CHRIS VERSACE: Good morning, Action Alerts Plus members. Today is Tuesday, November 1. As the Fed kicks off its closely watched two day meeting, markets are moving higher on a blockbuster deal from Johnson & Johnson and reports that China may be reconsidering its zero-covid policy. Now, despite growing market optimism, however, we remain on our cautious path with the Action Alerts Plus portfolio.

As we shared in our morning notes to members, the strong October market rally that we enjoyed with a number of our positions faces tough resistance at 4,000 and again at 4,100 for the S&P 500, the portfolio's benchmark. We've also seen economic data of late point to not only the economy being stronger than expected but inflation pressures remaining. We've also seen as we've moved through the current earnings season, more companies calling for prospects of further price increases as well as a number pushing out the timing for potential peak input inflation.

In our view, when we put all this together, the risk is that we have another misread by the market for what the Fed could say exiting tomorrow's monetary policy meeting again, given that the inflation data really hasn't moved meaningfully lower in the latest rash of economic data that we've been getting. We also have to remember that Fed Chair Powell signaled that there could be some pain as part of the Fed's efforts to beat back inflation toward its 2% target, and most importantly, it won't quit until that job is done.

From a portfolio perspective given the timing between where we are today, the data to be had later today and tomorrow and the potential outcome from the Fed's meeting, we are going to sit on the sidelines today and tomorrow with the portfolio, excuse me, waiting until we have the Fed's latest thinking in hand. Now, we talked about data. So let's move over to the data front and a number that the Fed is likely to key in on. That's today's October US manufacturing PMI.

The report from ISM fell to a reading of 50.2 in October from 50.8 in September slowing for sure. But we have to remember that the figure for October again, that 50.2 was above a reading of 50, which means the economy continued to expand during October. We did see new orders rebound month over month in October. However, they were still below 50 meaning they were contracting, which tells us that more than likely, we're going to see further slowing ahead in the manufacturing economy.

Now, this is the big thing here in terms of the ISM manufacturing report. The price index fell to a reading of 46.6 firmly in contraction mode and the lowest reading since mid 2022. Now, that's a big number, and it could get people excited because it would say that prices are contracting. But remember, that is one data point, and we do not make decisions based only on one data point. So let's take a look at what the S&P Global US manufacturing PMI report for October set. That was also published this morning.

And it said that we continue to see increases in the number of companies passing on price increases given that cost burdens in October continued to rise at elevated rates. When we put the two together, this likely means that the retreat in inflation isn't proceeding at a very brisk pace. To us that says the Fed is likely to remain on path and continue to tighten interest rates in the coming months and coming Fed policy meetings.

Now, the next data point we want to watch is going to be out tomorrow morning. That's the ADP employment report for October. The reason we want to watch this is because Fed Chair Powell has made several comments about the tightness of the labor market. So that will give us the last read before the Fed concludes its monetary policy meeting. And we're going to want to key in on that very closely.

Now, that's tomorrow. But also tomorrow November 2nd, we have our next members only call that kicks off at 12:00 AM Eastern Standard Time, or ET as I like to say. We're looking forward to seeing all the members there. So I would like to say, be there or be square. And thanks for joining us on today's rundown. And we'll see you tomorrow at noon again, with the members only call for November.