JD DURKIN: Good morning, Action Alerts Plus subscribers. I'm TheStreet's JD Durkin, talking to Chris Versace here from the floor of the New York Stock Exchange. Chris, good morning. Nice to see you here as always.

It has already been quite the week of economic data with markets pricing and slowing inflation. But another piece of the puzzle landed in our laps with the release of today's stronger than expected retail data. The ultimate week for retail rolls along. How does this fit into the picture as retail earnings keep piling in, namely a bit of a disappointment from the folks over at Target this morning?

CHRIS VERSACE: Yes, it was. So a lot to unpack in that report. Clearly, consumers opened up their wallets more so than people were thinking. And even when we adjusted for inflation, they were actually spending on more things, which is a positive, of course, for the economy. A little concern that the Fed might take a look at that data and some potential revisions for the Atlanta Fed's GDPNow forecasts in a positive sense.

Remember, that model has gone from a negative GDP reading for the current quarter to plus 4% at its last update. This will clearly add to that, as will the softer inflation data when we get this next update. That could give the Fed a little more room to be aggressive. So I think we're going to need to see more data between that ongoing debate at the December meeting, 50 basis points, 75 basis points.

But when we dig into the retail sales report, of course, online shopping was strong. Everybody expected that thanks to the Amazon event early in the month. But restaurants continue to be strong. And also too, when we take a look at what Mastercard's SpendingPulse had to say, travel continues to be very strong, up double digits year over year with considerable strength in airlines as well as lodging.

And it tells us that people are still traveling, spending on more experiences than things. And I think we saw that really reflected not only in Target's quarter, but its guidance, where it appears that a lot of discretionary-- excuse me, discretionary items are not really being picked up compared to what was thought.

JD DURKIN: Absolutely. I do want to get your perspective here. In a note yesterday, you said that you're waiting for, quote, "the other shoe to drop," referring there to GDP as well as earnings expectations. Is there another data point you think we should be paying closer attention to?

CHRIS VERSACE: So yesterday, we got some quarterly updates on household debt levels from the Federal Reserve. And man, oh man, JD, did they shoot up considerably during the third quarter. And when we step back, we know that interest rates continue to move higher. They're going to move even higher than where they are. We take a look at the inflation that we're seeing, you have to question, how much longer can this go on, especially as the number of layoffs continues to rise?

Amazon just started this week with 10,000 jobs. We're hearing reports from Disney and a litany of others as well. And as we talked about over the last few days with AAP members, generally speaking, when you see layoffs rising, consumers tend to pull back a little bit. So to me, the figures that we're going to get for the November retail sales report could start to show that.

JD DURKIN: Absolutely. Do you advise that members listen to other Fed speakers that we expect to hear today? Obviously, it's one thing to listen to Chair Powell, but there are other Fed presidents and representatives who speak from time to time. What's your best sense of guidance or recommendation for members who may see those headlines and wonder whether or not it's worth it for them to tune in directly?

CHRIS VERSACE: Well, again, we have this back and forth, this debate in the market. Will it be 50? Will it be 75 basis points? What's it going to-- what's the Fed funds rate going to look like in February, in March, something like that? So I think it is important, especially as we get more data that comes out-- again, the PPI data, the CPI data, retail sales. We'll also get industrial production and a few other data points before the Fed concludes its meeting on December 14.

And generally speaking, I think these folks come out, and they test the message that we're going to hear from Fed Chair Powell. But they also do serve to give us some sobering comments as to what we're likely to expect. So absolutely, I think we need to read into them, understanding that some of them might be a little more dovish. Some might be a little more hawkish. But again, cleaving into those comments will give us the insight we need.

JD DURKIN: Absolutely. I do want to ask you about the EV market. That industry got a bit of a charge this morning, if you will. See what we did there? The industry got--

CHRIS VERSACE: I did.

JD DURKIN: --a charge, a bolt--

CHRIS VERSACE: I did.

JD DURKIN: --with Ford saying EVs will-- I figured you did. It wasn't that complicated of a-- so thank you for sticking the landing there with me. They said they got a bit of a charge this morning with Ford saying EVs will require 40% less labor than combustion vehicles. What does this mean for Ford, Chris, and are layoffs potentially on the way?

CHRIS VERSACE: Yeah, so when we think about the transition to Ford, there's a couple things at play here. One is them continuing to improve in their cost structure. The other is the transition in their business over 2023, 2024 and beyond towards EVs from combustion engines.

So it really helps reinforce that notion that the new Ford, if you will, will be far leaner than the old Ford, but it also signals that as that transition occurs, we're likely to see more rounds of layoffs. And that just gets back to what I was saying earlier. As layoffs continue, that engine that is the consumer is going to be called into question even more so.

JD DURKIN: What does the potential of even more layoffs tell you about the overall state or health of the economy? It's a big headline, a big storyline that a lot of members are undoubtedly seeing in a week like the last couple of weeks, seemingly day by day.

CHRIS VERSACE: Yeah, no, 100%. I mean, it's almost like every day goes by, and we hear about new companies laying off, potential furloughs, or other costcutting reductions. So again, not to beat a dead horse here, but when 2/3 of the economy directly, indirectly is tied to the consumer, if you're laid off or you're worried about layoffs, you're going to go into a defensive posture with spending.

And I think we haven't really seen that play through into expectations for 2023, both from a GDP perspective as well as an earnings perspective. So from the way we look at it here at AAP, as we continue to see more headcount reductions, there's a greater risk for even more downside cuts for earnings expectations in 2023.

JD DURKIN: All right. Let's head on over and talk Apple. The smartphone maker says its chips will be sourced in the US by the year 2024. I wonder if that's good news for the semiconductors. And I also couldn't help but notice you have Applied Materials in the bullpen. So what stands out to you, and what's important for members to keep in mind on this one?

CHRIS VERSACE: So when we take a look at Apple shifting its production around, there's been a lot of concerns about China, particularly with the renewed rise in COVID cases and ongoing supply chain issues. So I think it's part of a larger strategy for them to diversify their supply chain and where their products are being produced. Certainly great to have it here at home in the United States. And in order to do that, it really speaks to something that we talked about with members earlier in the year, which was the passage of the CHIPS Act.

And I think Apple saying we're going to do this in 2024 really confirms the notion that we're going to see semiconductor capital equipment and those plants start to fire and come back online and be instilled, capacity ramping because if there's no capacity, it's really hard for Apple to buy those chips by 2024. So this has us taking another look at Applied Materials.

Candidly, when we exited the name, we shared with members that we were putting it in the bullpen, waiting for the time when we started to see that pickup in chips-related spending. Again, that's the CHIPS Act. And we targeted that for sometime late in the second half of 2023. But that might be happening sooner than expected.

JD DURKIN: Great guidance, and great information for our members Chris Versace, thank you, as always.

CHRIS VERSACE: Thank you, JD.

JD DURKIN: All right. And as always, to those of you watching at home, please continue sending all of your questions to aapclub@thestreet.com. Thanks a lot for taking the time to join us again today. We'll see you next time.