Analysis: AMD AMAT

In today's Action Alerts PLUS Daily Rundown, Chris Versace discusses the numerous headwinds stocks still face amid an attempt at a market rally Tuesday.

He reviews the club's current approach to the bear market and explains why members should have an eye on Advanced Micro Devices (AMD) and Bullpen name Applied Materials (AMAT) .

CHRIS VERSACE: Good morning, Action Alerts PLUS members. It's Tuesday, September 27. Heading into this morning's market open, we are deeply oversold, which, as we know, could lead to a rally in the days ahead. We've shared this view with you before in the fact that we can see such short-term rallies emerge in a bear market isn't surprising.

However, we have to remember that we are indeed in a bear market. We think that the number of headwinds the market has been facing means that there's a high probability for them to impact revenue and earnings prospects for the September quarter, as well as forward guidance for the balance of 2022 and into 2023. Now, there's a number of issues so let's quickly tick them off. First, higher interest rates to be had, as well as the impact of interest rate hikes already undertaken by the Fed earlier this year.

Now, we're being reminded by the parade of Fed heads this week that it is simply intent on its efforts to tame inflation. No real surprise given the outcome of last week's September monetary policy meeting. But again, those Fed heads that are making the rounds are saying they are looking for compelling evidence that inflation is getting back to its 2% target, even though it will be difficult for some households and businesses. In other words, full steam ahead by the Fed.

Second, slower enterprise spending and growing reports of cost reductions and layoffs. Third, currency risk. Now, we were reminded about this one earlier this week with the dollar strength and what it means for companies with meaningful exposure outside of the US. We've chatted with this about members. We've written about this to members.

Again, this is considerable given the dollars move. We expect to hear more warnings about this from companies in the weeks ahead. We've also heard from companies in recent days about continued supply chain issues that are hitting production levels. Well, those disruptions could grow even further given what's unfolding in Vietnam.

Recently, the country evacuated more than 400,000 people ahead of the arrival of typhoon Noru, which is the strongest typhoon the country has seen in the last two decades. Now, it has the potential to renew supply chain disruptions, particularly for the textile, apparel, footwear and electronics industry. That has us paying close attention to what Nike has to say about this later in the week when it reports its quarterly results.

We're also watching the developments we had with Hurricane Ian as well and its impact on the economy and potentially the energy complex. Now, that is quite a laundry list. But it will keep us on the cautious path with the portfolio. That said, we will be opportunistic when we see these short term rallies in the marketplace as we continue to position the portfolio for what lies ahead.

Now, we did some of that just yesterday when we exited the shares of Nucor on signs that steel demand has continued to weaken even further in the near term, risking downside guidance from Nucor when it reports in the coming weeks. We used some of the proceeds to add to the portfolio's position in PepsiCo, a far less economically sensitive company, and one, as we know, that it has pricing power.

And as we shared on yesterday's AAP podcast, some of the areas that we're looking at for new ideas perhaps for the bullpen, perhaps for the portfolio at the right time are areas such as defense companies and non-consumer, non-retail facing REITs. Now sticking with the portfolio, we also have our eyes open today for AMD and Applied Materials, which as members know resides in the bullpen. The catalyst that we're watching is Intel's annual Innovation Day that's being held today.

We know that there has been weakness in the PC market. And there's concern that that might be accelerating. We're also starting to hear rumblings of slowing foundry demand for chips. So we'll be listening for what Intel has to say about each of those and how that might relate to its guidance. We'll also be looking to see what Intel has to say about the impact of the recently passed Chips Act. Members should remember that's a catalyst that kept applied materials shares in the bullpen with an eye for the second half of 2023.

That's today's AAP rundown. Thanks for joining us. We'll see you tomorrow.