We're Eyeing 6 Portfolio Names Amid Rate-Cut Rethink
Here are two positions we could trim and four we’re looking to add to at lower levels
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Let's look at the current state of rate-cut expectations and then several Pro Portfolio names were could trim and add to.
First, the Fed. The market's new expectations for the pace of Fed rate cuts following last week's jobs report are unfolding much the way we thought they would. We can say this given the chart of the 10-year Treasury yield below that has moved back toward the 4% level, as we get ready for the market open later this morning.
We’ve also seen the probabilities tracked by the CME FedWatch Tool drift lower, showing two quarter-point rate cuts before the end of 2024, not the three it showed last week.
Much like we’ve seen in the past when the market has to reset Fed rate cut expectations, there is a high probability those adjustments are going to take back some of the recent gains in the market in general, especially in more interest rate-sensitive sectors. We called this out on Friday as a near-term headwind for our shares of Builders FirstSource BLDR, United Rentals URI, Vulcan Materials VMC, and Waste Management WM.
A second headwind appears to be Hurricane Milton, which continued to strengthen and looks to hit a Helene-weary Florida with an estimated landfall on Wednesday. We certainly wish all the best for the folks in Milton’s path, but these back-to-back hurricanes will be a speed bump for construction activity. Medium- to longer-term the rebuilding effort should be a positive for construction activity. That’s the message we expect to get when construction and housing companies start to report their quarterly results in the next few weeks.
Portfolio Positioning
We would be surprised if those combined headwinds don’t weigh on our BLDR, URI, and VMC shares. But, remember, we are long-term investors who want to capture the intersection of ongoing infrastructure spending and the impact of the Fed loosening monetary policy on the housing and construction activity. We will therefore look for opportunities to pick up more BLDR, URI, VMC, and WM shares as they present themselves and this means watching key support levels as follows:
- BLDR – near $174 (50-day, 200-day moving average)
- URI - near $736 (50-day moving average) and then $700 (100-day moving average)
- VMC – near $230
- WM – near $206 (50-day) and then $202 (200-day)
We will also keep close tabs on other positions we’d like to add to at lower prices, including Dutch Bros BROS, Meta META, and Eaton ETN.
Further escalation in the Middle East, with Israel ramping military efforts in the region, means we could see our shares of Lockheed Martin LMT shake off the market's second-thoughts and climb further. We’ve said that should LMT shares push even deeper into overbought territory, we may take action, following LMT's substantial move since late July – up easily more than 30% vs. the 3.0% move put in by the S&P 500.
We are watching a few other holdings as well, including Axon AXON that have pushed past not only our price target but most of those on Wall Street as well and are also deep in overbought territory.
The Pro Portfolio is long BLDR, AXON, VMC, WM, ETN, META, BROS, LMT.
