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12/14/2023 10:05:04 AM Eastern Time

NO REGRETS (YET)
By Charles Payne, CEO & Principal Analyst

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Humblebrag

noun: humblebrag

1. an ostensibly modest or self-deprecating statement whose actual purpose is to draw attention to something of which one is proud.

Yesterday, Jay Powell stepped up to the microphone to take questions about the state of the economy and potential next moves by the Federal Reserve’s Federal Open Market Committee (FOMC).

Call Him Mr. Immaculate

He had an extra pep in his step, and his first sentence was a humblebrag.

• Economy slowing
• Jobs gaining
• Unemployment rate low
• Inflation easing
• Soft Landing

With all due respect to the late Franco Harris, whose immaculate reception put the Pittsburgh Steelers into the Super Bowl, if Powell does indeed pull this off, it's like everyone has won. 

There is real economic damage, and most folks are in more dire conditions but not in an economic collapse. (More on this below.)

Economic Projections did not change much except for Fed funds projections. Now, the FOMC sees year-end 2025 at 4.6% from 5.1% in September.

Ironically, 2026 still finishes at 2.9%.

A March cut is back in play with a 63% chance of a 25-basis points (bps) cut, which was 40% on Tuesday and 11% a month ago. It should be noted a 12% chance of a 50-bps cut is being factored into consideration. There was only a 2% chance the day before, and a month ago, there was zero.

There is a lot of movement in the CME FedWatch Tool, but at one point yesterday, it was signaling six rate cuts in 2024.

Mission Accomplished?

I’m not an economist, but I read the work of many of them, and David Rosenberg of Rosenberg Research is among the best. Despite the positive groove and ‘mission accomplished’ vibe at the FOMC, he is cautioning that the Fed’s own projections point to a 90% chance of a recession.

The Market Goes Wild

I’m unsure if traditional safe haven sectors excelled yesterday as a sign of caution or opportunity, as they have had a miserable year. Along that same line of thinking, Energy (XLE) should have been higher unless an inflation proxy held it back.

Green on the Screen

Growth brought up the rear, but it was a green-letter day for the S&P 500.

Small cap value rules.

Portfolio Approach

We are adding a new position to Industrial in the Hotline Model Portfolio.

Today’s Session

Retail sales were up 0.3% versus consensus -0.1 and core +0.2% against consensus -0.1%

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The ten-year bond yield is below 4.0%, and that’s the only thing you really need to know.

The big test at 3.90%.

Long Idea: AeroVironment, Inc. (AVAV) @ $128.33
Industry: Industrial; Aerospace & Defense
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BACKGROUND: AeroVironment, Inc. designs, develops, produces, delivers, and supports a portfolio of robotic systems and related services for government agencies and businesses in the United States and internationally. It operates through Small Unmanned Aircraft Systems (SUAS), Tactical Missile System (TMS), Medium Unmanned Aircraft Systems (MUAS), and High Altitude Pseudo-Satellite Systems (HAPS) segments. The company supplies UAS, TMS, unmanned ground vehicle, and related services primarily to organizations within the U.S. Department of Defense, other federal agencies, and to international allied governments. It also designs, engineers, tools, and manufactures unmanned aerial and aircraft systems, including airborne platforms, payloads and payload integration, ground control systems, and ground support equipment and other items and services related to unmanned aircraft systems. In addition, the company offers small UAS products, including training, spare parts, product repair, product replacement, and the customer contracted operation. Further, it develops high-altitude pseudo-satellite UAS systems. AeroVironment, Inc. was incorporated in 1971 and is headquartered in Arlington, Virginia.

SKINNY: The stock looks compelling at this level. AVAV expects significant growth in the long-term and this year with the demand environment favorable for the company.

Q3 results were impressive, and the company reported a significant volume of order backlog, especially for its unmanned aerial systems. Our target is $154.