VIDEO: Why We’re Increasingly Cautious in This Market

On Friday morning, Chris Versace joined NYSE Live host Kristen Scholer for a wide-ranging conversation that touched on recent market strength, why the Portfolio took some profits earlier this week and its increasingly cautious stance.

He also discussed the July Retail Sales report and earnings related questions we’re delving into as the market begins to focus on S&P 500 EPS expectations for 2027.

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Transcript

ANCHOR: The S&P 500 surpassed 7,800 for the first time ever yesterday, finishing at a record close and on pace for weekly gains for the third straight week. Joining me now with more on these markets is Chris Versace. He’s CIO at Tematica Research.

ANCHOR: Chris, always good to see you. Talk to me about market sentiment as we see the S&P 500 at a new high.

CHRIS VERSACE: That’s a great question. We continue to see the market moving higher, but my concern is that the market might be getting a little too giddy. When we look at the Fear and Greed Index moving deeper into greed territory, the Citi euphoria index at elevated levels, and of course the Cboe Volatility Index hanging around 14.5…

CHRIS VERSACE: For the Street Pro portfolio that I manage, we’re taking a more cautious stance with the market — enjoying the continued melt-up, but being a little more cautious as we move into what tends to be a seasonally slow time of year for the market.

ANCHOR: How does that impact positioning? Are you advising your clients, or your viewers, for instance, to alter their portfolios in any way?

CHRIS VERSACE: Great question again. We actually took some profits earlier this week in a couple of different positions. What we’re looking for right now are stocks that have run significantly — arguably ahead of themselves — and for that we’re looking at their Relative Strength Index levels, as well as their performance relative to the S&P 500, which really signals that they’re ahead of themselves, overbought, and arguably extended.

CHRIS VERSACE: We’re trying to be judicious and disciplined, and we’re starting to look for other opportunities where we can put that capital to work.

ANCHOR: You mentioned that we’re entering a seasonally slow period. Of course, the Fed does not make its next decision until September. What really matters, Chris, between now and then, as we get closer to the end of summer?

CHRIS VERSACE: Wow, a lot there. We’re going to shift over to retail earnings, and I think what we saw in today’s July retail sales report — which was weaker than expected, especially on a month-over-month basis — is going to raise some flags. We’re also seeing energy prices tick back up.

CHRIS VERSACE: We’re looking past the softer-than-expected July CPI and PPI readings and focusing more on what the upcoming inflation data might mean. We’re not seeing any traffic through the Strait of Hormuz, and the continued duration of the U.S.-Iran conflict tells us there’s a risk that inflation moves higher.

CHRIS VERSACE: Those are the things we’re focusing on, Kristen, as we work through this seasonally weaker time of year.

ANCHOR: We had the retail sales data out this morning for the month of July, showing an unexpected fractional drop. Economists had expected a gain of one-tenth of one percent. Does that signal anything to you about where inflation might be headed?

CHRIS VERSACE: Well, I think it says more about the consumer contending with higher inflation. Whether or not you want to put a lot of credence in that July CPI and PPI data, the consumer continues to feel it. All of the signals we collect, as well as other third-party data — for example, from Visa, which puts out some wonderful monthly data on consumer spending — point to consumers tightening their belts, trading down, call it what you will.

CHRIS VERSACE: When I measure that July retail sales report against the numbers Costco continues to put up month after month on its adjusted comp sales, it tells you two things: first, Costco is taking wallet share; and second, consumers continue to look for ways to stretch the dollars they have.

ANCHOR: What do we need to know about the AI trade?

CHRIS VERSACE: We’re continuing to see AI adoption rise, but more importantly, usage is broadening out. Time and time again, as we sift through reports, various data points, and company earnings over the last few weeks, we continue to see favorable data points for rising adoption and widening usage.

CHRIS VERSACE: That keeps us bullish, but of course we also want to triangulate that with supply-side comments. When we look at companies like CoreWeave and what they’re saying about their order backlog, it all comes together to keep us bullish. And the cherry on top, at least for this week, is that $40 billion annualized revenue run rate reported for OpenAI last night.

ANCHOR: So I’m curious, Chris, what — if anything — you can glean about earnings expectations for the rest of the year, given what you shared earlier: that you took some profits earlier this week, and we’re seeing the markets at all-time highs.

CHRIS VERSACE: We’re rolling up our sleeves to revisit those expectations, not just for the second half of this year, but really for 2027. The current thinking is that those 2027 numbers will be up about 13 percent for the S&P 500.

CHRIS VERSACE: And it’s important now because, as we move into the back half of the year, attention will start to focus on those numbers. What we’re trying to puzzle through, Kristen, is to what degree company investments — and other companies’ investments — are being factored into those expectations. What about, at least in the back half of the year, tariff refunds? That’s something we’re also puzzling through, and to the extent those aren’t items poised to repeat in the second half of 2027, there could be some downside risk to those numbers.

ANCHOR: All right, Chris Versace, CIO at Tematica Research. Chris, thanks so much for joining us this morning on NYSE Live.

CHRIS VERSACE: Thank you.