VIDEO: Why This Bullpen Name Is Up Next for a Closer Look

In today’s Daily Rundown video, Chris Versace explains what's driving the disparity in the market indexes today, and our near-term plan for the portfolio. 

He also reveals which Bullpen resident he plans on examining closely next and why. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. Thursday, May 23. And as I'm coming to you, the NASDAQ is in the green today. But the S&P 500 is battling the neutral level, trying to get back into the green as well. But the Dow and the Russell 2000 are close to down almost 1% on the day. Treasury yields have moved up, including that for the 10 year.

Now, when we look at all of this, we puzzle it together, I think we can surmise a few things. First, NVIDIA's beat and raise quarter, the one that led us to boost our price target today, is-- and the ripple effect associated with that across other AI related names-- Qualcomm and the portfolio, Marvell and the portfolio, Microsoft and others. That's really helping the NASDAQ outperform today.

It's also helping the S&P 500, again, flirt with that ability to stay positive today. But when we look at other sectors outside of that, it explains where the S&P 500 is relative to the NASDAQ. But it also explains why the Dow is down and why small cap stocks are down.

Adding to that is the learnings from the flash PMI report for May that we got today. And we love that report because it's the first real hard line on the current month that we're in from an economic perspective. But as you know from our alerts to you, we also mine it for inflation comments, job creation comments, and the like.

So what did the flash May PMI report show us? Well, it showed the economy turned up during the month with nice gains, both on the manufacturing side and the services side. And here's the thing. The comments about order levels moving higher tells us that we're likely to see the month of June be another one of above trend growth. So positive for the market narrative that the economy is continuing to grow and can support EPS growth.

So then why are we seeing what we're seeing in the marketplace? Well, that's the issue. It showed that input costs pressures moved one of the highest prints that we've seen in several months. And companies are trying to pass through those higher input costs to consumers, resulting in higher output costs.

So when we look at the trend of higher input, higher output costs, what does it mean? It tells us that inflation is going to remain persistent. Yes, we saw a nice tick lower in the core CPI for the month of April. But this data for the flash May report suggests that we're not likely to see much further progress when it comes to the May core CPI print. So the market is wrapping its head around that.

Remember, this comes on the heels of several Fed heads, including Fed Governor Waller, saying, look, we will need to see multiple months of good progress on the inflation run-- front, excuse me-- in order to start this rate cutting cycle. So the market's wrapping its head around this. No real surprise either the market reaction because, remember, when we came into this week, the market mood was one of greed and euphoria. And that can be something that results in the market being upset when it has to revisit its thinking, or the thinking is not what it wants to see.

So in the case of it all, NVIDIA, great. Reaffirm the bull case on that stock and AI, hence the NASDAQ moving higher. But if we didn't see that, odds are that the NASDAQ would be trading lower, and the S&P 500 would be moving lower as the market has to realize that these expectations that it has for a September rate cut, they're falling. In fact, if we look at the CME Fedwatch tool, there's a greater probability that the Fed keeps interest rates unchanged following the September meeting, not cutting them. And that's what the market is coming around to.

From our perspective, did we expect a September rate cut? No, we did not. We continue to think that we'll likely get one rate cut towards the end of the year. We will remain data dependent. We'll continue to update our thinking on that. But at least for now, it appears that the data is backing our view. And we're seeing the market once again catch up to what we've been thinking would happen.

Now, from a portfolio perspective, what do we do? Well, the market, when it has to reset its thinking, it tends to mean that we see stocks pull back. And indeed, that is what we're seeing. And just stepping back, the market moved lower after the Fed meeting minutes that we got yesterday, Wednesday. Paired with what we're seeing outside of tech, yeah, that is weighing on stocks.

But from our perspective, we've got our shopping list. And you know that we're interested in picking up shares of a number of different companies, whether it's waste management, labcorp, more Trade Desk, and some others. We've also been reviewing positions in the portfolio, ones that we shared for Eaton or we've shared for Meta this week, areas that we would be more inclined to begin a position. And we're going to continue to chew through some of the names.

One that is on our radar screen to do sooner than later is going to be TreeHouse foods. Why? Well, simply, we just have to think about the comments that we heard from Target yesterday about the revamping of their private label or, as they like to call it, owned label for food products. I think 125 new ones are going to hit shelves in the coming months.

And then there was, of course, the news that we shared with you about Walmart with a brand new private label food product. And TreeHouse counts both Target, Walmart, as well as Amazon as key customers. So that's one that we'll be doing some deeper diving on. But we'll continue to kick over new names for the portfolio.

And from that perspective, do we have enough cash? Well, we do actually. Remember that we booked some very nice gains on Qualcomm yesterday. And while we put some of that return capital back to work into Axon and Coty today, we do have some room following that Qualcomm trade to do that. Plus we have some cash in the portfolio, right around 11%.

Now, are we going to chase stocks just to put money to work? No. You know we don't do that. We're going to continue to do our homework, pick our spots, and be prudent about the moves that we make. I said to you that after we removed the inverse ETFs and we did some other buying for the portfolio that as our cash level has shrunk down around the low double digits that, look, we're going to be a lot more careful about putting cash to work, meaning we're going to continue to be disciplined. We're going to continue to pick our spots.

So I would not expect to see the portfolio all of a sudden go hog wild and buying. More likely, we're going to be doing some nibbling, rounding out positions. And if we do introduce a new position into the portfolio, rest assured it's going to be one that we have high conviction. Earnings prospects will be far better than what we're going to see for the market. And by that, I mean the S&P 500. And, of course, it will be a position that has a favorable risk to reward entry point, meaning favorable upside, maybe modest downside, but something that if we see emerge, we can use to build a position.

So that's our thinking. I also just want to share that I know today's video is coming a little later than usual. But I wanted to say thanks to all the folks that piled into today's office hours.

I would really suggest that all members show up for office hours. There's a great deal of back and forth, very fun, very engaging. And hopefully the folks that were there find it, as I like to say, more than useful. I do expect that we'll have a quiet day tomorrow, but we will be coming at you with some fresh content and getting you ready for the shortened week next week.

Thanks for watching today's video. And please remember, folks, check your alerts. Check your emails. We want to make sure you're getting our latest thoughts and any moves that we make with the portfolio. Thanks.