Apple’s Event, the Fed’s Kashkari, Earnings Continue
And a slew of signals for our investing themes, models and indices
Equity futures are mixed but the Dow and S&P 500 look to extend their latest winning streak. In pre-market trading, oil and the 10-year Treasury yield are ticking lower as is gold despite the Israeli military seizing control of the Rafah border crossing between the Gaza Strip and Egypt. Much like yesterday, the quarterly earnings season rolls this morning and again after the market close. In between, the only three events that could spark the market will be Apple’s(AAPL) 10 AM ET iPad event, comments from Minneapolis Fed President Kashkari at 11:30 AM ET, or the March Consumer Credit report at 3 PM ET.
As we’ve discussed before, at a minimum Apple’s weighting in the S&P 500 and Nasdaq Composite mean investors will want to gauge the reception to the company’s newest offerings but also whether the market is satiated with its initial AI announcements. We continue to think the more important event will be the company’s June WWDC event because it will showcase its new software offerings and much more on its AI efforts. If the market is underwhelmed by today’s announcements, it could be a factor that weighs on the overall market.
The Fed’s Kashkari has been a vocal supporter of higher rates for longer and folks will want to see if last week’s data softened his view. Based on what we saw in the April PMI prices paid data from ISM, our thinking is that probably won’t be the case. What could prove even more helpful to the market is contrasting yesterday’s comments from Richmond Fed President Barkin, today’s from Kashkari, and the ones from three more Fed heads coming tomorrow.
Amid another day of scant economic news tomorrow, we will get the next update for the Atlanta Fed’s GDPNow model, which as of May 2 stood at 3.3% for the current quarter. Given the drop in the Citibank Economic Surprise Index below the zero line following last week’s rash of data, it’s fair to say we should expect a downward revision in that rolling GDP forecast model. A steep drop could add some additional hopium for rate cuts, but given that April PMI prices paid data, the odds of a downside surprise in the upcoming April CPI and PPI reports are low.
Because it will have implications for several of our themes, models, and indices, including AI, Cloud Computing, and Digital Infrastructure, we will be watching for Taiwan Semiconductor’s (TSM) April revenue report. Following the 19% year-over-year jump in April revenue reported yesterday by Apple manufacturing partner Hon Hai (HNHLF) that reflected robust AI, cloud, and smartphone sales, it would be a surprise to the market if TSM’s April revenue didn’t reflect the same.
Model Musings
Artificial Intelligence
“AI can manage complexity and make connections across multiple scientific and engineering disciplines, multiple model and data types, and multiple outcome priorities. This can enable AI to create solutions for the ‘grand challenges’ of massive and rapid clean energy deployment that conventional methods cannot,” said Rick Stevens, associate laboratory director for the Computing, Environment and Life Sciences directorate at DOE’s Argonne National Laboratory.” Read more here
“Smith told analysts that Parsons is "applying artificial intelligence across our entire portfolio" and cited a few example areas to consider across its federal tech and critical infrastructure segments. The kinds of systems needed to counter unmanned aircraft are one of those applications. Smith described AI's usage for that as how operators identify, detect and track a drone that is in a location it probably should not be.” Read more here
“The Artificial Intelligence Policy Institute, a pro-regulation AI think tank, found that 60 percent of respondents said AI companies should not be able to train freely on public data. Nearly three quarters of people polled said companies should be “required to compensate the creators of that data.” And 78 percent said there should be regulations on the use of public data to train AI models, with Democrats only slightly more enthusiastic than Republicans.” Read more here
AI, Cybersecurity
“One of the most dangerous abuses of artificial intelligence technology has been scammers’ use of AI to improve their phishing schemes. Large language models can impersonate legitimate humans with a frightening degree of accuracy when they are trained on data showing that person’s writing style, syntax, and other aspects of their voice.” Read more here
Cybersecurity
“The City of Wichita, Kansas, disclosed it was forced to shut down portions of its network after suffering a weekend ransomware attack… In a rare display of transparency, the City confirmed they suffered the attack on Sunday, May 5th, when IT systems were encrypted with ransomware. In response to the attack, the City shut down its computer network to prevent the spread of the ransomware to other devices.” Read more here
“Finland's Transport and Communications Agency (Traficom) is warning about an ongoing Android malware campaign attempting to breach online bank accounts…The police also highlighted the threat, warning that the malware enables its operators to log in to the victim's banking account and transfer money. In one case, a victim lost 95,000 euros ($102,000).” Read more here
Consumer Inflation Fighters
“For about three years following the Covid-19 pandemic, food companies pushed through a series of sharp price increases, saying they needed to recoup their own rising costs—and that consumers would adjust to stick with their favorite brands. As a result, the portion of U.S. consumers’ income spent on food has reached the highest level in three decades. Now, some consumers are hitting their limits. Restaurant chains and some food manufacturers are reporting sliding sales or slowing growth that they attribute to consumers’ inability—or refusal—to pay prices that are in some cases a third higher than prepandemic times.” Read more here
“Global fast food giants may have to dole out steeper promotions to lure inflation-hit customers who are increasingly opting to eat at home, following weak sales from the likes of McDonald's and Starbucks this week. Disposable income in the United States is declining, particularly in the lower-income cohort, while the slow economic recovery in China has increased industry-wide pressures for quick-service chains including KFC owner Yum Brands (YUM), that has extended across several quarters.” Read more here
Digital Infrastructure & Connectivity
“Tech giant Meta is building a data center in Montgomery, Alabama. The social media firm, formerly known as Facebook, this week announced plans to build a $800 million data center in Montgomery County…. The facility is expected to be live at the end of 2026, with work at the site already underway ahead of construction… The data center, the company’s 20th in the US, is expected to bring 100 jobs to the city.” Read more here
“US utility Dominion expects to connect 15 more data centers to the grid in Virginia over the course of 2024, after connecting 15 facilities last year totaling almost a gigawatt of capacity. In its most recent earnings presentation this week, the company said it had connected 94 data centers with more than 4GW of capacity in Northern Virginia since 2019. This included 15 data centers totaling 933MW in 2023, and 15 more are due to be connected in 2024… American Electric Power (AEP), a utility covering large parts of the US, including Ohio, Virginia, Texas, Kentucky, and Tennessee, has seen service requests totaling up to 15GW, with data centers a major driver of demand.” Read more here
Luxury Buying Boom
“We are in the midst of a reckoning in luxury retail. The last decade’s taste-making multibrand stores Barneys New York, Colette and Opening Ceremony are kaput; luxury retailer Matchesfashion is liquidating; Farfetch is struggling; and some legacy department stores are acquisition targets. “Unfortunately, there’s no one left,” said Lori Hirshleifer Sills without a trace of schadenfreude. However, the dwindling competition presents an opportunity, especially for a nimble, privately owned company.” Read more here
“In both the third quarter and the fiscal year-to-date, Coty delivered strong growth in both the prestige and consumer beauty businesses in every region, as well as in its core categories of fragrances, color cosmetics, skin care, and body care, Chief Executive Sue Nabi said.” Read more here
Safety & Security
“Axon Enterprise (AXON) raised its full-year core profit and revenue forecast Monday, banking on strong demand for its software products and recently launched TASER 10 policing device. The company now expects full-year 2024 revenue to be between $1.94 billion and $1.99 billion, compared with its previous forecast of $1.88 billion to $1.94 billion.” 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.