VIDEO: Why This Holding Is Moving Higher and How We're Reacting

In today’s Daily Rundown video, Chris Versace explains the market’s reversal following the better-than-expected December Producer Price Index data, and why we’re going to need to see more than just one favorable inflation data point to form a reaction. 

We also recap the trades we made this morning for the Portfolio, share our take on news that Meta META is aiming to trim 5% of its headcount and review why Dutch Bros BROS shares are moving higher on Tuesday.

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here, Tuesday, January, 12. You've probably noticed that the stock market at the beginning of the day's trading moved nicely higher, propelled by a couple key pieces of economic data. The first was the December NFIB Small Business Optimism Index. It came in at a reading of 105.1, up very nicely compared to the figure for November. But more importantly, the December Producer Price Index came in below what the market was looking for, both for headline PPI and core PPI.

As we talked about in a note to you, breaking it down rather quickly, even though the month's inflation data was, again, just not as excessive as the market was looking for, it still shows that inflation, again, based on the reported figures and sizing them up against what we saw in September, October, and November, there's little question that the Producer Price Indices remain at best sticky. They have continued to inch higher, but here, remember, just not as much as the market was looking for.

That sigh of relief, if you will, is really what led the market to jump initially. But I suspect what we're seeing is there are other data points out there, some of which we've talked about, including, for example, the December FAO Food Price Index that jumped in December compared to November. These other indicators are saying that the December PPI report, good news, but prices are still sticky, as I pointed out. And we're going to need to see more data in the way of prices, whether it's CPI, PPI, or even the PCE Price Index starting to move down toward the Fed's 2% rate.

So I think what the market is telling us is sigh of relief with the December PPI. But now, let's see what the December CPI brings tomorrow. Remember, expectations for that are at a minimum for the data to remain sticky. We continue to think that when we amalgamate all of the data for the December inflation indicators that we'll be getting between last week, this week, rate cuts are going to be off the table for the near term. We're thinking several months at least. But we will continue to reevaluate this as time goes on.

We will also continue to look at if we see any progress on the inflation front. And the market gets a little more excited about the potential for a rate cut this year, or maybe more than one. We will, of course, be monitoring the 10-year Treasury yield, the dollar. We'll be looking at mortgage rates, mortgage rate applications to see if there is any sustained follow-through because that is the key. We want to see multiple forms of data moving in the right direction, not any one or the other in the near term.

Could we get conflicting data? We certainly could. But I think after what we've seen, really over the last year, that we are going to need to see multiple sets of data moving in the right direction. And by that I mean closer towards the Fed's 2% target on a sustained basis, so we can avoid any potential head fakes, because when we look back at some of the inflation data over the last year, there were enough head fakes there. And, again, the Fed's already delivered hundreds basis points in monetary policy. It's going to take a lot more consistency to get them to bring additional rate cuts. So that's what we'll be watching for.

But if you did see our alert this morning where we discussed the December PPI report in rather quick fashion, you also saw that we made several moves with the portfolio. This included picking up additional shares of American Express and ServiceNow, with ServiceNow really sticking to our strategy with this one of using pullbacks to really increase the portfolio's exposure. The why is because we continue to see the shift in corporate spending increasingly towards AI. That's a very good driver for ServiceNow's business.

We also picked up more shares of Universal Display, really a couple of factors at work there, including the IDC see December quarter smartphone data that showed that Apple had a 35% sequential jump in iPhone sales. As we walked through the analysis of that with you yesterday, that really reaffirms our view that Universal's December quarter guidance was likely overly conservative. But it wasn't just Apple. We also saw the overall smartphone shipments continue to grow.

But as we pointed out too, there are a number of other applications for organic light-emitting diode displays that are bubbling up, whether it's going to be foldables, smartphones, tablets, or as we talked about this morning, Samsung starting to go into production with the first rollable display for a laptop that significantly increases the size of the display.

All of these larger format display applications use more of Universal Display's solutions in crafting organic light-emitting diode displays. So we can just see that as a very nice positive. And we continue to see other applications, whether it's automotive and general lighting expanding over time. So we continue to like the shares of Universal Display for the long term.

We also picked up more shares of United Rentals. We did that, as we explained in the note, for multiple reasons. Yes, the shares were overly oversold. But the key for United Rentals has been the continued spending for infrastructure, but also the accelerating spending on data center. We called out some figures in that note, really pointing to very nice double-digit construction activity over the next few years.

And when we think about that, those two components, that's really why we want to be more in the space that is tied towards non-residential construction than residential construction. Remember that we have seen the increase in mortgage rates lead to a rollover in new mortgage originations. We'll continue to keep our eye on it. But again, in keeping with our comments earlier, we're going to have to wait, most likely, to see inflation cool, see the market get a little more excited about potential rate cuts again and have that flow through to mortgages and start to see that creep down, so mortgages are back 6.5%, 6%. This could take some time.

But we will continue to evaluate that. And even though we've made those trades with the portfolio today, we will continue to be opportunistic when and where it makes sense with existing positions, as well as any potential new ones that we might be tinkering with for the portfolio.

I want to talk about two other things really quickly. One, there's some headlines out there that Meta Platforms is aiming to eliminate 5% of its lowest performing roles. Two things on this-- one, we do see a lot of other large tech companies do some-- I won't call it prudent trimming. But they do have some churn that they talk about every year. Microsoft is really known for this. And they are talking about this as well. But second, I think it also speaks to Meta really being focused on keeping its cost structure in line.

Remember that when they reported their September quarter results, even though they had that large expectation for capital spending in the coming year, what we said was they were doing this while still delivering margin improvement, dropping more profits to the bottom line. So I think this is really more in keeping with that. And Meta shares are ones that we are keeping our eye on because the position's only around 3% or so in the portfolio, and we would like to pick up some more shares. But again, we're going to be prudent in doing this.

And then finally, I just wanted to point it out that Dutch Bros shares-- you've probably seen it-- are moving nicely higher today. The company is giving a presentation at the ICR conference. So we will be mining their presentation, the Q&A, and other comments and reporting back to you later this afternoon.

Remember, with Dutch Bros, we know that we need to raise our price target. The catalyst that we're waiting for has been management talking a lot more about its food initiative for 2025 and beyond. To the extent that we hear that today, we may start to revise our price target. There's also some rumblings the company is going to have an investor day in the months ahead, and I expect we'll get even more details at that event.

So we'll continue to revisit Dutch Bros shares when and where it makes sense. But we continue to like the geographic expansion. And as we've pointed out a while ago, we are very intrigued, in a bullish sense, about this effort to expand its food offering. That was a very big catalyst for Starbucks shares. And we would be surprised if we don't see the same here with Dutch Bros.

Now, so there's a lot going on, and there'll be even more going on tomorrow. What do we have tomorrow? We got the December CPI report, the Fed Beige Book, and the start of Big Bank earnings. That's right-- JP Morgan, Goldman Sachs, and Citigroup. We'll be mining those for details as it relates to our Bank of America and Morgan Stanley positions.

So please be sure to check your emails, your alerts. We want to make sure you get our latest thoughts and any revised thinking that we might have to share with you. And as you saw today, 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 META and BROS.