ADP Jobs Data, August Service PMIs
Foxconn's July-August revenue surge brings support for multiple models
In this week’s The Week Ahead video, we laid out the key August data coming at investors in this compressed week, and arguably, today is the second biggest day for that. The focal point will be tomorrow’s August Employment Report, but today we get a preview through ADP’s August Employment Change Report, which is expected to show 145,000 jobs created, a brisker pace than the 122,000 in July. Should the 8:15 AM print for August match the forecast, focusing on the sequential comparison would miss the larger trend of slowing job gains in the data since March. Good for the Fed’s purposes but we’ll also want to see what ADP’s findings show about wages, especially for job-changers, which has been falling but still clocked in at 7.2% YoY in July.
Why today’s August Service PMI data is a must-see for market watchers
The “other” piece of data the market should be focused on today is the back-to-back August Service PMI reports from S&P Global and ISM. Because ISM’s data is an input into GDP calculations, it tends to get a greater focus, but we prefer to compare and contrast the two. Following the August Manufacturing PMIs that showed that part of the economy remained in contraction territory for 11 of the past 12 months, the market will want assurances the Service sector continues to carry the overall US economy. For us, that means looking at not only the headline PMI figure but also new order and backlog data. And with the market forecasting 160,000 non-farm jobs for the August Employment Report, up from 114,000 in July, if we don’t see vibrant job creation in the August Service PMI data, odds are tomorrow’s report could deliver a shortfall.
Here’s the thing, the market is inclined to welcome weaker-than-expected data because it would support the expectation for the Fed to deliver 100 basis points of rate cuts before the end of this year. In other words, bad news is potential good news for the market while too good news for the economy could force the market to re-think what the Fed will deliver in the last four months of 2024. While we’ll get other August data next week, it’s fair to think today and tomorrow will have a heavy hand in what the Fed says and does on September 18. And ahead of today’s data, our poll currently shows folks expecting the Fed to deliver 50 basis points in rate cuts this year.
Foxconn’s August revenue brings support for these models
Ahead of those reports out later this morning, Apple’s (AAPL) key manufacturing partner Foxconn reported its August revenue soared just shy of 33% YoY led by demand for servers powering…. wait for it… AI servers. While some may quibble Foxconn’s August revenue dipped compared to July, what should stand out is its quarter-to-date revenue is up 27% year over year with notable strength not only in servers but also in computing and cloud & networking products. Those comments are very supportive of our AI, Cloud Computing, and Digital Infrastructure models.
Model Musings
Artificial Intelligence
“Airlines have ambitious plans to integrate generative AI into their operations. So far, these implementations have mainly focused on passenger engagement roles. This could soon change, however, as airlines explore how to leverage this technology in technical, back-end functionalities.” Read more here
Artificial Intelligence, Cybersecurity
“From healthcare and financial services to government agencies, critical sectors around the globe are embracing the benefits that large language models (LLMs) and other AI systems can provide when it comes to driving efficiencies, enabling data-driven decision-making and powering innovative products and services. But 2024 has also been the year of the data breach and the cyberattack, with high-profile disruptions downing critical sectors — like healthcare, finance, retail and even government agencies.” Read more here
Cybersecurity, Data Privacy & Digital Identity
“Cisco’s site for selling company-themed merchandise is currently offline and under maintenance due to hackers compromising it with JavaScript code that steals sensitive customer details provided at checkout... While Cisco’s store is likely used mostly by employees buying the merchandise for themselves or as gifts, the malicious script could potentially allow the attackers to harvest Cisco employee credentials.” Read more here
Data Privacy & Digital Identity
“California state legislature passed a bill that will require internet browsers and mobile operating systems to let users opt out of the sale or sharing of their personal information. The bill now heads to California Governor Gavin Newsom for his signature.” Read more here
Digital Infrastructure
“Despite ongoing challenges, including economic uncertainties, extended lead times in chipset supply, and a gradual economic recovery in China, IoT Analytics projects the market will continue its upward trajectory. The report forecasts that the number of connected IoT devices will grow to 40 billion by 2030, reflecting a measured but steady expansion.” Read more here
Digital Infrastructure, Nuclear Energy & Uranium
“Artificial intelligence could strain the U.S. electric grid, as power demand from data centers is poised to surge in the coming decade just as supply is falling due to the rapid retirement of coal-fired plants. Data centers in the U.S. alone could consume as much electricity as some major industrialized economies produce by 2030, as they proliferate not just in number but also in the scale of their power needs.” Read more here
Digital Lifestyle
“Cable TV is continuing to lose viewership in 2024 as many Americans switch over to streaming and other methods to watch TV. According to a new report from Nielsen, cable TV now accounts for just 26.7% of all TV viewership and streaming accounts for 41.4%.” Read more here
EV Transition
“JD Power is projecting that 1.2 million EVs will be sold in the US by the end of 2024, an increase over 1 million sold last year. That’s 9 percent of total vehicles sold, which has been revised down from a previous prediction of 12 percent.” Read more here
Safety & Security
“House Armed Services Committee Vice Chairman Rob Wittman is confident Congress will pass a short-term budget extension in the next few weeks and eventually finalize plans for $833 billion in defense spending for fiscal year 2025.” Read more here
“Japan’s military spending is edging closer to its targeted 2% of gross domestic product (GDP), with big new budget earmarks for drones, missile defense, satellites, cyber defense and cloud-based command and control systems.” Read more here
“Poland’s budget proposal for 2025 includes record defense spending of 187 billion zlotys ($48.7 billion), officials said Wednesday… Finance Minister Andrzej Domanski said that the defense spending proposal would constitute 4.7% of gross domestic product, compared to 4.2% this year, which already makes Poland a leader in NATO and in the European Union.” Read more here
“Taiwan’s Cabinet, the Executive Yuan, this week ratified a record defense budget of NT$647 billion, or US$20.2 billion, meant to help defend Taiwan against the prospect of a Chinese invasion.” Read more here
The Strategies Behind Our Thematic Models
Aging of the Population - Capturing the demographic wave of the aging population and the changing demands it brings with it.
Artificial Intelligence – Software, chips, and related companies that facilitate the collection and analysis of large data sets and autonomous generation of solutions given non-machine language prompts.
Cash Strapped Consumer - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.CHIPs Act – Capturing the reshoring of the US semiconductor industry and the $52.7 billion poised to be spent on semiconductor manufacturing.
Cloud Computing – Companies that provide hardware and services that enhance the cloud computing experience for users, such as co-location, security, and edge computing.
Core Holdings – Companies that reflect economic activity and are large enough to not get pushed around by day-to-day market trends. Low-beta, large-cap names able to better withstand economic turmoil.
Cybersecurity - Companies that focus on protecting against the penetration of digital networks and the theft, ransom, corruption or destruction of data.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
Digital Lifestyle - The companies behind our increasingly connected lives.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
EPS Diplomats - Profitable large capitalization companies proven to produce above-average EPS growth and provide investors with the benefit of multiple expansion.
EV Transition - Capturing the transition to EVs and related infrastructure from combustion engine vehicles.
Guilty Pleasure – Companies that produce/provide food and drink products that consumers tend to enjoy regardless of the economic environment and potential long-term health hazards associated with excessive consumption.
Homebuilding & Materials – Ranging from homebuilders to key building product companies that serve the housing market, this model looks to capture the rising demand for housing, one that should benefit as the Fed returns monetary policy to more normalized levels.
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.
Market Hedge Model – This basket of daily reset swap-based broad market inverse ETFs protects in the face of market pullbacks, overbought market technicals, and other drivers of market volatility.
Nuclear Energy & Uranium – Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Rebuilding America - Turning the focused spending on rebuilding US infrastructure into revenue and profits.
Safety & Security – Targeted exposure to companies that provide goods and services primarily to the Defense and security sectors of the economy.
Space Economy – Companies that focus on the launch and operation of satellite networks.
The Strategies Behind Our Dividend Income Models
Monthly Dividend Model – Pretty much what the name says – this model invests in companies that pay monthly dividends to shareholders.
ETF Dividend Model – High-yielding ETFs that provide a range of exposures from domestic equities, international equities, emerging market equities, MLPS, and REITs.
ETF Enhanced Dividend Model – A group of high-yielding ETFs that utilize options to enhance yield through collecting option income.
Don’t be a stranger
Thanks for reading and if you have a suggestion for an article or book we should read, or a stream we should catch, email us at info@tematicaresearch.com. The same email works if you want to know more about our thematic and targeted exposure models listed below.