Let's Pick Apart the Mixed Response to the CPI
Also, why I cut my Nvidia position and why I'm eyeing Shift4 Payments and ... Verizon ...
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The July consumer price index was a little cooler than expected, but the market action is mixed with a negative bias. Some of this is a sell-the-news dynamic, and some of it is due to a little concern that the economy is slowing down too quickly.
The indexes have had a very large bounce over the past week and are hitting technical overhead, which is an ideal setup for some selling on the CPI news, although it is positive as far as potential rate cuts are concerned.
Bonds are higher, and also benefit when we have fear of economic slowing.
Breadth isn't bad so far, at around 3,900 gainers and 4,900 decliners, but it is going to be tough to overcome overhead resistance without some consolidation first.
Small-cap action on my screens is poor, so I'm tightening up my stops. I also reduced my position in Nvidia NVDA, which has had a great bounce and is reporting earnings later this month. The stock is probably fine for the longer term, but I'm going to trade a portion of my position and look for a lower-priced remount.
There are a couple of names on my shopping list, but they don't have good entry points yet. I already have a position in Shift4 Payments FOUR and want to add it, but it's going straight up right now. It had a great earnings report and has an attractive valuation with a price to earnings of around 25 and earnings per share growth of over 30%. The 2025 estimate for the stock is almost $5.
Another name I'm looking to add is a dividend play that should benefit as interest rates fall. Verizon VZ pays a dividend that currently yields about 6.4%, has comfortable financials, and should be safer in a slower economy. It is unexciting, but it is a place to park some cash until it can be deployed in other places when market conditions improve.
My primary task right now is to manage existing positions closely and have plenty of cash available for new opportunities as they develop.
I am concerned about the potential for negative seasonality in the next six weeks and am taking a more defensive posture at this time.
At the time of publication, DePorre was long NVDA, FOUR, VZ.
