VIDEO: The Atlanta Fed’s GDP Model Did What?
Plus, investment banking continues to percolate and Powell on deck.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
In today’s Daily Rundown, Chris Versace throws a flag on the Atlanta Fed’s GDPNow being revised higher following the May Manufacturing PMI and April Construction Spending reports.
His view remains that the Service PMI data and other reports will bring more meaningful insights into the economy’s vector and velocity. He also shares why we see Fed Chair Powell’s expected Monday afternoon comments as being more nothing burger than market moving.
Chris also discusses our take on the latest Alphabet GOOGL and Meta META news, and why another leg up for our price target on these two holdings could be on the horizon.
Transcript
CHRIS VERSACE: Folks, Chris Versace here. It is Monday, June 2, start of a new month. And as we can see by looking at both the S&P 500 and the NASDAQ composite today, we're starting off this new month a bit mixed. Why? Well, the market is once again contending with renewed trade uncertainty and as we saw in the May manufacturing PMI reports, the impact of tariffs on inflation and overall economic activity.
Now, I have to say that I'm a little surprised given what we saw in the May manufacturing PMI reports from S&P Global, NISM, as well as the April construction spending report, that the Atlanta Fed's GDPNow model was revised not down but up to 4.6% for the current quarter. And remember, that's up from an already hot 3.8% figure.
Look, if you missed our comments breaking down that economic data, I would suggest that you read it, and you'll understand why we're a little, again, surprised at what the Atlanta Fed has done with this rolling GDP forecast. But we'll also stick to our comments that ended our breakdown of these economic reports and say that, look, we've got four more days to go.
And we have a lot more economic data coming that's going to tell us the true vector, the velocity, if you will, of the economy. It's also going to give us some clues about what we're likely to see in the May employment report on Friday.
And I will also reiterate that as much as folks might be leaning into what the manufacturing PMI report has to say, we continue to think that the service PMI data that we'll get later this week will be far more important in terms of overall GDP and what the Fed is looking for. Why? Well, because as we've discussed with you, the service sector accounts for 85% to 90% of GDP.
Now also, today, we do have Fed Chair Powell coming up at around 1 PM and in our view likely to be a nothing burger. Yes, we know that this is the first time Powell is speaking after having met with President Trump, something he hasn't done so far since Trump has been back in office. We know that Trump is likely trying to hammer Powell into delivering rate cuts sooner than the Fed would like.
But, again, Powell is going to stick to the data. So do we expect anything dramatically different today? No, hence my nothing burger comment. But he is the Fed chair.
And while he probably saw the data that we did today too and maybe he even saw where the Atlanta Fed's GDP forecast went to, we still want to pay attention to his comments. We still want to parse his language. Whenever the big dog speaks, we have to pay attention.
If there's any subtle changes or anything like that in his language or his message, we'll obviously be sharing that with you and potential implications. But again, based on what we've seen in the data and Powell's own comments exiting his meeting with Trump, we're not likely to see it.
Before we end today's video, I do want to kick off a couple comments on a few portfolio holdings. So I've got three of them. Let's start first with Google. Saturday, the company said it will appeal an antitrust decision under which a federal judge proposed a less aggressive way to restore online search competition. Good that that potential solution is not as onerous as some folks had been fearing. But are we surprised by Google's response? Absolutely not.
In our view, it just simply says that this overhang relating to this antitrust decision is going to take even longer. What are we going to do in the meantime? We'll do what we always do. We will follow the data.
That means we'll be interested in parsing the upcoming May search engine data. That's the monthly rankings with percentages. We'll also look for a refresh on some recent data from Nielsen that showed that YouTube was taking share from Netflix, Disney Plus, and other streaming services.
Second portfolio company we want to comment on is Meta. There's some news. Maybe you saw it. But if you didn't. Meta plans to fully automate ad creation using AI by the end of 2026, allowing brands to create and target ads, again, entirely with AI. I have to say that here, too, we are not surprised. Not only do we know that Meta is making a big push with AI, including internal efforts, but we've also heard management talk about how it's leveraging AI.
And we suspect that this will be another driver of margin improvement for Meta some in the back half of this year, but obviously more as this takes hold that suggests that we could see some incremental margins in 2026 compared to 2025. We continue to like that. We continue to the portfolio's position in Meta. And yes, we are circling to see when and where it might make sense to add some additional shares to the portfolio.
Finally, I want to touch on Morgan Stanley and Bank of America. As you know, in our notes, our videos, we've been talking quite a bit about the pickup we've seen in investment banking activity that led us to lift our price targets for both Morgan Stanley and Bank of America in the last few weeks. The momentum in investment banking continues this week.
On the M&A side, France's Sanofi has agreed to buy US-based Blueprint Medicines for up to $9.5 billion to boost its position in rare immunology diseases. This is, by the way, the biggest deal-- excuse me. This is the biggest deal struck by a European health care company so far.
We're also seeing continued progress on the IPO front. digital banking startup Chime Financial said it's targeting a valuation up to $9.47 billion in its US IPO. The company plans to offer 32 million shares priced between $24 and $26. And yes, our own Morgan Stanley is one of the lead underwriters on this IPO.
Also, defense and space tech company Voyager Technologies aims an IPO valuation of $1.6 billion when it lists its shares. We'll have more on this transaction as we get closer. But here, too, Morgan Stanley is listed as one of the lead underwriters.
And the fact that Morgan Stanley is out in front on these transactions and some other recent ones, it just speaks to the reason why we prefer Morgan Stanley over Bank of America. Is Bank of America an inferior position? Certainly not. It's simply that the impact of investment banking is far greater on Morgan Stanley. We continue to like Bank of America shares, not only given its position in investment banking relative to the industry, but also it's continuing to expand its commercial banking footprint.
Also, too, we should also see some nice interplay given where interest rates are on those aspects of its business. So we continue to like both of those names. As investment banking activity continues to heat up, we may need to revise our Morgan Stanley and Bank of America price targets yet again.
We're going to have a lot more coming to you today, including office hours after the close in the forum, so please be sure to check your emails, your alerts. We want you to get our latest thoughts. If we make any moves with the portfolio, we want you right there with us. Once again, folks, I have to say thanks for watching.
At the time of publication, TheStreet Pro Portfolio was long GOOGL and META.
