J.D. DURKIN: Good morning, Action Alerts Plus subscribers. I'm The Street's J.D. Durkin talking to Chris Versace from the floor of the New York Stock Exchange. Chris, nice to have you here.
Now Chris, this is my first time joining you officially for a Daily Rundown. I picked quite the day with retail sales earnings season kicking off in earnest here, our earnings palooza, as I like to call it. But we did have earnings numbers from the big banks. What is the key here, Chris, you think, to how you are approaching the market today, especially after the wild week that we've had?
CHRIS VERSACE: Well, I mean, look, we've had a slew of data that simply reinforced the fact that inflation runs hot. The Fed is going to have to go bigger, longer. That means that, yes, the Fed funds rate is going to continue to creep higher, most likely, higher than people were thinking of several weeks ago.
But we also had a very strong rally yesterday, fueled by most likely, some short covering and some technicals. Now J.D., we've seen this a number of times in past bear markets. We've talked with members about this, that we're likely to see that.
But, and this is the big but, when we close out the week, as we stack up things, we still see more headwinds ahead for the market than tailwinds. Excuse me, let me reverse that. More tailwinds ahead than headwinds for the market.
And the big one is going to be something we've been chatting about for some time, which is the September quarter earnings season. We've seen earnings numbers come down. But there's a lot of reasons to think that they still have more to go. So we're still going to be in a cautious stance with the portfolio heading into next week.
J.D. DURKIN: Is it cautiously optimistic heading into earnings season, I wonder, from where you sit? Are you sticking with cautious?
CHRIS VERSACE: So I would like to say cautiously optimistic. We always want to find opportunities for the portfolio. But we have to let the data that we're getting, both fundamental and technical, really talk to us, so we can make informed decisions for the portfolio and for members.
So for now, we continue to be cautious. Having said that, as members know, there are areas that we're bullish on, particularly those that are benefiting from financial stimuli, if you want to call it that, out of Washington. Everything from infrastructure spending, to continued subsidies for EVs, and EV charging.
J.D. DURKIN: That's a great point there. Now, after CPI, PPI data, we also had FOMC minutes this week. We now have retail sales. They came out earlier this morning, as well as import, export prices.
Paint me the picture, as best you can, or as much as you're willing to do, that we get of the economy right now. All of these things considered, especially after the retail sales numbers today. Because they were pretty highly anticipated, weren't they?
CHRIS VERSACE: Yeah, they were You. Have to remember that the consumer directly, indirectly is 2/3 of the domestic economy. And while the numbers were arguably a little better than expected, we do have to factor in all this inflation data that we've been getting.
And I think, when we look at that on that, let's call it adjusted basis, the reality is, and I'm sure members are feeling this, it's that they are simply paying more, but actually getting less. You think of when you go to the grocery store. I know I am feeling it. But the other thing too, is you mentioned the FOMC meeting minutes and the inflation data, I just have to go back to what I said a few minutes ago. There is without question, that the Fed is going to have to do even more.
They've already raised interest rates a few times. We haven't seen inflation start to creep back yet. It remains persistent.
They're going to have to go bigger or longer. The wind up for though, is that means higher borrowing costs, whether it's for mortgages, loans, or even credit cards. And that's going to be a big headwind, not only for business spend, but also for consumer spending as well.
And at the same time, we've got more companies announcing layoffs. Beyond Meat, this morning. We've got a growing list of negative preannouncements and we're starting to see capital spending cuts, Still got dollar headwinds, oil and gas, and other things that are going to sap disposable dollars. So the economy, I would say, the picture remains challenged and poised to slow further.
J.D. DURKIN: Obviously, I think the CPI data yesterday, obviously was very closely watched. Was there any data point, I wonder, from your perspective, Chris, this week, that you felt should have been paid a bit more attention to, that maybe a lot of news outlets, or people talking about the space, maybe briefly hit on, but you actually, maybe, should have had a little bit of outsized priority? Is there something we missed, you think, or didn't focus enough on the last five days?
CHRIS VERSACE: The only thing I would say, it's not necessarily one of the hard economic data points that people look at. Again, we had a variety of those. One of the ones that we look at quite closely is the Mastercard SpendingPulse survey that came out. And it was up even stronger than the retail sales report.
And some data on the inside, really points to support, if you will, for a number of the portfolio positions, whether it's McCormick & Company, because grocery sales were up strong, or digital shopping. So Amazon, UPS, and those were reinforced a little bit by the retail sales report. But the Mastercard SpendingPulse poll data that precedes the retail sales report give us an indication that it's even stronger than what we're seeing. So what we try to do, J.D, is really triangulate around a lot of different data points to have that mosaic, so we can really take a full 360, 24/7 approach, if you will.
J.D. DURKIN: Biggest overall takeaway from the week that was here the last five days. What are you-- what is going to be top of mind for you when you wake up tomorrow morning and think back to the week that we had?
CHRIS VERSACE: Yeah, well--
J.D. DURKIN: Maybe you won't think about markets on a Saturday morning, to be fair. And if you didn't--
CHRIS VERSACE: No, no.
J.D. DURKIN: --I fully understand. But knowing you, you might.
CHRIS VERSACE: I 100% do. It's a great time to reflect and think about what's coming in the days ahead. But I think it's going to be a simple reminder.
Look, the market can move quickly. It's going to be very volatile. And we've got to not really fall into the trap of day-to-day. But again, really pay attention to the data, and really look at what's coming ahead of us, and understand what we're likely to see, and weigh those probabilities, and move accordingly with the portfolio.
J.D. DURKIN: Absolutely. OK, moving on over to the earnings space. We did get results here from J.P. Morgan, from Goldman, and Morgan Stanley, just to name a few. You don't own a bank right now. But any read through to the portfolio here? What's top of mind for you?
CHRIS VERSACE: So a couple of things. You know, yes, you're right. We had a couple of banks report and they're benefiting right now from higher interest rate levels.
But I think, as we look forward with the slowing economy, the real concern is going to be, what's their loan growth going forward? As rates tick higher, people are not going to take on a lot more debt, especially given where consumer credit levels are. The same for businesses.
Again, they're more in cutback mode than expansion mode. So I think we're going to stay on the sidelines with the banks. The other thing too, though, is you have to know what you own.
And you mentioned J.P. Morgan, but you also mentioned Morgan Stanley. Two very different businesses. We actually exited Morgan Stanley about a month ago around $90, because we were concerned about the investment banking landscape, what it means, or would have meant for their revenue.
And that was the right call, because that business clearly was under pressure. We saw that in the results. And the shares are, last I saw, trading down even further. So not really jumping on the bank bandwagon any time soon.
J.D. DURKIN: I should remember just be careful not to read too much into what these earnings are saying, I wonder.
CHRIS VERSACE: Well, think of it this way, right? We're only at the start of the earnings season. And I think this week in full, we had something like 53 companies.
We know that it's going to continue to mount, in terms of the number of reports that are coming. We're also going to get a far more diversified look at the market, the economy, and the various S&P sectors in the coming weeks. And the one thing I would point out to members is, let's remember this. Banks, they don't manufacture anything. They're not necessarily subject to inflation pressures, supply chain issues, or related disruption.
So yes, some of the banking earnings might look good out of the gate. But next week, the week after, that's where the rubber really hits the road. And as we start to get those 325 reports next week, and almost 1,000 the following week we'll be, as I said, updating our mosaic and adjusting where we need to with the portfolio.
J.D. DURKIN: Finally, before we wrap up here on this Friday. The most important thing you think to watch, or few important things to watch for next week.
CHRIS VERSACE: Yeah, so we don't have a lot of economic data coming out, a lot of housing stuff, and some regional Fed indicators. So we'll of course, pay attention to that. But for us, the big thing is going to be, one, the sheer volume of earnings.
And again, updating that mosaic. But really, really, as it relates to the portfolio proper, we have results from Lockheed Martin, Ella Vance in Verizon. So those will be the primary focus for, next week.
J.D. DURKIN: Absolutely. And finally, as a reminder. Members, please continue to send all of your questions to AAPClub@TheStreet.com. I am looking forward to answering them in a future Rundown.
That's going to do it for us today. Chris, thanks a lot for taking the time as always. Nice to spend a bit of time on a Friday with you.
And thank you for joining us today. And have a fantastic weekend. We'll see you next week.