Daily Rundown: September 13

CHRIS VERSACE: Good morning, Action Alerts Plus subscribers. I'm back to answer some of your biggest questions of the week, but before all of that, let's take a look at this morning's CPI report, which, as we shared in our alert to you, showed data that was in line to slightly warmer than expected for the month of August.

Now, depending on if you were looking at it on a sequential or a year-over-year basis, folks who were looking for a definitive path ahead for monetary policy will be disappointed in the report. Let's get into it.

Coming off the August CPI report, the rebound in headline CPI and the uptick in core CPI on a month-over-month basis is likely to see a more hawkish tone from the Fed next week. Given the distance to its November policy meeting, the Fed will, in our view, likely reiterate. It is going to be data dependent, but more progress on the fight against inflation may be needed.

And this gets to what we shared with you yesterday. The focus will now shift to September and October data to determine what the Fed may need to do at its November policy meeting. Initial indications for what that data is likely to look like will be had in tomorrow's August producer price index report one that will be breaking down and discussing with you in our alerts and on tomorrow's rundown.

At a minimum, the August CPI data gives the Fed ample cover fire to remain higher for longer with the Fed funds rate. We continue to think the first cut in the Fed funds rate isn't likely to be had until mid 2024.

Now, let's move over to some of your questions and start with ChargePoint. After last week's downgrade, some members have been wondering, asking questions why the club doesn't have a hard and fast rule when it comes to exiting a position. Well, as we know, exiting a position isn't a decision to be taken lightly, and timing is a factor that we need to consider, especially when we have a very nervous market that tends to overreact.

In the past when we've seen that happen, we've been able to take advantage of that misperception, overreaction when the fundamentals and technical support doing so. Now, as much as we want to maximize a positions profits, when it happens, we also want to minimize its losses as best we can. Sometimes this means being patient so we can work our way out of a stock at higher levels.

Now, we've also had some questions about the use of stop losses. And to be blunt, we continue to evaluate adding such rules. However, in a volatile market, something we've seen over the last several months, stop losses run the risk of taking us out of positions that eventually work rather well for the portfolio.

So an example of this would be when we first started our position in Vulcan Materials of August of last year, the shares were trading around $177, $178. And by October of last year, they fell down to almost $145. That's a drop of about 18%. The shares soon rebounded, and by year end, they were back at $175. And as we know, they strengthened even further during 2023, and today, they're trading around $213.

If we were to use stop losses, and let me be blunt, we are evaluating that potential. It would be something we put in place once we built a full position in a stock because we do like to take advantage of misperception and overreaction to improve the portfolio's cost basis for a particular stock. And that's something that we've done extremely well in the past, and we'll continue to do it again, provided the fundamentals and the technicals continue to support it.

And finally, when we talk about exiting a position, if we see valuations that are stretched or fundamentals that are souring and the technicals don't support what we're seeing in the stocks, we will act as needed to minimize the impact of the portfolio.

Now, let's talk a bit about the housing market and how it's impacting our game plan. Clearly, we continue to watch the housing market given its impact on the economy but also for the portfolio. We are seeing the impact of higher interest rates take its toll on mortgage applications and housing affordability at a time when consumer savings are coming under pressure as is disposable income, which is likely to be even more so as student debt repayments return in October.

As an investor, this makes for a very tough housing market. We do, however, have builders firstsource in the bullpen, which serves not only home builders but also the repair and remodel market. We like what we call by the bullets, not the guns approach that it brings. And we'll look to call it up to the portfolio when we see data supporting a sustained positive turn in the housing market.

And finally, when it comes to making the decision to reinvest dividends versus collecting the cash, the answer really depends on your age and your income needs. So I have some rules of thumb to share. Generally speaking, if you are younger or have an ample nest egg, reinvesting your dividends is a good move because you either have time on your side or you can afford to keep growing your portfolio. However, should you need the income, then you may want to simply collect the cash to supplement your needs.

I hope that helps. That's today's rundown. I'll be back tomorrow for a quick update on the producer price index retail sales and much more.