CHRIS VERSACE: Good morning, Action Alerts Plus members. We'll start today's rundown with yesterday's Fed decision. And as I noted in yesterday's Alerts, the Fed, as expected, boosted interest rates by another 25 basis points.
And during his press conference, Fed Chair Powell pretty much said what we expected him to say. That is, despite the progress in the June inflation data, inflation remains elevated. This means the Fed will continue to evaluate the oncoming data, making policy decisions for monetary policy on a meeting to meeting basis.
And it will also need to see, as we called out, sustained progress in the data. Now, as you know, that's exactly what we we'll be doing, mining the oncoming data to a better understanding for what it says about the economy, inflation and what the Fed is likely to do in the coming months.
Now, Powell also said the Fed will keep policy restrictive for some time to ensure, as you know, that the Fed has actually beaten inflation back on a sustained basis to its 2% target.
Now, as we see it, the market is currently fixated on when the rate hiking cycle will end. However, as we pointed out in our Alerts to you yesterday, we expect it will soon become far more focused on when the first rate cut will be had.
Currently, the CME Fed watch tool puts that in March of next year. But we could see that slip, especially if the economy is stronger than expected. And that is exactly what we saw in the preliminary 2Q 2023 print for GDP, coming in at 2.4%, up from 2% in the March quarter.
Now, with it being earnings season, the Fed wasn't the only item we were watching yesterday. Portfolio holding Chipotle reported its June quarter results, which, as you saw, were better than expected. But in response to slower Comp sales guidance and some incremental margin headwinds, we trimmed our price target to $2,100, from $2,200. And we expect others across Wall Street will be doing the same.
Now, we continue to like Chipotle's positioning. But given that revision, we are going to keep our 2 rating intact for the shares.
We've said the market is arguably priced to perfection. And that means earnings of high flying stocks so far this year, including Chipotle, will come under even more scrutiny. And that's exactly what we're seeing this morning.
Now, what we think is going to happen is the following. We know consumers are going to be increasingly cash strapped, especially as student debt payments come back into play later in the back half of the year. In our view, that means that today's move in the shares is going to be an overreaction.
However, we want to let this settle out. We don't say-- we don't encourage members to step in today to pick up incremental shares of Chipotle. Rather, we want you to stay on the sidelines for a day or two, perhaps see where the shares settle out.
If they fall below $1,900, that would be a good spot to pick them up. Closer to $1,850, even more so.
Now, as we said in our comments, we do expect Chipotle's comments about slower comp sales and incremental margin headwinds to be echoed in the coming weeks by other restaurant companies. Again, given what we see ahead for consumer spending, we continue to like Chipotle's positioning, as it continues to expand its restaurant footprint.
We also had better than expected quarterly results out last night from American Waterworks and United Rentals. Both companies are holding their earnings calls this morning, and we will have follow up comments coming at you later today.
The same goes for Mastercard, which also reported better than expected top and bottom line results for its June quarter earlier this morning. That'll do it for today's rundown.
Again, we have a lot going on today. So be sure, members, to check your email. We'll be back with another rundown for you tomorrow.