VIDEO: Explaining Surprise Reaction to Trump's Nvidia Decision

In today’s Portfolio Video, we discuss the increasing likelihood that the Federal Reserve delivers a “hawkish” rate cut on Wednesday and why shares of Morgan Stanley (MS)  remain on our radar screen. We also explain why declining margins at Toll Brothers (TOL)  and Home Depot’s (HD)  preliminary guidance for next year are keeping us on the sidelines when it comes to potential housing plays.

We also go over the market’s surprisingly modest reaction to President Trump green lighting Nvidia (NVDA)  chip sales to China. Trump also approved an aid package to farmers, and we discuss why shares of Deere (DE)  and other agriculture equipment companies may not be direct beneficiaries. And, as we close today’s video, we discuss recent upgrades for the Portfolio’s position in Eaton (ETN)  and why the current setup is a nice one for folks who are underweight the shares. 

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here, Tuesday, December 9. Happy Tuesday. Happy Taco Tuesday if you indulge.

Today to us, here at the portfolio, even though it's Tuesday, it's more like simply one day before the Fed delivers its latest policy decision. And the market is increasingly expecting a hawkish rate cut, which means we should get a 25-basis-point rate cut tomorrow afternoon. But we should expect Fed Chair Powell to deliver comments that might be maybe not as robust in terms of additional rate cuts in the near term.

We continue to think Powell is likely to leave the door open for additional rate cuts in the first half of 2026. We say this because remember, we are not going to get the November and December employment report data until mid-December. The same thing goes with the October and November CPI data.

So based on the data that we're likely to get, what it could see if it mirrors what we saw in the ADP November employment change report, I think Powell is going to want to hedge a little bit. So we'll have to see. We'll also be checking the updated SEP when we get that as well.

Now, the market did move a tad lower yesterday. But remember, we're still continuing to watch very closely our shares of Morgan Stanley, Bank of America. They're the two positions in the portfolio that are the closest to that 4.5% threshold level, especially Morgan Stanley.

They're right at the cusp. And if they continue to move higher, odds are some prudent portfolio management will be called for. So we're continuing to watch that.

And yes, we flagged in our video yesterday that Morgan Stanley shares were getting closer to an overbought condition still there. Now, if we see some additional strength in the shares today, tomorrow, they move past the 4.5% level, the RSI moves into an overbought condition, we could do some prudent portfolio management. I don't want you surprised in case we do.

But let's turn to some new business here, especially with the talk of a Fed rate cut tomorrow. Let's talk about some housing. And I want to do this because Toll Brothers reported last night that revenue was a little better than expected, but they missed on the bottom line.

Now, if you look at the headlines, there's a lot of folks talking about, oh, this delayed apartment unit sale and what it means and all this other stuff. OK, fine. But let's remember, that the core business at Toll is they are a home-builder.

And what have we seen lately? Margins under pressure because of the growing use of incentives to move homes, because demand is just not very robust. Well, what did we see at Toll Brothers? Their adjusted home sales gross margin came in at 27.1%.

Now, on its face, you might say, sounds pretty good. Down from 27.9% in the year ago quarter, so falling year-over-year. More importantly, the company sees that adjusted housing gross margin falling to somewhere between 26%, 26 and 1/4% over the next few quarters.

On Toll's earnings call this morning, we're going to be listening to see what are they seeing currently about demand for new orders. What is the degree of sweeteners, incentives, discounts, whatever you want to call it, to help move product? Remember, our thinking is that in order to win incremental business, we're going to take it on the margin line. That's why we don't want to be involved in that aspect of the housing market right now.

We also have bullpen resident Home Depot and its shares trading off today as well. Well, what's going on here? This morning, ahead of their Investor Day, Home Depot did reaffirm its 2025 guidance. But it also offered a preliminary look at what it sees for next year.

And the preliminary guidance is this. Sales up 2 and 1/2% to 4 and 1/2%. That's a little weaker than what the market was looking for. Market was looking around 5%.

Home Depot also sees its comp sales up flat to just 2%. It's a little weaker than the plus-2% that the market was looking for. Now, that's the preliminary look.

And Home Depot did say that they could see a market recovery. Why? Well, at some point, it sees this pent-up housing demand kind of rolling through. Now, the question is going to be, OK, Home Depot, we're seeing building housing demand, pent-up demand here. When do you think this might get triggered?

And I say this because we know that it's not just lower interest rates that spur housing demand. When we look at the data from Harvard's Joint Housing Studies, it's also employment growth is as important. And just given the trends that we're seeing of late and really, if you roll it back earlier this year with the combination of DOGE and some concerns about that, as well as the softening of the employment market that we've seen really since late summer, it stands to reason that the housing market is going to remain soft until we see a turn. So that's what we'll be watching. For now, we're going to keep Home Depot, Builders FirstSource in the bullpen.

Now, I also want to talk a little bit about some fresh Trump things. We don't usually call the president out, but we want to especially as it relates to some things that we're taking a look at. First, Trump did say that he's approved the sales of Nvidia's H200 GPUs to China. Social media, tweeting not tweeting, whatever you want to call it, saying that the Department of Commerce is finalizing the details and the same approach will apply to AMD, Intel, and, quote, "other great American companies."

The rub here is that there will be a 25% cut paid to the US government. Our take on this is it's kind of been expected. Are we surprised at the toll, the Trump toll if you will, on this.? Not really. But as we think about it for Nvidia, it's a potential for some incremental sales volume. And the ultimate question will be, will Nvidia or any others that fall under this umbrella, will they adjust their chip prices and what could that mean for demand?

However, you might say, but shouldn't Nvidia's sales shares be up much more than this morning? The answer would be you would think. However, in response, we've seen some news that's kind of taking a little wind out of this announcement sale. It looks like China may limit access to these Nvidia chips. And again, that kind of explains why we're only seeing a modest increase in Nvidia shares this morning.

Now for us, with this kind of being out there, the next known catalyst for Nvidia shares is going to be November revenue results from Taiwan Semiconductor, which should be out before too long. And later today, we're going to share with you that we're have some thoughts on enterprise AI adoption. We'll, of course, tie that back to a number of different holdings in the portfolio, including Nvidia.

We're going to be coming to you with these thoughts, really, as we finish up our reading on OpenAI's state of enterprise AI report that was released just earlier this week. So I think there's going to be some good info in there and data points that we can relate back to not just our hardware and chip companies that are benefiting from AI, but also those from AI adoption in the enterprise.

Now let's get back to Trump. The second thing I want to talk about is he did announce a $12 billion aid package for farmers that are being impacted by tariffs yesterday. He'll be saying that the funds to pay for this will be generated by funds collected by tariffs. Now, before we get too excited and what this could mean for AG equipment purchases, Trump also said that farming equipment has become too expensive and manufacturers, such as Deere, need to reduce their prices. Now, we're going to want to watch this a little carefully, because Trump also said that the administration is going to look at rolling back environmental restrictions that have helped push up AG equipment prices. So something to watch as we get ready to move into 2026.

And then finally, let's end today's video talking about Eaton shares. The company was named yesterday as a 2026 top pick over at Deutsche Bank. And this morning, they were upgraded to buy from hold over at Wolfe Research.

Now we continue to like the shares as the company continues to benefit from the electrical pain point. It's a pain point that is going to be addressed by rising capital spending by utilities, as they have to ratchet up capacity to address rising power demand, not only from data centers, but from a host of other drivers as well.

Now, when we look at Eaton shares, they have pulled back since mid-November. And we pair that with the way they've been hugging the 200-day moving average, finding really nice support there. We see this as a nice pickup point for folks whose position in Eaton shares are underweight that of the portfolio.

That's today's portfolio video. Again, we've got more coming your way. Be sure to check your emails, your alerts. We'll see you soon.

At the time of publication, TheStreet Pro Portfolio was long MS, NVDA and ETN.