VIDEO: Here's the Plan for Our Oversold Defense Holding
Plus, a red-hot ISM December Service PMI price reading renews rate cut timing questions for the Fed.
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In today’s Daily Rundown video, Chris Versace recaps today’s trade with Marvell MRVL and Nvidia NVDA shares and outlines our plan for Lockheed Martin LMT shares, which are currently oversold.
Chris also explains the reversal in the market on Tuesday morning, tying it to the surprising price component reading in today’s December Services PMI report from ISM, and why the market is going to once again question the timing of the Fed’s next rate cut.
Also, as we kick off a new "semester," we're moving Portfolio Office Hours to Wednesdays between 4 p.m. and 5 p.m. ET starting tomorrow, January 8.
Transcript
CHRIS VERSACE: Hey, everyone. Chris Versace here, Tuesday, January 7. You probably noticed that the market started off favorably, opening higher in the first few minutes of trading, adding to the gains that we saw in the market yesterday. The catalyst for that was more favorable AI comments. Last night, NVIDIA CEO Jensen Wang really made some very, very upbeat comments when it comes to the future of AI.
He also made a number of announcements, partnerships, Toyota, Uber, and the like. That just kind of speaks to the expanding nature of AI. That really builds on the comments that we heard from Honhi yesterday, which reported record December quarter revenue really on the back of AI server shipments.
Now, that was the positive. You'll notice, however, that the market has kind of shifted gears. Why did this happen? Well, at 10:00, we got the ISM Services PMI report, something that we've been looking forward to. And on the one hand, it showed the services economy continued to accelerate in December. New order growth points to that continuing as we start off 2025, very supportive of the other December PMI reports that we got.
However, the big surprise was the prices component found in ism's December services PMI. It popped to a reading of 64.4. To give you some context, that's up from 58.8 in November. Remember, the expansion contraction line is around 50. So prices really accelerated during the month of December.
Some other context that we can give you. The closest reading to the December 64.4 reading was back in January of 2024 at 64. So this is the highest print, 64.4, that we've seen in over a year. Now, that is going to catch the market's attention, especially when it comes to the thoughts about where interest rates should be, potential rate cuts, and the dollar.
Now, for some I would say that print is a little bit like a big eye opener. But for us, remember, we've been concerned about what we've been seeing on the wage side of things, but also on food prices. Remember we talked about the FAO food price index data from December and how, if we hadn't have already exited PepsiCo, what we saw would have led us to do that. But it's also another reminder that at a minimum, inflation remains sticky in some cases, as we saw with the December services PMI from ISM, they are creeping up.
What does this mean, though? Let's remember that because, this is a bit of an eye opener to some, the reality is that the market is really only already expecting one rate cut in 2025. Now, the timing for that had been towards the end of the first quarter, and I suspect that today's data is going to lead to a rethink on that timing, most likely pushing it off towards the middle of the year.
But as we think about this, a few things. One, several of the interest rate sensitive areas that we've been investing in, Builders FirstSource, for example, they're already in oversold levels. So we're not going to freak out. We're not going to panic with this 64.4 reading.
We also recognize that we have a long way to go, right? It is only January 7. We're going to have a lot more inflation data, some of which will come as soon as next week with the December CPI and PPI data. So we're going to continue to follow the data, but we're not going to make any rash moves, especially if position, as I said, is oversold. Rather, we're going to bide our time and look for fresh data. And continue to course correct as needed.
I do want to talk about three other things with you in today's video. First, as you probably saw, we did do some prudent portfolio trimming this morning with Marvell and NVIDIA. Initially, the strength in the market had them moving past 4.5% each of the portfolio's assets. That led us to make the prudent move that we did, really locking in some substantial gains compared to where NVIDIA shares were trading in early August, up some 50%, and with Marvell, which have more than doubled since that time.
However, we did keep meaningful exposure in the portfolio because as we talked about yesterday, and just given the comments I made earlier regarding Jensen Wang's comments last night, we are still in the relatively early innings for AI adoption. And as that accelerates, we are likely to see a capacity crunch at some point, both in data center and in the networks. So we continue to like NVIDIA and Marvell longer term. We will be adjusting our price targets for both once we get the fourth leg of the stool that I referred to in the trade alert, that, of course, will be December revenue from Taiwan Semiconductor.
So that's the first thing. Second, let's talk about Lockheed Martin, because the shares did cross below our 470 panic point. However, much like my comments just a moment ago for Builders FirstSource shares, Lockheed Martin shares are oversold. And that means that even though they are just below our panic point, we are going to hang tight near term.
Let's remember that the next catalyst for Lockheed Martin is likely to be when they deliver that multiyear delivery schedule. I'd also point out that we've got about 2.8 million Lockheed Martin shares that are short. And as we've seen in the past, with a few holdings, when we see levels of short interest like that, it doesn't take much good news to trigger short covering. And that can be powerful for the shares.
So we're going to hang tight again in the near term, looking for the next known catalyst date for Lockheed Martin's shares, which is January 28. That's when Lockheed is going to report its December quarter results, and it should be the date that they also share their multi-year delivery forecast. And when we get that forecast, we will also look to revise our price target on Lockheed Martin's shares.
So that's the second thing. The third thing I wanted to talk about is office hours. Now we have been holding office hours on Tuesday afternoons. But this new semester, because it is January, we are going to shift that to Wednesday afternoons. That's right. Starting tomorrow, Wednesday, January 8, Office hours will be 4:00 PM to 5:00 PM in the Forum.
We'll send out a reminder alert tomorrow, but I just wanted to give you the heads up that going forward, we will have them on Wednesdays. The thinking behind that is it's the middle of the week. It's a great day to capture stuff from the first half and maybe set the stage for anything that we might see in the second half of the week. So I look forward to seeing you all there tomorrow, again in the Forum between 4:00 PM and 5:00 PM.
Now, that is our video for today. But remember, we are in the middle or kind of sort of in the middle of CES 2025, which means we're going to get a lot of announcements, a lot of press releases to chew through. So please be sure to keep checking your emails, your alerts. We want to make sure you're getting our latest thoughts. And of course, if we make any moves with the portfolio, we want to make sure that you are right there with us. Thanks for watching.
At the time of publication, TheStreet Pro Portfolio was long MRVL, NVDA and LMT.
