In the latest episode of The Morning Filter podcast, co-hosts Dave Sekera and Susan Dziubinski talk about the previous week’s market activity. They highlight the Federal Reserve’s decision to raise interest rates, which coincided with a significant increase in the 10-year Treasury yield crossing 5%. There’s a discussion on how long this uncertain market condition might persist. This week, they’re keeping tabs on Costco and Darden Restaurants as companies to watch. They also revisit some earlier stock recommendations, determining which ones are worth buying now and which may be pitfalls.
The hosts encourage listeners to tune in for an in-depth analysis of Tesla, as well as a few high-quality stocks that have recently become appealing options due to market fluctuations.
Susan Dziubinski starts the podcast by discussing the previous week’s interest rate hikes. Dave reflects on the market’s immediate reaction, noting that even while rates rose, some sectors observed a rally that followed. He thinks that the response to the Fed’s communication often includes a lot of short-term noise that ultimately doesn’t dictate longer-term trends.
As they glance ahead, there’s uncertainty about future rate changes, specifically mentioning an over 50% chance of another hike in October, along with a notable probability of a December increase. Dave stresses that the focus on inflation is crucial right now, especially considering the positioning of the 10-year Treasury rate.
Dave points out that the current interest rates mark a contrast to previous years when cuts were more feasible due to lower yields. With the market currently facing an influx of new Treasury supply, there’s a brewing demand for higher yields to compensate for that. This situation complicates inflation expectations, which could negatively affect overall rates if they rise.
When asked about the recent rise of the 10-year Treasury above 5%, Dave mentions this level is a sensitive spot impacting investor sentiment, particularly in equities. He believes if rates continue to climb, investors in fixed income may continue reallocating away from stocks, causing further pressure on the market’s technical dynamics.
Shifting gears, they see Costco and Darden Restaurants as companies to monitor for forthcoming earnings reports. Costco, despite a solid reputation, is viewed as somewhat overvalued with high multiples, while Darden presents more nuanced insights based on its diverse restaurant offerings that cater to different income brackets. The discussion revolves around how consumer spending behavior can signal larger economic trends.
Dave reviews some of his previous stock picks, including Lennar, RH, and Veeva Systems, providing updates on their performances post-earnings. Lennar, despite a miss in expectations, remains undervalued in Dave’s view. RH’s recent results weren’t appreciated by the market due to wider housing market issues, even though they performed better in certain metrics. Meanwhile, Veeva’s robustness amid market skepticism about software companies remains a focal point.
They touch on CNH Industrial, which has shown strong performance and is benefiting from favorable agricultural price movements. Northrop Grumman continues to look attractive despite a slight valuation cut, while Hasbro and Scotts Miracle-Gro raise questions about whether they’re worth holding onto or if they represent value traps.
Finally, turning back to Tesla, the hosts address a listener’s question regarding the lack of financial metrics presented in past discussions. Dave admits he was a bit overwhelmed in the previous episode but promises more detailed analysis moving forward, acknowledging Tesla’s share price drop this year relates significantly to production delays and ongoing uncertainties in their business models.
They also offer stock picks like Procter & Gamble and Hershey, discussing their appeal in the current market context and the companies’ sustainable growth prospects. There’s a belief that these names, alongside technology stocks like Marvell and ASML, could see attractive returns going forward, even as they navigate through volatility.
