Daily Rundown - November 20

J.D. DURKIN: Good morning, "Action Alerts Plus" subscribers. Chris Versace joins me now, as he does every Monday to get ready for the shortened holiday trading week ahead.

Chris, good morning. I do want to kick things off with a look at Applied Materials. Now in a note to members on Friday, Chris, you reinforced your one rating even as that stock was pressured on news of a DOJ inquiry. Why do you view this as a short-term problem, if you do?

CHRIS VERSACE: So what happened, we saw a "Reuters" story break some quote unquote "news" that Applied had shipped some semiconductor capital equipment to China without export licenses. The company previously disclosed this in its 10-K filing. So it's not really so much news, I would say. There's some people out there arguing this is more of a hit piece trying to make headlines by "Reuters". So my take on it is it's going to settle out. China is a big company and customer for Applied Materials. But they're rather diversified and it's not just semiconductor capital equipment. It's display equipment as well.

We'll see how this all shakes out. But when we step back and we take a look at the fundamentals that are driving overall semiconductor capital equipment demand, we've got the rebound in the PC market. The smartphone market is growing, AI data center, and a number of other applications that are chip rich, including automotive demand. All of that continues to put a little bit of incremental pressure, if you will, on the semiconductor capital equipment industry. That's a positive for demand. But remember, too, we're going to start seeing the benefits of the CHIPS Act not just in the US, but Japan and the eurozone as well.

So from our perspective, we actually expected AMAT shares to trade off even more than they did on Friday. It appears that the market gave it an even bigger pass than we did.

J.D. DURKIN: Chris, let me ask you about XLE. On Friday, you downgraded the Energy Select SPDR-- select sector SPDR fund to a 3. It's down year-to-date 3.1%. What exactly is going on there in energy and what are you following?

CHRIS VERSACE: So whenever we take a look at our panic points and our stocks, we try to take a, hmm, what is this telling us? What is unfolding? And we have seen oil prices trade off over the last few weeks. Hat tip, by the way, to Carley Garner, who was ahead of that with that call.

What we want to understand now is, what is the pace of the economy going forward? Remember, we're kind of trapped in this Goldilocks narrative where better than expected inflation data is helping but the economy is also starting to cool a little bit. Remember, that was a concern by the Fed as well. So to the extent that we get cooler economic data, great for the market, great for the Goldilocks narrative. But it raises questions, J.D. , about the overall demand inside the manufacturing economy for oil.

So we're kind of caught in between here. There's another potential item to watch. That will be the upcoming OPEC Plus meeting. Saudi Arabia is kind of expected to perhaps extend their production cuts. If we see something like that, that might give us enough reason to rethink our 3 rating.

J.D. DURKIN: That's a great note. We'll continue to follow that very closely. Now, markets have had a very strong last few weeks. A very strong November, to say the least.

Chris, as you wrote in Friday's roundup, The Goldilocks narrative has had an awful lot to do with it. Any potential challenge I wonder, Chris, if the narrative is your biggest thing to worry about?

CHRIS VERSACE: It is. It is. I mean, we really need to see a lot more confirmation points that the Goldilocks narrative is continuing to play out. And what I mean by that is if you think about what the Goldilocks narrative is, right. We want inflation to come down. But we want the economy to grow, as I was just saying a few minutes ago, at a kind of a glide path. That we don't necessarily risk falling into a recession.

So as we do from time to time in the market, we're going to walk a very narrow tightrope where we want to see economic data that says, yes, the economy is growing. But at a softer pace, it's OK, right? But we don't want it growing so fast that the market and therefore the Fed have to think, uh-oh. Hmm, maybe-- maybe there could be a sliver of a chance of another rate hike. The Goldilocks narrative has really taking that off the table and the conversation has shifted now more towards when might the Fed make its first rate cut. So the data that we want to watch is going to tell us, are we staying right on that tightrope or not?

And J.D. the biggest data point this week for it isn't going to be the Fed's monetary policy meeting minutes. To me, it's going to be what we get on Friday while everybody else is out shopping or sitting on their couch digital shopping, we're going to get the flash PMI data for November. And we're going to want to pore through that, one, for what it says anecdotally about inflation. But two, what's the pace of the manufacturing and services economy in November? What are the orders tell us it's going to look like for December?

J.D. DURKIN: Chris, thank you for the hat tip there on a bit of information to watch on Black Friday. While everyone's at home not paying attention, it's a pretty important data point to follow along. Of course, let's see where we're up to here?

Oh, we got Deere. Let's talk about Deere. We got John Deere set to report a New York Stock Exchange name. We'll get that report on Wednesday. What are you following there, Chris?

CHRIS VERSACE: Well, before everybody hits the road for the most traveled holiday that is Thanksgiving-- and by the way, it's a personal favorite holiday of mine because everybody has something to be thankful for in my opinion-- you know, Deere is going to report. And leading up to it, we've had very good comments out of the construction equipment market. Again, because of infrastructure demand here primarily in the US.

But we've also got some favorable data points when it comes to AG equipment. That, of course, came from AGCO and C&H Industrial. But to us, J.D. , the key here is going to be margins. The company has been benefiting from stronger pricing in their backlog and robust demand.

But let's remember, we're about a year or so from the real crunch in supply chains. So we're going to want to understand what's the outlook for AG equipment and the margin profile? As the demand situation tends to normalize and supply catches up with it, we could see some softer pricing dynamics, maybe even the return of some incentives. So we'll want to be paying careful and close attention-- excuse me-- to what Deere says about its margins for the coming quarters.

J.D. DURKIN: And Chris, of course, we got Black Friday deals. They are already out in full force. Chris, how are you feeling about the state of the US consumer, especially after last week's pretty strong retail earnings?

CHRIS VERSACE: Retail earnings were a little better than expected. But when you kind of peer into them, J.D. , they were rather supportive for our stance on the consumer. Remember, we've been concerned about rising credit card debts, incremental borrowing costs, tied to that, the return of student debt. And when you really kind of sift through some of the numbers, when you see Home Depot, you see Target with negative same store comps, it's not that ebullient, if you will, for the overall consumer, just being very flush in spending.

No, they are far more selective. That's something we've been talking about quite a bit with members. We can see that comparing those negative same store comps against positive ones from Ross Stores, for example. And I think we're going to continue to see that play out. I think that's why we saw so many companies start their Black Friday deals much earlier than usual.

Even over the weekend when I logged on to Amazon, what did the app show me? Oh, welcome to our Black Friday deals. Black Friday is not until, obviously, this coming Friday. So all-in-all, do I think we're continued to be well-positioned with Amazon and Costco and even McDonald's for our consumer plays? I absolutely do.

J.D. DURKIN: Chris, I would say Happy Thanksgiving, but I think we get to do this again on Wednesday. So I believe I get to talk with you between now and then. But you set us up on a path for success for the shortened week nonetheless, my friend.

CHRIS VERSACE: I appreciate that. I think Wednesday you ask the questions. I got to answer them.

J.D. DURKIN: Looking forward to it, as always. That's a wrap for today. Chris, thank you.

CHRIS VERSACE: Thank you, J.D. .

J.D. DURKIN: Folks, we will be back with fresh daily rundowns until Wednesday. For everything you need to as Wall Street heads out for the Thanksgiving holiday, as always, my friends, thank you for taking the time to watch, and we will see you again soon.