JD DURKIN: Good morning, Action Alerts Plus subscribers. I'm TheStreet's JD Durkin talking with Chris Versace here from the floor of the New York Stock Exchange. Chris, thanks for taking the time. Good to be with you here.
Now, I think we'd be remiss to start with anything other than the CPI figure, Consumer Price Index. It came in softer than expected. Give me your initial takeaway, and just as importantly, what does it mean for today's stock market as stocks continue to soar this morning?
CHRIS VERSACE: Sure. So I think the key here is, coming into the report, if you scanned any online source, read any papers, anything like that, the expectation was that the October figure for CPI ran the risk of coming in hotter than expected. So what did we get? As you noted, a softer than expected CPI print, both headline and core, and all of a sudden, the market is exploding higher.
I would characterize this as something that is somewhat better than expected. But I think the real question we need to think about is even though we've seen prospects for a Fed rate hike in December kind of shift now towards 50 basis points from what was 75 basis points earlier this week, it still means that we're a long way from the Fed's 2% target. We're likely to see further rate hikes ahead.
And I think the key thing here, though, JD, is we've got 34 more days until the Fed concludes its December meeting, and we're going to get a lot more data both on the speed of the economy as well as on what inflation is really shaping up to be like as we exit 2022. So for today, I think the market is enjoying what it learned, but I think before too long, reality will start to set back in.
JD DURKIN: Yeah, and of course, I think the Fed's been pretty clear to say not only will it continue to raise rates, it's probably going to keep those rates there around the terminal period, the terminal rate for quite some time. So great perspective there. I wonder, does this change your approach to any name specifically in the portfolio? Costco, for instance, stands out to me, but help break it down for us.
CHRIS VERSACE: Yeah, so when we look into that CPI report, the one that's propelling the market higher today, it's kind of telling. Because when we look at food prices still up double digits year over year, we look at energy prices still up double digits year over year, benefits were found in used cars and in apparel. Apparel not really being much of a surprise, given the fact that we know retailers have had to get aggressive in pricing to work down those bloated inventory levels.
So with regard to Costco, it plays right into it. Food inflation remains rampant. Costco gets roughly half of its revenue from food, sundries, and fresh food. So it's exactly where we want to be in terms of the portfolio. Consumers still facing high prices looking to stretch those dollars especially at the holiday season.
JD DURKIN: Speaking of the holiday season, let's pivot there. You've been less than rosy heading into retail earnings specifically, but does cooling inflation, I wonder, help brighten that outlook for you even just a little bit?
CHRIS VERSACE: So it's possible. So the question that we've been raising is-- the National Retail Federation, or the NRF, came out with a forecast saying it's a holiday-- holiday sales are up 6% to 8% during November and December. But a lot of the inflation data that's out there has us concerned about that, but it's also the rising pace of layoffs. Not just the layoffs themselves that have been announced, and again, we're likely to get more in the coming weeks, but it's the tone that they set for consumer spending.
Typically, when you see layoffs, if you've been laid off, you are going to tighten your belt. If you're wondering about your job, you might take a more cautionary stance on spending. So we still are concerned about that. And I think the sea of retailers that we're going to get next week is going to offer a sobering take on that NRF forecast.
But I will share with you that there is one positive data point that I saw this morning. It came out of Adobe's figures for the month of October. It showed that online sales prices actually fell again in October after falling a little bit in September. That to me is encouraging not just for Amazon but a little bit for Costco as well. Consumers shifting towards areas of lower prices, more affordable prices, but it also has me a little more optimistic about the shares of UPS.
JD DURKIN: So that wasn't your expectation, then, for what you saw in Adobe, I assume.
CHRIS VERSACE: No, it was not. It was down. The September data was down like 0.2%, so very modest. And as we like to say, you can't really identify a trend, if you will, with one data point. You need two, you need three. That's true for whatever economic data you want to look at, CPI included but even here, too, for that online sales prices. So that is a positive development, in my opinion.
JD DURKIN: So you did mention there UPS. Talk to me about that, especially when it comes to shipping and maybe some of the challenges and/or opportunities that you're looking at for the next quarter or so.
CHRIS VERSACE: Yeah, so when we look at UPS, we really see it as a derivative play on the ongoing shift towards online shopping. And that same NRF forecast really showed an acceleration back for online shopping this year compared to last year. But again, we want to look for confirmation on that next week when we have Walmart, Target, Kohl's stores, TJX and Company. All these retailers are reporting. We want to see really what the blend is there.
But again, I will say that that development made known by Adobe, that's actually a very big positive point. And it confirms our view that cash strapped consumers are going to shift increasingly towards online shopping, and again, good for UPS.
JD DURKIN: Absolutely. Now moving away from inflation, in an alert, you reinforced your conviction in ChargePoint despite the sell off yesterday. You said you would look to add shares if the stock remains pressurized, if it remains there. Using ChargePoint as an example, how do you balance short term headwinds with long term potential?
CHRIS VERSACE: So we know, particularly what we've seen in the market of late, it's extremely volatile. And what we like to do is really focus on the key drivers for why we added a stock to the portfolio or why we're looking at a stock for the portfolio because we want to focus in on what is really going to drive it not just one day, not one week, not one month but really over the evolving three, six, 12, sometimes 18 months ahead of us.
And in the case of ChargePoint, the stock has been volatile. It's a high beta stock. We actually added to the position earlier in the week when it was right around the same price point ahead of the midterm elections because we took another look at what the, again, long term drivers are for the opportunity with ChargePoint shares. And there are several, everything from the continued build out of EV charging stations funded by the Biden infrastructure law to the continued adoption of EVs.
And even though auto loans are getting incrementally more expensive, we have to remember that we have the EV tax credit really coming in starting in January 2023, and that's going to last for 10 years. So that's going to help make EVs more affordable. So the key here is when stocks are getting battered and pushed around, if the longer term fundamentals are in play, that's an opportunity to swoop in, scoop up the shares, and from time to time, improve your cost basis. And that's exactly what we did with ChargePoint.
JD DURKIN: All right, Chris Versace, thank you for the perspective and the context, as always. That is going to do it. Thanks a lot for taking the time to join us today.
CHRIS VERSACE: Happy to do it.