VIDEO: It’s Fed Week, But So Much More, Too

It's Fed Week, but as Chris Versace lays out in today's Portfolio Video, it's also so much more.

While the big focus for the market will be the Fed’s policy decision and updated set of economic projections on Wednesday afternoon, as Versace points out, many other developments and data points await. The Portfolio will be paying attention to, for example, Meta’s META AI event this week and CEO Mark Zuckerberg’s keynote late Wednesday. Versace will also be examining in the August retail sales report, and quarterly results from Darden DRI, FedEx FDX, and Lennar LEN.

Finally, we've got no clues on the Lisa Cook saga that appear to move the narrative in her favor.  

Transcript

CHRIS VERSACE: Happy Monday, everyone. Chris Versace here. It is September 15. Twelve days left in the quarter and a big Fed week ahead. But it's not the only thing that we're going to be watching. Let's break it down.

Today, the US is having more trade conversations with China. But not surprising, a little saber-rattling going on with China, accusing Nvidia of violating antitrust laws with a 2020 acquisition. A little backdated, if you ask me. But we're going to want to see how these trade conversations develop. And they could shape the fate of TikTok, but most likely President Trump is going to kick the can down the road on any TikTok decision.

Now, we'll also be looking to see what happens with Lisa Cook and the Fed. Some new information came out over the last few days that she did declare her Georgia home a vacation property in certain financial records. So we'll want to watch that for the composition of the Fed ahead of the culmination of Wednesday's meetings.

We also have House GOP leaders meeting today, potentially unveiling the text for a proposed stopgap deal that would avert a shutdown after September 30 and fund the government through November 20. So as you can see, today, we could say Monday is largely going to be focused on what happens in and around Washington and the White House and potentially a little bit on the Fed.

Tuesday, we've got industrial production coming out, retail sales. We'll be focusing on these and what they tell us about the speed of the manufacturing economy. But retail sales, to what degree is the consumer continuing to open their wallet? Remember, this is going to be the data for August.

We've already got Costco's August sales report in hand. Odds are, this is going to show that, yes, once again, consumers are leaning in towards Costco. Shares have been kind of treading water at best. I think this would be an affirmation that Costco continues to win market share, a potential catalyst for them to move their way higher.

But we'll also be watching the retail sales report for what it tells us about clothing and apparel. We'll be eyeing that with regard to TJX, but also digital shopping and Amazon, and of course, overall spending trends for American Express. But remember that the retail sales report, it's mostly goods, not a lot of services. So we are going to want to kind of temper our expectations a little bit for a fuller picture that we'll get later in September when we get the August personal spending report.

Wednesday morning, we will get housing starts for the month of August. We'll be really kind of curious on this. Remember, the indications that we've seen is that demand is not very robust. But we'll see, has the move lower of late in mortgage rates kind of perked things up?

But we'll remember to also parse between multifamily and single family. We'll also want to dig a little deeper in the data to see the number of single-family homes under construction. Has that continued to soften? Or has that starting to stabilize? We'll want to see what that data says.

And all three of those pieces of data will be the next input to the upcoming revisions for current quarter GDP expectations by a number of different folks. But as you know, we tend to track the Atlanta Fed's GDP Now Model and the New York Fed Nowcast Model.

The Atlanta Fed Model exiting last week was around 3.1%. And the New York Fed's Nowcast Model 2.1% for the current quarter, 2.2% for the December quarter. Now, we would say that looking at those numbers on their face, not a lot of firepower for the Fed to deliver a huge rate cut and telegraph multiple, multiple rate cuts between the September policy meeting and the end of December 2026.

But let's remember, that we will have on Wednesday the highly anticipated Fed decision. The market widely expects the Fed will deliver a 25 basis point rate cut. A very small probability, call it sub 5% or so, that they could go a little bigger, meaning a 50 basis point rate cut. But from our perspective, the focus is going to be on two things. One, the updated set of economic projections and the number of rate cuts that they show over the coming quarters.

Remember, we've talked quite a bit about this, but just for those who might have missed it, when the Fed updated their economic set of projections in June, they saw two rate cuts in 2026. Sorry, two rate cuts in the second half of 2026, one rate cut in 2026. So we're going to have to parse that a little bit.

Again, the existing numbers, two rate cuts in the back half of this year, one for 2026. The market is expecting something much more. We've talked about this in full. It expects six 25 basis point rate cuts between the September meeting and the end of 2026.

Given the data that we've seen, whether it's those GDP numbers or even the recent inflation data, while the Fed is likely to move policy back from being more restrictive to less restrictive, it's hard to see them telegraphing that they are going to do six 25 basis point rate cuts over the coming quarters as we sit here today. For that reason, we do think that this event could be a "buy the rumor, sell the news" type of outcome.

And it's not just us. Now, we're starting to see folks from JPMorgan, Oppenheimer and others kind of weigh in on that. And the backdrop for that is this.

The market has had a very strong run. Really, if you remember, September tends to be one of the more difficult months for the market. But yet, it's been quite good.

But what does that mean, though? It means that the market valuation, it's stretched. It's rich. The volatility index is flashing market complacency, with a reading below 15. And the fear and greed index, it's starting to move out of neutral back into greed. So we would argue that there is room for the Fed to disappoint the market.

Now, how are we going to handle all this? Well, we laid out our plan in The Weekly Roundup. And yes, as we get more data, we see what the composition of the Fed might look like, as it culminates this meeting, we'll reassess the situation. But for now, we are going to stick with our plan that we laid out in The Weekly Roundup.

Now, Wednesday night-- depending on where you live, it could be Wednesday night, it could be Wednesday afternoon-- Meta will be having its Meta Connect Event with a keynote for Mark Zuckerberg. That event is going to happen 5:00 PM Pacific Standard Time, 8:00 PM for us East Coast listeners. So it's going to be a long day.

Zuck is expected to talk about the latest on AI Glasses and layout Meta's vision for both AI and the Metaverse. So Thursday morning, you can bet we're not only going to see the fallout of the Fed's meeting, but we're also going to see a lot on what Meta had to say, potential implications. We'll be listening, obviously, for spending. But some use case issues as well for these AI Glasses.

But Thursday's also going to bring us earnings from Darden, FedEx and Lennar. With Darden, what's the average ticket? That's going to tell us, are folks continuing to spend or are they trading down? What is the traffic like? Are people eschewing casual dining for more quick-service restaurants?

How are they handling rising input costs? Remember, beef at a record level. And what are their plans for pricing? In other words, do they plan to initiate more price increases given all that's going on. What could that mean for inflation?

With FedEx, we're going to want to listen to what FedEx has to say about the US economy and the larger global economy. But also just given the timing of where we are, what's the early indication for the holiday shopping season? And following our comments last week about what we'll be looking for on the housing front, we'll want to know what does Lennar see, new orders, backlog, and what are their margins for the second half versus the first half.

Now, that's a busy set couple days. But in the back half of the week, we're also going to be paying close attention to President Trump's state visit to the UK. Odds are we're going to see some announcements, especially with Jensen Huang of Nvidia, OpenAI Sam Altman, and Steve Schwarzman of BlackRock all being in tow with the President.

Odds are, we're going to hear some things on the data center front. Maybe even something on a British Stargate project as well. Now, as you can tell, it's going to be a busy week. You can just review the comments that we've gotten here on our roadmap for the coming days.

But no doubt, I suspect there are going to be some new and unexpected things along the way. Is the week likely to get a little bumpy? Could it be a little zany? Yes, it could.

But we will be there to get you through it. We will be sharing all our thoughts as we kind of tick through these various days, especially on Wednesday with the Fed meeting and the outcome. So stay tuned. Be sure to read your emails, your alerts. And if we make any moves with the portfolio, we want you right there with us.

At the time of publication, TheStreet Pro Portfolio was long META.