VIDEO: Our Game Plan After the Big Miss August Jobs Report

In today’s Pro Portfolio video, Chris Versace breaks down the August Employment Report and why its bad news about the pace of job creation will be viewed as good news for a potential Fed rate cut. 

With that data in hand, we share two areas where we’ll be rolling up our sleeves and digging into for the Pro Portfolio — ones that could benefit from lower interest rates. 

We end today’s video walking through August sales reports from Foxconn and Costco COST, and why they reaffirm our bullishness on multiple portfolio holdings. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here, Friday, September 5. The day that many have been waiting for, it's here. We're talking jobs day. Now, the August employment report showed that only 22,000 jobs were added during the month. Much, much slower than the 75, plus or minus, thousand that the market had been expecting. And we also saw net revisions for June and July that shrank the overall net number of jobs that we're adding during those two months.

And I have to say that when we look at the figures, both for August and the revised figures, and even going back, when we examine it on a three-month moving average, there is simply no question that the pace of job creation started to slow significantly in May, and even more so in June and July. I'll also share that in today's August employment report, we also saw the unemployment rate tick higher to 4.3%. That is the highest level in over a year, but still less than the 4.5% figure the Fed had penciled in, in their updated set of economic projections that they released in June.

Now, here's the thing. We have no Fed speakers today. And after today, we enter into the latest Fed pre-policy meeting blackout set of dates, meaning there won't be any Fed speakers on the horizon next week or early the following week as the Fed begins its next policy meeting. But I will say again, it's become increasingly clear that the jobs market is slowing significantly and to levels that we haven't seen in some time.

So even though inflation remains at elevated levels and the figures of the job market over the last few months should raise questions about the speed of the economy but also consumer spending prospects, the market is likely to see these figures as bad news is good news for a rate cut. To us, the question is still whether there will be one rate cut in September or something more. And I think the answer to that is really going to be shaped by what we see in next week's CPI and PPI reports.

And I think the sum of this week's data, next week's data, that's going to inform not only the Fed's policy decision, but really the language that we're going to see from Powell after the next policy meeting. And could it skew more dovish? Could it be what some are calling for a hawkish cut? Possibly. But again, I think we're going to have a much better sense once we get that data next week.

Now, with bad news being good news, odds are it's going to push the market even higher. That could mean we close today with another record on the S&P 500. To us, that would be good because it obviously lifts the portfolio higher. However, we also recognize that means it's going to stretch the PE valuation even further. Because we follow the data, what are we going to do as we parse this information and think about what's ahead?

Well, we're going to roll up our sleeves, and we're going to look at parts of the economy that normally would benefit from incrementally lower interest rates but also have strong EPS growth prospects ahead. That could mean we're going to take a look at some rates, possibly, maybe something in the housing space. A lot of the signals that we received, even the more recent housing-related data, not very constructive for housing. But, but, we will roll up our sleeves and start taking some looks, given what could happen ahead.

But remember, we're going to continue to look for strong EPS growth prospects. And, yes, that could mean dusting off and often revisiting one or two things in the bullpen. Again, the key for us is going to be following the data. And that's going to include some of the signals that we'll be sharing with you tomorrow morning. I've already prepared the alert because it's Friday. And trust me, I can say that you won't want to miss some of them.

Now, with that plan in place, let's just talk about one or two other things real quick. First, Foxconn reported August revenue of $19.8 billion, up just shy of 11% year over year. And the company reaffirmed its guidance for the current quarter, in which it expects both sequential and year-over-year growth. Callouts in the month of August, cloud and networking product shipments, that not only were they strong, but they're expected to rise significantly in the current quarter, implying better September figures. Obviously, this is going to be very good for our positions in NVIDIA and also Marvell.

Also, too, second thing, last night, Costco reported its August sales. Total sales for the month rose 8.7% to $19.83 billion. Adjusted comp sales across the company, up 6.9%. In the US, adjusted Comp sales up 6.7%. I don't think I have to say that it is very clear from these figures that the company continues to take consumer wallet share.

Now, one note that I will share in the analysis that kind of jumped out won't be a surprise, really. Fresh food in August up mid to high single digits. So even stronger than the overall adjusted US comp sales. We've talked about how and why fresh food is a spending pull, if you will, for Costco. Drives repeat visits. All in all, extremely, extremely positive report, in my opinion, especially given what we've seen of late, which is elevated inflation pressures for grocery prices.

And, yes, that is likely continue-- to continue, excuse me. So, yeah, we continue to favor Costco. But also, the spending dynamics that we're seeing with the consumer, we continue to like TJX and Amazon as our retail-facing plays in the portfolio.

So with that, folks, let me just say stay tuned. We've got more coming your way today, including the weekly roundup. Over the weekend tomorrow, we will have that fresh batch of signals that I mentioned. Sunday, we'll be sharing a more lighthearted, fun look at things with a lot of articles and streams that kind of caught our eye over the last couple of days. And that's going to include a deep dive on Google that, well, let's just say you won't want to miss. With that all said, my friends, have a great weekend. Thanks for watching. But again, a lot more coming your way.

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