What's Really Moving Markets Right Now: CPI, PPI & Tariffs | Chris Versace

Hey everyone, it is Julie. Welcome back. I am once again joined with The Street Pros, Chris Versace, to break down what is happening in the market this week. Chris, thank you so much for joining me today. Uh you know, Julie, I always love our conversations. I'm only It's just been a little while. I had a lot going on, as you can tell, new digs. And uh hopefully we'll be uh off and running soon. Absolutely. It's good to have you back here after a couple weeks off. Now, to jump right into today, this week, we had the CPI data yesterday, a PPI this morning. What are the headline takeaways for investors trying to make sense of all of this inflation data right now? Well, I would say, to begin with, hot hot hot. That's That's [laughter] the key takeaway. That PPI uh headline number of 6% year-over-year way way stronger than anybody was looking for. But, let's remember, too, the CPI number was also hotter than people were looking for. And And I I think what what it really speaks to is all the things that we've been kind of concerned about. You know, the continued impact of tariffs, the rise and fall out of, you know, not just oil prices, jet fuel prices, gas prices, and everything else that is tied into not only petrochemical land, but also the disruption that we're seeing in the Strait of Hormuz. And if you've been paying attention, like we have at The Street Pro portfolio, to comments that are really contained in the various PMI reports that we get every month, we've kind of expected a uh increase in what what's called output price pressure, right? Which is what the the price that producers charge, uh because they're contending with higher input prices. The concern we have now, and I think this is what folks need to really gear into, yes, we have seen the CPI move higher. It's going to move even higher. Why? Because the PPI is the pressure that's building in the system. And when we see month-over-month increases in PPI to, you know, like I said, hot hot hot levels, it tells us that we're going to see more pricing pressure. And for me, it renews concerns about consensus EPS numbers because of potential margin pressure, potential demand destruction, and concerns that if inflation pressures are moving higher and faster than wage gains, what does that mean for the consumer once the positive impact of higher than expected tax refunds fades? So, a lot of concerns Julie. Yeah, sounds like a lot of things to keep an eye on there. And then on top of that, we also have Trump heading over to Beijing with a group of CEOs. Uh sounds like it's including Nvidia's Jensen Huang now as well. Is this trip more about, you know, opening the markets for US companies, or is the Iran situation going to potentially dominate the conversation? What does this mean for Like, what are we expecting here from this visit? Sure. Well, let let's just think about this, right? So, coming into today, the S&P 500, its RSI level was north of 70. So, overbought, the Nasdaq Composite the same. Um so, typically when we see these things, you know, any little disruption can drive a market pullback. We're seeing some of that as a result of these hotter than expected inflation numbers. But, over the next couple days, there there is some room, I think, for disappointment in the negotiations at the summit between Trump and Xi. You know, you mentioned the point about the US-Iran, the disclosure of the Strait of Hormuz. China gets 40-50% of its oil and a lot more of its liquid natural gas through the strait. That's going to be a big issue. And and I can understand that, you know, President Trump is probably liking to counter that with some talk about, "Hey, I've got all these CEOs with me. We want to do deals. We want to open up China." But, I I I just think that there's kind of a chicken and the egg issue here. Do we open the strait first? Do we get our deals? Do So get our deals? Do we open the strait? And I think the risk is that folks who have lofty expectations for some grand deal, I think they're going to be disappointed. And then, we also have Chinese suppliers hiking prices up about 15% for smaller retailers. So in your article this morning, you guys said you were doubling down on Costco and TJX. So make the case for why inflation is actually good for these two stocks specifically. Well, it's not that they're good that's not to say that inflation is directly good. The pain as a result of the inflation is what is good for these companies. And and there are some others out there obviously. You could look at Ross Stores as well, Kohl's perhaps, or even uh you know, BJ's Wholesale. And and the thing here is that how where are consumers likely to go as they feel the continued pain and pressure of inflation sapping the spending dollars that they have. Costco's a great example, not only because of you know, the ability to buy in bulk and of course, they really help consumers stretch their spending dollars. But remember, it's a differentiated business model. They get a significant piece of their pre-tax income from the membership fees that they have. They're expanding their base and we're still lapping the membership fee price increase. So I think that that gives Costco very different positioning. TJX, you know, they they don't they don't procure original equipment. So you know, the goods that they sell are bought from companies that are going under, liquidating. So there there's a nice advantage there as well. So for those those reasons, we like those in the portfolio and I will share with you that we are looking to increase our exposure to TJX. We're watching the technicals very closely. All right, then another one that you mentioned you guys are bullish on is Amazon heading into of course their big Prime Day. But with this inflation, consumers are likely buying fewer gifts this holiday season and everything coming up. So what attracts us to Amazon here? >> Well, let's let's tackle that first part cuz I think we kind of my bad glossed over it, right? What what we're hearing as a result of, you know, these price pressures and inflationary pressures is that Chinese suppliers are starting to hike prices for what will be Christmas goods uh later this year, anywhere from 5% 5% to 15%. Um so, the flow through on that and this is another inflation tailwind, unfortunately, more pain for the consumer. So, when we think about, you know, the holiday shopping season, you know, people are increasingly trying to get ahead, especially when they feel that pain. Amazon has two very big Prime events coming. One is the usual, you know multi-day Prime Day event that's ahead of us, uh you know, June-July time frame. And then as we get closer to the holiday shopping season, they've tended in the last few years to have a big holiday shopping splurge. Uh I have I might hope I get this right. Amazon's big or Prime Big Deal Days. Uh and that that's now become the official kick to um the holiday shopping season. So, we continue to like Amazon for that positioning, the idea that they're continuing to shrink delivery times, and they're expanding less than 30-minute deliveries. I think that's going to be key for them. But remember, too, Amazon is also a differentiated business model, Amazon Web Services, their advertising business, and other things that I think can really help insulate its retail shopping business. Absolutely. Now, we also are about halfway through Q2, and I want to touch back to the Street Pros Earnings Per Share All-Star Basket. So, you introduced us this to us, I believe, a couple months ago here. Can you refresh us on what this basket is, and more importantly, how it has been performing so far this year? Sure. So, let let me switch hats a little bit. So, over at Tematica Research, we we have a number of different models, everything from uh the digital economy to cash strapped consumer and aging the population and all these other things. I did introduce the EPS Diplomat's strategy, which we recently renamed EPS All Stars uh to the portfolio at the end of 2025 and it's been a great performer for us. And as background, we reconstitute this basket of eight stocks once a quarter, uh typically the first day of trading. And it really reflects the companies with a wonderful track record of delivering significant earnings growth married with the potential for continued significant earnings growth over the next 1 to 2 years. And when we reset it, the basket can change, but so far this quarter, Julie, man, as of last night, up 55 s 55 unbelievable. And as of last night, I think the S&P was up somewhere between 13 14%. So, a significant outperformer, but when we look at some of the companies in the basket, and I got a glance over here, I apologize, we look at Micron up over 100%. Credo Technology up over 100%. Bloom Energy up significantly as well. You know, these companies, they're benefiting from this AI and data center infrastructure buildout. And you know, we'll see if some of them stay in the basket when we reconstitute on July 1st. And I would encourage viewers to pay attention cuz, you know, so far, we're doing pretty well. Absolutely. That is incredible. Some very impressive returns there. Now, to wrap all up, uh I want to talk about Cisco reporting after the close today. Cuz you mentioned some RPO as the key metrics to watch, especially some of these other tech companies that have reported. So, what numbers would excite you here with Cisco tonight? What would disappoint? What are we looking at here? And what's going to say about the AI infrastructure buildout? Sure. So, remember Cisco really one to watch on networking and the AI AI, excuse me, data center digital infrastructure buildout. The number you're talking about RPOs, remaining performance obligations, it's the amount of booked business for the future. Other companies report backlog, other companies report future contracted bookings, or future contracted value. You know, pretty much it's a key metric that we like to follow and you know, quarter over quarter, more so than year-over-year cuz it tells us what's the trend in the business. It also gives us some indication of, you know, what's not only coming, but if we think about revenue coverage based on the guidance that the company might issue, it's a really good indicator. So, what we like to see, of course, is RPOs, you know, trending higher quarter-over-quarter, and that's what we'll be looking for when Cisco reports tonight. But we'll also be looking for other comments as well. Uh they have certain targeted uh figures for capturing AI and hyperscaler spending, but they're also going to talk about Neo clouds, sovereign AI spending and issues, and others. And I I I think that'll help us paint a nice full picture of AI and data center demand, rather than just leaning in on, you know, the big four. All right, very exciting as always. Thank you so much for your insights today, Chris. Very informative. I look forward to having you back here in a couple weeks. We'll see where everything is at. Thanks, Julie. Enjoy your day.