Daily Rundown - January 5

JD DURKIN: Good morning, Action Alerts Plus subscribers. I'm TheStreet's JD Durkin here with Chris Versace joining me to react to yet another avalanche of economic data. We love data around these parts. Let's kick things off here, my friend, with what is top of mind for you, as markets already taking quite the hit on this Friday eve. What are you following?

CHRIS VERSACE: Oh, a whole host of things, JD. We got the ADP employment report out, stronger than expected on the headline. Continuing to show that aspect of the economy remains very strong. But also inside that report, the wage data. Holy cow. Up tremendously year over year still. And I think the concern that the market's reading into this is not only are more jobs being created, wages and wage inflation are being persistent. This is going to more than likely prompt the Fed to do more than what the market was thinking.

Coming into this report, the consensus expectation was for two 25 basis point rate hikes in the first half of 2023. And right before I jumped on the chat with you, I took a look at the CME Fed watch tool, and now the February meeting is looking 50/50 25 basis points, 50 basis points. I think this makes a very, very big day for tomorrow when we've got the December employment report. That is going to be torn into like nobody's business.

JD DURKIN: How much of a precursor, then, do you put-- or I should say, how much weight do you put on the ADP numbers as being an accurate precursor to what we'd get tomorrow?

CHRIS VERSACE: Great question. Because as we've seen in the past, the relationship between the ADP employment numbers and the formal employment report numbers can be a little, let's say, wacky. I know that's not quite the technical term that folks are looking for. But we can see wide numbers of variance between the two reports. But for me, the key here in keeping the Fed going perhaps even greater than people were thinking is going to be what the reports have to say about inflation.

Look, when you've got job stayers year over year per the ADP report seeing over 7% wage gains and job changers more than 15%, the risk to me is that wage data in the December employment report doesn't tick down like expected. That is going to prompt the Fed, again, to more than likely do more. And the market is going to have to wrap its head around that because it's not what it was expecting.

JD DURKIN: Yeah, we know Jay Powell, every public moment he has to make comments, he usually says something along the lines of the historical record strongly argues against prematurely loosening policy. And we will stay the course until the job is done. Can you tell I watch a lot of the man's speeches here, by the way? Because that's basically verbatim what he says every time. To that last point, we will see what they have in store come February.

Now yesterday, Bob noted that he did not expect too many surprises in the December FOMC minutes that we got yesterday afternoon. Chris, you confirm that in a follow up alert. But in terms of the broader economy, is there anything you think we have not been paying enough attention to?

CHRIS VERSACE: We've been doing our best to really dig into it and really separate between what the data is telling us, what the Fed is saying it is going to do versus the hopium that's out there. We've seen hopium emerge in the market several times in 2022. And it's really caused some trouble for investors as they have to sober up and realize, oh, this is what's likely going to happen based on what we've seen, based on what we've heard.

So I don't think we're missing anything big. The one thing I would say that concerns me a little bit, surprisingly, was the Challenger jobs cut report that actually came that fell month over month in December. We heard a lot of job cuts November, December. And again today, we heard about Amazon. We know that Goldman has been talking about incremental job cuts. And I sit back and I go, these companies are watching the same data that we are. I would not be surprised if people have a false sense about the job cuts number, and we're likely to see that pick back up sometime in the first quarter.

JD DURKIN: Absolutely, Salesforce as well with an announcement there of about 10% of its workforce. That storyline certainly continues. Any reason to get worried here? You think about the club's position in Amazon. Or is it more about the broader economic picture?

CHRIS VERSACE: Great question. When we hear 18,000 job cuts on its own, that's a big number. But we have to have the context for that. And we talked about this when we were first hearing rumblings about job cuts at Amazon back in November. They have over a million people on their payroll. 18,000 on its own, big number. Relative to Amazon, not a big number. But again, this is probably more indicative of what we're likely to see-- more companies with more job cuts in the coming weeks, especially during the December quarter earnings season. That's when they give the first hard outlook for the coming year.

The concern that ripples through for me then is, OK, companies are cutting back. Consumers get nervous. Are we going to see that self-fulfilling prophecy that tends to emerge with recessions or at least recessionary-like spending by consumers?

JD DURKIN: All right. Sticking with the portfolio, you lifted your price target on Verizon just this morning. Explain your thinking.

CHRIS VERSACE: Sure. So we've long been fans of Verizon for a couple of reasons. One, we like the defensive or inelastic business model that they have, especially in today's increasingly digitally connected world. We also like the dividend yields, 6 and 1/2 percent even after the 10% move over the last several days. Very enviable. And we see both really speaking to consumers and investors too as concerns about the speed of the economy continue to grow for the first half of 2023.

But the catalyst for bumping our price target up to 48 from 45 was the company presented at a Citi conference yesterday, and they said a few things that really caught our eyes, were very reassuring. First of all, they continued to see a rebound in subscriber growth that was a big concern for the September quarter. But more importantly, they said that they are going to join the group of companies cutting capital spending for this year and next year. That's a real positive for cash flow, a real positive for incremental earnings, especially relative to what the market was expecting.

So on the back of that, we opted to lift our price target. And we continue to see the shares garnering far more attention, again, as the economy slows.

JD DURKIN: Now, our overall coverage has been pretty muted this year. I know you've had an eye on the Consumer Electronics Show, CES, of course, out in Vegas. Any AAP names we can expect to hear more about out of Vegas?

CHRIS VERSACE: So you know, that show is a huge one for technology, and it's really just getting underway last night and formally opening their doors today. But the two companies that we're going to be leaning into most for the portfolio. One is going to be John Deere. They're giving a keynote today. I expect them to talk about technology being embedded in their ag equipment and what that means for precision farming. That's a huge, huge positive for them because it not only fosters the upgrade cycle, but it allows them to get better pricing on their machines.

And then the second one isn't in the active portfolio. It's in the bullpen. It's a company called Universal Display. We're hearing a lot of talk already about next generation displays. One of the things we want to hear is, are they using organic light emitting diode technology? That's the bread and butter business for universal display. And if we start to see the market really leaning into that technology, we're going to have to take a hard look at that bullpen position.

JD DURKIN: All right, Chris Versace. Thanks a lot, as always.

CHRIS VERSACE: Happy to be here. Thanks.

JD DURKIN: You got it, man. All right, folks, and thank you all, members watching at home, the rundown. We'll be back tomorrow to guide you through jobs Friday. We'll see you then.