VIDEO: Why EPS Growth Will Be the Focus After Powell Speaks Today

In today’s Daily Rundown video, Chris Versace lays out the road map for must-watch items this week, and what the portfolio will be listening for. 

He also discusses the portfolio’s near-term strategy as June-quarter earnings season warms up, and why we’ll be following results from Goldman Sachs GS, D.R. Horton DHI, Taiwan Semiconductor TSM, and American Express AXP.

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. Monday, July 15th. Start of a new week and one that is going to be filled with a number of items that we'll want to be paying close attention to as it relates to the portfolio. Now, I will say, just as it relates to the portfolio, we do have some cash that we eventually want to put to work prudently, I might add.

But when we're coming into this week, we have to remember that the S&P 500, following what we saw on Friday, continues to be overbought. The PE continues to be stretched, which means that as we've discussed over the last couple of weeks, in order to see a sustainable move higher in the PE, as I like to say, we're going to need to see even more E for the S&P 500 in the second half of the year that the market continues to forecast for. So that's going to be the prime focus for us as we move through the week, collecting data points, not only for the portfolio, but from customers, competitors, suppliers, and the like.

Now, also, too, as I discussed on Friday, we don't want to be lulled into a false sense of security. Yes, the portfolio is doing well. We're happy. We're pleased with that. But as I mentioned also on Friday, we do not want to be complacent, because landscapes do change. They shift. We need to be prepared for that.

So we're going to continue to be vigilant pretty much, as you would say, doing our job. And that's what we'll be doing today, throughout the week, and throughout the coming months, because we do realize that we have a long way to go. There are many quarters ahead, and we want to make sure the portfolio is positioned to take advantage of that, as are you.

I will also just quickly say that we are going to continue to stick with our policy of focusing on companies with superior earnings prospects relative to the S&P 500. So with that, let's get ready for the week ahead, sharing our roadmap of items that we'll be paying close attention to. And that really begins with today.

So this morning, we are going to receive quarterly results from Goldman Sachs. We will, of course, be paying close attention to that, given the fact that our shares of Morgan Stanley, Bank of America, the companies behind them, they report tomorrow, Tuesday. So we'll be going through Goldman Sachs's earnings, looking to see what it says about wealth management, about investment banking. The comments should be rather positive, given what we saw on Friday from JP Morgan and Citi and some others out there.

And again, as we go through this, we do expect positive things from both Morgan Stanley and Bank of America. Odds are, though, that given the strength we're seeing in investment banking, wealth management in particular, and Morgan Stanley's greater exposure to that relative to Bank of America, I wouldn't be surprised if we see a stronger earnings report and potentially guidance out of Morgan Stanley compared to Bank of America.

Make no mistake, Bank of America will continue to benefit from those drivers as well. But we do want to go through when it reports, make sure that what we see with the commercial bank continues to be favorable as well. So Tuesday morning when they report, we'll be looking for updating you on our thoughts about both companies as well as revisiting our price targets for both Morgan Stanley and Bank of America as needed.

But also today we have Fed Chair Powell. And he's back speaking at noon. Remember, Powell spoke last week kind of offering us during his two days of back to back congressional testimony a more friendly, I guess we could say it, stance, language, body language towards rate cuts. The market did really like that. And then, of course, on Thursday, we got the kind of confirming June CPI report. But Friday, as I shared in a note with you, we got the June PPI report that came in hotter than expected.

And we also shared the trend that we saw in the data over the last few months for year over year core CPI back on an upward incline. Now, our thinking continues to be that the Fed is not going to miss that. So that's going to influence a little bit of what Powell has to say today. Do I think his comments will be as rate cut friendly as they were last week? I do not. I think that they are going to offer a sober take that we are seeing progress in some areas, but it's not as broad based as the Fed would like.

Therefore, I think Powell is going to reiterate the Fed's current playbook of we need to see more good data. That might bother some folks. Remember, the market tends to get a little anxious when it comes to the start of rate cuts and sometimes the number of rate cuts. We saw that earlier this year, which is why we're not going to run with the herd. We're going to continue to let the data talk to us so we can make the best decision that we can. Our belief is that the Fed will continue to follow the data. We will continue to follow the data. More importantly, we will let the data talk to us, as I like to say. So that is today.

Now, Tuesday, we already kind of talked about Morgan Stanley, Bank of America reporting, but we also have the retail sales report for June. And this is a report that we like to dig into for a number of reasons, but we do also realize it does have its limitations simply based on the categories that the report kind of breaks all the data down into. So when we look at it, we'll be looking at it on a year over year basis.

Retail, specifically, we will be mindful of what it says about restaurants and whether or not that spending is slowing. But as it relates to the portfolio, we'll be looking for data points. Pepsico, obviously Amazon with non-retail sales, or sorry, non store retail sales. And we'll be sizing it up against Costco, which gave out some really nice Comp sales for the month of June last week. They also gave us the dividend timing. And most importantly, as you know, they announced the long awaited membership fee price increase.

I just want to take a side note here on Costco real quick. Folks in the forum were saying all this good news. Why is it trading off? I really think it's more of an issue of buy the rumor, sell the news. Expectations were so high that when we finally got it, it was bound to give back. Plus, Costco shares, they've been a beast so far this year.

But let's remember that the membership fee price increase, as I shared in the note to you, is going to be a very big generator of incremental operating profit for the company. More to the point too that as they get more new members, that membership fee will be higher year over year. So another positive or incremental positive, I should say, as we go forward and the company continues to expand its warehouse footprint.

So we continue to like Costco, continue to hold it. We will be paying close attention to the shares, even though we have pretty much a full position. We'll be thinking more about you and new members and areas where a risk reward pickup would be very favorable. So again, be sure to stay tuned, and we'll be sharing those thoughts with you as we have them and they develop.

Let's turn to Wednesday. We have Elevance reporting, so we will be having some comments out to you on that. But we also have housing starts and industrial production. Housing starts, we're going to be paying close attention to non-seasonally adjusted single family housing because of our position in Builders FirstSource with industrial production. This is going to give us another look on the manufacturing economy.

Remember the data from ISM and their June PMI report showed it contracting. So does this confirm that? Does this say that the manufacturing economy might be a little stronger than ISM's data had to say? More in line, perhaps, with what the June PMI report said from S&P Global. We'll see. And we'll be sharing our thoughts with you on that and what it could mean for expectations for the quarter for, again, the second quarter of the year in terms of GDP.

Also on Wednesday, we've got ASML reporting. We're going to watch them as it relates to our position in applied materials. Now, what will we be listening for? Really two things. Is ASML saying anything about not just chips [? ex ?] spending in the US, but the comparative programs that are happening in Asia, but also in the eurozone. Are they starting to see the benefit of those orders ratcheting up their backlog, improving their visibility? That's the first thing.

Second thing will be what are their customers saying about their capacity utilization? And this is something that we're going to be continuing to focus on in chip land, because as we see the demand for AI chips, data center chips ramp, we see the rebound in smartphone and PC accelerate, industry capacity is going to tighten. This likely means that there will be some incremental capital spending. And if we see that, that would be another positive for our shares of applied materials. So that's what we'll be looking for, not just with ASML reports, but also when Lam Research reports in the coming weeks as well.

Speaking of chip capacity utilization and capital spending, Thursday, Taiwan Semiconductor reports. And they are the largest fab. We know quite a bit about them given our positions in Apple, NVIDIA, Marvell, Qualcomm as well. So last week they reported their June revenue, and we found out that the June quarter revenue was up 40% year over year. Thursday, they're going to report their quarterly results.

So a few things we'll be paying attention to. What's the breakdown in that revenue? They didn't share that last week. So what's the breakdown for the quarter between high performance computing smartphone and some of their end markets? What's their outlook for the second half of the year? And what do they say about capital spending? We expect to have our comments to you on that regarding, again, Apple, NVIDIA, Marvell, Qualcomm, indirectly Universal Display, and of course, if there's any upward movement in their capital spending plans, what does it mean for applied materials.

Also on Thursday, D.R. Horton is going to report their quarterly results. They are one of the largest publicly traded homebuilders. So we'll be getting their take on the number of deliveries during the quarter and how many they expect to deliver in the current quarter. And what does that mean for Builders FirstSource? Because Horton is one of their key customers. We'll also be curious to hear what they have to say about the attempt to drive margins higher. Is D.R. Horton really embracing the use of value added products? Something that has been a key part of our rationale for owning Builders FirstSource shares.

And then Friday, we get American Express. And this is kind of an interesting one for us, just because we have MasterCard. They are slightly different. But with American Express, they're going to be another barometer on the consumer. So we'll want to pay close attention to that.

But with MasterCard, sorry, American Express, we'll be really interested in what they say about their charge card business versus their more credit card like offerings that allow you to spread payments over time. Are they seeing greater interest in one or the other? Where are they seeing more spending dollars go? Typical classical American Express charge cards or more towards these spreadable payment cards?

We'll be also just hearing what they have to say about overall spending in the US, outside the US. Remember, MasterCard's position is stronger outside the US. So we'll be reading through those tea leaves. And again, as we digest those results from American Express, we'll be sharing them with you and our thoughts as they relate to MasterCard ahead of it reporting its quarterly results in the coming weeks.

So that's Monday through Friday. Sprinkled throughout the week, we will have a number of Fed heads making the rounds. And yes, while Fed Chair Powell speaks today, we will want to pay attention to what the chorus, if you will, has to say as well. Largely, we expect that they will be reiterating what the big dog lays out today. But again, just looking for some subtleties in their language, subtleties in their body language as well.

Also this week, we have Amazon Prime Day 2024. That's going to be Tuesday and Wednesday, the 16th and 17th. Note the timing ahead of Amazon reporting. We think they'll be setting themselves up for some bragging rights. But once we have some reports a day or two after from Adobe and the like about what they saw for traffic and spending during Prime Day, we'll share them with you.

My gut says this is going to be a positive event for Amazon. I do think we're going to see some pull forward in spending from the month of August and possibly September tied into back to school shopping. But we'll adjust our price target for Amazon as we go through and learn some of these data points. Those shares, too, have been on a tear. No surprise. We continue to think that they're going to, just like Costco, pick up consumer wallet share. We also see them benefiting from not only further AI-- sorry, further cloud adoption, but also AI adoption as well.

So it's a busy week. I'm going to say, please be sure to check your emails, check your alerts. We want to make sure you are right there with us as we update our thinking. And if we make any moves with the portfolio, you know that we want you right there with us. Thanks for watching.

At the time of publictaion, TheStreet Pro Portfolio had no positions in any securities mentioned.