Another Groundhog Like Day for the Markets
But we'll keep you busy with plenty of model Signals to chew through
Today is shaping up to be a repeat of the last few days - equity futures in the read while bond yields, including those for 10-year Treasuries inch higher. If you’re thinking this week is a bit like the movie Groundhog Day, we would agree with you given the lack of economic data, a Fed speaker, and another wave of less than market moving earnings reports. That will change significantly next week when we get the April CPI, PPI, and Retail Sales data, but the road to that will include one more relatively quiet market day tomorrow.
While some may describe it as a period to digest, the market has been choppy and remains short-term overbought. We’re also about to undergo a shift to earnings reports to companies that rely on consumer spending. Comments collected so far this earnings season point to consumers being more selective and trading down. We share a signal for our Consumer Inflation Fighter model below that speaks to just that because of sky-high restaurant prices. That signal also helps explain why Costco (COST) reported its April sales rose 7.1% year over year last night with its US comp sales ex-gas and ex-FX up 5.2%. When we look at Costco’s fresh, grocery, and sundry offerings, it’s easy to see why the company continues to win consumer wallet share.
Despite the lack of market-moving earnings this week, this morning, the market is digesting the recent wave of reports from Uber (UBER), Airbnb (ABNB), and Arm Holdings (ARM) that fell short of market expectations. Some of what we’re seeing, in the case of ARM shares, is the reaction to overexuberant stock price moves. Ahead of its earnings report, ARM’s shares were up more than 50%, suggesting the company needed to deliver not just a good quarter, but an outlook that contained an upside surprise.
That’s not what the Arm delivered, and as impressive as the 47% increase in quarterly revenue was, guidance that only bookended consensus forecasts left the market wanting. On its earnings conference call Arm did speak to AI-enabled smartphones shipping in 2H 2024, something we see as a positive for both our Artificial Intelligence and Digital Infrastructure models.
Model Musings
Artificial Intelligence
“AI is redefining work, and it’s clear we need new playbooks,” said Ryan Roslansky, CEO of LinkedIn. “It’s the leaders who build for agility instead of stability and invest in skill building internally that will give their organizations a competitive advantage and create more efficient, engaged and equitable teams.” Read more here
Artificial Intelligence, Safety & Security
“After riding in the front seat of an F-16 fighter jet controlled by artificial intelligence, Air Force Secretary Frank Kendall said he can see a future where AI agents will fly in war—and will do it better than humans. Computers “don't get tired. They don't get scared. They're relentless. It's easy to see a situation where they're going to be able to do this job, generally speaking, better than humans can do. They also can handle large amounts of data,” Kendall said Wednesday during an AI and national security conference hosted by the Special Competitive Studies Project.” Read more here
Consumer Inflation Fighters
“Restaurant food prices are climbing at a much higher rate than groceries – 5.1% annually versus 1.2%, according to Vericast’s 2024 Restaurant TrendWatch survey. A large majority (68%) of survey respondents are trading down from restaurant meals to food from the grocery store to avoid the rising costs, with more than 71% of Gen Z and millennials doing so. More than two-thirds (67%) say increased food costs are making restaurant dining too expensive.” Read more here
Digital Infrastructure & Connectivity
“President Biden hailed Microsoft’s MSFT 0.29%increase; green up pointing triangle decision to invest billions of dollars on artificial intelligence in Wisconsin, the latest stop in a global spending spree by the tech giant to build AI infrastructure and calm fears about the powerful technology.” Read more here
“The Internet is entering an era of gigawatt-scale data center campuses to power artificial intelligence (AI), according to developers and industry groups, who say this approach provides the best opportunity to support AI workloads with renewable energy. Hyperscale tech companies are already seeking sites for campuses that can support a gigawatt of electric power capacity, equal to 1,000 megawatts or 1 billion watts, according to speakers at last week’s Data Center World conference.” Read more here
“The widespread adoption of cloud computing has reduced the number of organizations that operate their own data centers, but has only increased the number of data centers around the world, as large hyperscalers such as Amazon Web Services, Google Cloud Platform and Microsoft Azure continue to build out the infrastructure necessary to accommodate their customers. In fact, according to AFCOM, the leading membership association for data center professionals, we’re about to experience skyrocketing data center construction, with new projects increasing sixfold in the next three years.” Read more here
“The latest report from Cloudflare on internet disruptions pins damage to submarine cables as the leading cause of internet outages in the first quarter of 2024.” 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.
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.
Consumer Inflation Fighters - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.
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.
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.
Precision Ag & Agri Science – Companies that look to address shrinking arable land by helping maximize crop yields utilizing technology, science, or both.
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.