing sequentially in the current quarter. Again, another data point that tells us the seasonal trend in smartphones is improving. But it also tells us that the woes of the Android smartphone market from last year are largely behind us.
The comment two out of Corning was specialty smartphones and premium models did much better in terms of volumes for that business. Kind of a positive note there for Apple and the iPhone, if you want to think about it. But we also see those comments good for Universal Display as well. But the other thing that Corning said is that their optical communication business was up 3% in the quarter, with notable strength from carrier and infrastructure customers. And they expect to see the current quarter up even more, given improving order rates.
And I call this out because if we think about that optical communication business, really kind of it's a signal, if you will, for Marvell's non-data center business. Of course, I'm talking about their network and their carrier infrastructure business. So when we hear these comments from Corning, it tells us that our thinking that we should see a rebound in Marvell's networking and carrier infrastructure business in the second half of the year is on point.
Also, too, just going back to those comments about AI on device as those devices hit, they will obviously be chewing up a lot more bandwidth overall. Going to drive that replacement cycle and greater spending for Marvell's business. So that's a very big positive. We also had Citibank talking this morning at their shareholder meeting, saying that in their view the consumer remains healthy and resilient. But US consumers are a little more cautious in their spending patterns.
We've seen this before. This more echoes that, but they also said that ticket sizes are smaller overall. Hmm. So that has us a little concerned about the consumer. We know that they have been spending very strongly. We know they're a key part of the economy, but we've also positioned ourselves with them via Costco and Amazon. And there were some comments also from McDonald's this morning that really reinforce our view for those two positions.
What they said was over at McDonald's, "Broad-based consumer pressures persist around the world. 2024 is seen as a year where the top line is going to moderate. Customers are looking for reliable, everyday value, and they are certainly being discriminating in how they spend their dollars. And that could be even more pronounced with lower-income consumers." Not a surprise, given the persistent inflation that we have seen.
McDonald's also said that it continues to see those macro-headwinds entering the current quarter. Put it together, at least as it relates to McDonald's. I'm very happy that we exited that position when we did. It tells us that, boy, it really does pay to listen to the data. As we amassed several different warning signs for McDonald's March quarter results and their guidance, we started to trim the position back.
We finished closing it out last week. And again, I'm very glad that we did that. But it also says that we will continue to listen to the data. Again, putting together the comments from Citibank and McDonald's, just continue to see that as a positive for Costco and for Amazon. And speaking about Amazon, they will report after the close today. Our thinking is that the North American retail business, as well as the international retailing facing business, will benefit from their March big spring sale event.
Amazon Web Services should continue to put up very positive numbers. When it comes to Amazon, though, the one thing we have to be mindful of is the spending expectations. This is kind of a big thing that in the past Amazon has surprised people because they continue to invest for future growth. From an ownership of the business, I think that's a wonderful thing.
As an investor in the stock, it can cause a little volatility from time to time. But I do think that we will see the company continue to be disciplined. Remember in his shareholder letter that we recently shared with you, CEO Andy Jassy shared that he sees even more cost reduction opportunities in the business. This is the disciplined Amazon that we like, one that does want to continue to grow but is also mindful of the bottom line.
Also, after today's close, we're going to get earnings from AMD and Supermicro. AMD, of course, we'll want to hear what they have to say about data center NII. But we'll also be interested in what they comment about when it comes to the PC market and the early-stage rebound that we're seeing. Recall we will, of course, be paying attention to that as it relates to our Microsoft shares.
And then also Super Micro will report after the close. And if you remember, this was the stock that they did not pre-announce their March quarter results. Kind of upset the market recently because they have issued a positive pre-announcement in seven of the last eight headquarters. So the question was, well, why didn't they kind of question the comments about the further upside in their business relative to expectations? And that's kind of a proxy for AI and data center demand.
So what have we gotten since then? Well, last week, we got the spending comments from Meta, Microsoft, and Alphabet, and a host of others as well. And it tells us that we are going to continue to see a positive trajectory for AI and data spending. But we will be updating our view on NVIDIA and Marvell once we get these learnings tonight from Amazon, from AMD, and Super Micro.
One last thing. Please remember 4:00 PM today we will be holding our first office hours in the forum. I will see you there, taking questions, sharing comments-- that sort of thing. And before I close out today's video, remember, members, please be sure to check your emails, your alerts. We don't want you to miss our latest thinking. We also want to make sure that if we make any moves with the portfolio, you are right there with us.
So please be sure to check your emails and your alerts. And with that, thank you for watching today's video.
At the time of publication, TheStreet Pro Portfolio was long AMZN.
