Daily Rundown: October 2

J.D. DURKIN: And a very good morning, Action Alerts Plus subscribers. The one and only Chris Versace joins me here once again, for a look at the week ahead. Chris, nice to have you here. Welcome back, my friend.

CHRIS VERSACE: Why, thank you. It's been a long two weeks traipsing through Europe, but had some great insights to share with members. I hope they enjoyed them.

J.D. DURKIN: So perhaps we bring a bit of the global economic perspective to our conversation, but since this is our first video with you back stateside, Chris, what are some of your biggest takeaways from your alerts over the course of the last few weeks that any of our subscribers may have missed?

CHRIS VERSACE: I would say that there were a couple highlights that are worth just catching up on, and the first would have been the alert that we shared after Micron reported. Clearly, they confirmed, the seasonal ramp of smartphone demand is unfolding. That keeps us bullish on the shares of Qualcomm, Apple, of course, but also Universal Display.

They also had some very nice comments about the data center market, which kind of backs up our increasingly positive stance on the shares of Marvell. We also had an alert out about the holiday shopping season forecasts. And we've been concerned about the tone of the consumer, and those forecasts kind of spoke to that with slower spending growth in 2023 compared to 2022.

Of course, those comments just reinforce our position on Costco and Amazon. And then finally, just a reminder to members that starting effectively today, we are going to see the return of student debt payments, and that's expected to take out somewhere between 70 and $100 billion out of the economy. So it is a headwind that we'll have to keep note of. But again here too, it really speaks to why we are long, not only Costco and Amazon, but McDonald's as well.

J.D. DURKIN: Yeah. What will the pullback in consumer spending be once we really get into the meat of this new era where the student loan repayments are due? We'll follow those metrics very closely. Chris, since you were just around the world, getting stamps in your passport, did you learn anything interesting, I wonder, about how investors are feeling from the global perspective?

CHRIS VERSACE: So, I traveled through the UK, Finland, Germany, and Italy, and just a couple of things really stand out, just recapping that trip. First and foremost, European investors that I met with are extremely anxious. Remember the timing, this was going into a potential government shutdown. Clearly, that was on the top of their minds. But also too, the UAW strike, what I just mentioned about the return of student debt repayments, but the overall speed of the economy, particularly in Europe, has them looking more towards US-listed stocks and thinking that the US economy, at least for now, remains the brightest spot of the four economic horsemen. And then finally, which kind of surprised me a little bit, particularly in Italy, was a lot of talk about starting to use the Maddox as a way to diversify the portfolio, get certain targeted exposure, but also really look for opportunities outside of the Magnificent Seven, which, as we know, have been really driven by AI.

J.D. DURKIN: Chris, over the course of just the last few days, we narrowly avoided a federal government shutdown. However, the can is simply kicked down the road and we'll basically have to have the same conversation all over again, for the new deadline, on the 17th of November. How does the back and forth on Capitol Hill impact Wall Street from where you sit? And most importantly, what does the club's game plan going forward for subscribers who are wondering what might happen next?

CHRIS VERSACE: So our game plan going into the potential shutdown was sitting on the sidelines last week. In fact, J.D. , our AAP poll of the week, which we of course shared with members, really called out that was indeed the biggest concern for the market last week. And of course, as you pointed out, it simply kicked down the road for several weeks. So we're going to have to continue to monitor this. But at the same time, we have a lot of other data that's coming that's going to update us on the speed of the economy, whether or not inflation is persisting.

We're also going to get into earnings season. So I think we're kind of put that on the back burner. But make no mistake, it is going to return once again. Hopefully, hopefully, we'll be able to get a real deal that spans more than just several weeks or even several months. But we'll have to evaluate that as we approach, and of course, position the portfolio if the government's going to continue to run or if it might simply eventually shut down.

J.D. DURKIN: Chris, we've had a strong first start to the first half of 2023, then a volatile August, a volatile September, and I'm curious what your base case, if you have one, is for how October could look, especially adding into the mix the escalating UAW strikes to the equation. What will you be following for the weeks ahead?

CHRIS VERSACE: So it's a great question. And you're right. August and September tend to be seasonally weak months for the market. October historically has been far better and it leads into November and December, which also tend to be favorable months for the market. But things are a little different this time around.

You mentioned the UAW strike, which has expanded. We've also got another potential strike from around 75,000 Kaiser Permanente workers. There's also a strike for Las Vegas hospitality workers and other rumblings to that effect as well. We've got higher wages that are going to be rippling through. We've also got the issue that we talked about a minute ago, with the impact of returning student debt payments. So there's a lot going on.

We're just going to continue to stick to the data as it kind of rolls through, and that's why candidly this week, we have a lot of data coming and it's really going to tell us what is the speed of the economy, how do we need to position it, but more importantly, what are the prospects for inflation? Could we see yields go even higher? For that, we're going to have to continue to watch the market's reaction even as we get the data. That means, you know it, Treasury yields, and of course, the dollar.

J.D. DURKIN: Yeah, we've had a lot of repricing on those yields and the dollar as of late. You mentioned the data points. The Fed is data dependent. We too are data dependent. Where are you putting your focus after Friday's PCE reading, Chris? Came in about as expected and other notes on the data economic front for the next few days, especially considering this Friday will get once, again, a jobs report figure.

CHRIS VERSACE: Right. So on Friday, we kind of shared our reaction to the August PCE index. And yeah, we noted that the core PCE index broke that psychological 4% level, but here's the deal. At 3.9%, it's still a ways away from the Fed's 2% target.

But as you mentioned a minute or two ago, J.D. , the Fed is data dependent, we're data dependent. So that means focusing on a lot of data this week. What is it? Well, today, we get the final manufacturing PMIs from both S&P Global and ISM. Later in the week, we're going to get the services PMI numbers.

We've also got the ADP employment report, and of course, the September employment report. So across all of that, what's the pace of job creation? What's wage pressure? And are we seeing other indications that inflation may not be receding as quickly as some had hoped before?

J.D. DURKIN: Chris, finally, before we wrap up, anything else you think members need to as we kick off the week ahead?

CHRIS VERSACE: So we don't have a lot of earnings, this week we have a lot of key economic data, we have an OPEC meeting as well. But I would say the one other big thing to watch is going to be the simple parade of what I like to call "Fed heads" this week, and that includes an appearance by Fed Chair Powell today around 11:00 AM ET. So we'll want to see what he has to say about, perhaps, the government shutdown. Maybe he has some insights about the August price index data that we got last week. But here's the thing, I think he's going to say, interesting progress. Still more to go, still a lot more data. Hang tight.

J.D. DURKIN: Parade of Fed heads, it's my favorite type of parade. Chris Versace, welcome back, my friend. Thanks for taking the time, as always. Great to get your perspective for our members.

CHRIS VERSACE: Happy to do it.

J.D. DURKIN: Folks, that's going to do it for today's edition of The Rundown. That man, Chris, will be back tomorrow for a deeper look at this week's market. And of course, tune in on Wednesday at 12 o'clock Eastern for our live monthly call. Have a great week. We'll see you again soon.