Daily Rundown: March 27

J.D. DURKIN: A very good Monday morning, members one and all. Chris Versace and I are now back to get ready for the week ahead. Chris, thanks for being here. Nice to have you in person for a change.

CHRIS VERSACE: On the floor of the New York Stock Exchange no less.

J.D. DURKIN: Here we are. It's not a green screen, as I like to say. We are actually here. And it's great to have you. As always, I do want to kick things off with a rewind of last week's biggest moves. You've continued to build out the club's newest position in B of A let's talk Bank of America. After the Fed's latest rate decision, you continued to add to the position as recently as this morning. As concerns about the banking sector continue to linger, Chris, how does B of A stand out from the pack?

CHRIS VERSACE: Well, we've started to see deposits kind of shift to these larger banks. We've had reports that Bank of America has picked up several billion dollars of deposits, but at the same time, we are seeing regulators and other entities really start to backstop the financial community.

And what I mean by that is they're really trying to shore it all up so that it remains sound. And I think that as we continue to see those efforts, investor confidence is going to continue to reaffirm the outlook is going to continue to improve, and we want to take advantage of that. That's why we not only added to Bank of America shares late last week but also again this morning.

Really spinning out of the events over the weekend, which we detailed in our notes both to members early this morning and then touched on again in the trade for Bank of America shares.

J.D. DURKIN: So let's talk about that specifically. Are there banks or banks in general that may be in focus? What are some of the highlights for members who may have missed that today.

CHRIS VERSACE: So over the weekend, Janet Yellen assembled a crew of regulators, and they came out and they said, you know what, there have been some issues. But overall, the financial system is sound and well capitalized. And then over the weekend, there are other reports, I believe Bloomberg was making them, saying that US regulators are starting to examine other options to extend and shore up the banking arena should it become necessary.

So it tells us that there's a lot of firepower that's being thrown at this. They really don't want people to panic. And we've seen Bank of America shares come in from $37, $38 all the way down to $26, $27, $28 where we've been buying them. And as we continue to see greater comfort, more assurances, we want to be taking advantage of that pullback particularly since Bank of America looks to be picking up share, which was part of our thesis.

J.D. DURKIN: At the end of last week, AAP team member Bruce Kamich and I talked about this next name. Let's talk about Ford. That company says it expects to lose $3 billion on its own EV estimate. And like I said, Bruce and I talked about that a bit at length on Friday's session for members who caught that. How should members be thinking about Ford today you think, as we kick off the week.

CHRIS VERSACE: So I think there are two things to point out. One, we knew that Ford was investment mode for EVs. That's not exactly a surprise. But when we parse that $3.1 billion, what they have shared is the expectation that they will be close to break even by the end of this year. That tells us-- sorry, that's for the EV business. But what that tells us, though, is yes, we're going to have big losses in the first half of the year, but as volume ramps, we should start to see some of those benefits emerge moving first towards break even towards this year, and then potentially, positive profits next year.

So from our perspective, we've been on the sidelines with Ford with the three rating. We're really kind of waiting and seeing does the EV tax credits start to stimulate that volume that would help Ford kind of move on that path. So because of some Ford issues in terms of manufacturing with batteries and other problems, we really won't have a good sense on that till we get the April data.

That means that we're going to have to wait probably to early May. So that's the timeline that we're waiting on. And at that point, when Ford reports their May quarter, they might-- sorry, their March quarter in early May, they might actually update that forecast, potentially, a little more positive. So this is the cadence of events that we're waiting for. But until then, we're going to continue to sit on the bench on the sidelines with this three rating.

J.D. DURKIN: It is Monday, which means it's time for our weekly 2020 hindsight check-in. Give me a sense as to how last week ended up shaking out for you and anything you wish you could change with the benefit of the rearview mirror.

CHRIS VERSACE: So I was very pleased with the overall portfolio. We made some moves, not a lot. I think the one thing that if I could go back in time and change, it wouldn't be for us at the AAP portfolio, it would be to the market at large, and say, folks, did you not listen to what Fed Chair Powell had to say?

There are no rate cuts coming in 2023, even though we talked about it. I've shared my thoughts with members on this. The CME FedWatch tool is saying, hey, there are multiple rate cuts coming. My concern is that the market is leaning into that, and it is going to be hoodwinked on this.

That it's going to have to reset those expectations, and in fact, over the weekend, we've already started to see them shift. We now have, I believe, according to CME FedWatch tool, for the May meeting, the expectation is that, yes, the odds of a rate hike are increasing. So that tells--

J.D. DURKIN: A rate hike.

CHRIS VERSACE: --of a rate hike another 25 basis points. But we'll have to see. There's a lot of data between now and then. But I think, just to come back to my comments earlier that as the market continues to get a little more comfortable with the fallout from these recent bank failures, if it gets confirmation that the tightening credit is not going to torpedo the economy, before too long, the attention will be back on inflation, and the number of rate hikes that are expected. And again, based on what we've seen so far, that doesn't seem like we're going to get

J.D. DURKIN: Them. A quick follow-up if I could. The idea of tightening credit, could that end up kind of helping the Fed towards its end goal of putting downward pressure on inflation, even if that's not necessarily maybe part of the calculus the Fed had originally baked in?

CHRIS VERSACE: So I think that's 100% correct. And Powell kind of alluded to it as did another Fed head over the weekend. But as both also said, and I agree with, it's a big unknown. Because we're not even three weeks into this mess. So we don't to what degree those tighter lending standards are going to impact the overall economy.

I shared with members last week, both on the Thursday round up and in my-- sorry, The Daily Rundown on Thursday, and then--

J.D. DURKIN: You do do a lot. I get it.

CHRIS VERSACE: And then in the round up-- thank you for that. --I said, look, when banks start to report their March quarter earnings in a couple of weeks, we're going to have a much clearer sense as to what this means. And I think between the inflation data that we'll be getting that we'll have a much, much better sense as to what the road ahead is.

J.D. DURKIN: So speaking of the road ahead, let's look at some key data points or other things on your radar for members to know as we head into this week. Keeping in mind, as you said in the previous response here, we will get a lot more data between now and the next time we start to hear from Fed officials with regards to future monetary policy decisions.

CHRIS VERSACE: Yeah, so in terms of the next couple of days, there are really three things that I'm looking out for. And if I can see if I can do this in order. Tuesday after the bell, we've got Micron reporting. So remember, this was the company that back in December, warned about the PC market, the smartphone market for 2023.

So we're going to want to see what their update is. What I want to hear is the expected rebound in the second half, is that tracking? Is that still expected to happen? Is it getting pushed out? Is it getting pulled in? That's what I want to understand.

The next one is going to be earnings from EVgo, of course. That'll give us some insight to our wonderful position in ChargePoint. And then at the end of the week, when we get the February personal income and spending report, we will also get the latest iteration of the Fed's preferred inflation metric, better known as the PCE price index.

Now, my concern for this, is that given what we saw over the last few months with core CPI on a sequential basis moving higher, and then what we saw in the February PPI report for services remain very sticky, that this report is going to kind of have a sobering effect for the market that, yes, inflation continues to linger. And the Fed will likely have to do more. So on Friday, after we get that report, we're going to want to double check those CME FedWatch tool expectations.

J.D. DURKIN: Happy PCE index week.

CHRIS VERSACE: Correct.

J.D. DURKIN: Absolutely, I guess, if you say happy before everything, it kind of just puts a nice little glow on it.

CHRIS VERSACE: It would be nice if we could do wonderful maybe.

J.D. DURKIN: Well, wonderful, yeah, no, I agree with you. You're not alone in that. Finally, in last week's Alerts, Chris, you wrote that you'd be looking to pick up shares in some of the beaten-up positions. Anything topping your radar on that front?

CHRIS VERSACE: So we have a number of two positions, John Deere for example, Elevance Health. These are some of the ones that we're kind of watching. I had a longer list in the Roundup for Friday. Members can find them there. But I would say that those two are, as we like to say, top of mind.

J.D. DURKIN: The man in the know, the one and only, the great Chris Versace joining us here from the floor of the New York Stock Exchange. That's going to do it. Chris, thanks a lot.

CHRIS VERSACE: Thank you.

J.D. DURKIN: Chris and I will be back tomorrow to answer some of your biggest questions of the week. We'll see you then.