ECB Rate Cut, Nvidia Stock Split, May Employment Report
And another round of ripped from the headlines confirmation points for our strategies
Equity futures are treading water following the S&P 500 putting in a record close yesterday fueled by improving rate cut hopes and falling Treasury yields. That was brought about by the weaker than expected print for ADP’s May Employment Change report and the tick lower in ISM’s May Service PMI’s Prices component.
That brought the index’s YTD return to 12.25%, but comparing it against those for the Nasdaq Composite (+14.5%YTD) and the equal-weighted S&P 500 (+4.5%) tells us where the market action is concentrated. To say investors are leaning into Nvidia’s (NVDA) upcoming 10:1 stock split would be an understatement given the stock’s more than 5% move yesterday. We’d chime in that a few signals for our AI and Digital Infrastructure models below might have had a role in that move.
However, and yes there had to be a “however”, the 152,000 jobs ADP found that were created in May were well above the 126,000 July 2023-January 2024 average. Despite the “dip” in the ISM Price data, it still came in at 58.1, putting it well into expansion territory. Helping explain ADP’s May jobs figure, S&P Global’s May Service PMI report pointed to employers not filling vacated roles because of existing wage pressures. The report also showed output prices continued to chug higher, something revealed in both May Manufacturing PMI reports earlier this week.
This suggests we’re likely to see only little movement in the May core CPI figure when it’s published next week. Before we get there, we’ll see if the European Central Bank delivers a rate cut today as is widely expected. Tomorrow brings the US May Employment Report, giving another take on job creation and wages, as well as the latest Unemployment Rate figure. Two of its three last prints came in at 3.9% and should the May figure cross into 4% territory it could stoke the market’s renewed hope for a Fed rate cut as soon as September.
Should the market dip back into hopium mode for what the Fed might say next week, the context above that shows the economy is growing at a healthy clip and inflation is not backing down. This leads us to expect that the Fed is going to reiterate its “need to see more good data.” It wouldn’t be the first time the market has misread the Fed, and if that happens again, we could see the market give back some of its recent gains which could be an advantage to anyone allocated to the Market Hedge model.
At a time when many retailers are bemoaning the state of the consumer, Consumer Inflation Fighter model resident Costco (COST) reported eye-popping May sales that rose 8.1% year over year. Excluding the impact of gasoline prices and foreign exchange, total company comparable sales gained 6.5%. US comparable sales for May rose 5.8%, and 5.7% excluding gasoline prices and foreign exchange.
MODEL SIGNALS
Artificial Intelligence
“AI is driving one of the most consequential eras of innovation the industry has ever seen,” said Intel CEO Pat Gelsinger in a statement. “The magic of silicon is once again enabling exponential advancements in computing that will push the boundaries of human potential and power the global economy for years to come.” Read more here
“Cities like San Jose, California; Portland, Oregon; and Austin, Texas have already deployed programs with AI-based virtual agents that answer simple questions and assist with call-taking and information gathering for nonemergency calls. [1] Several technology companies have also partnered with law enforcement agencies to allow users to send pictures and real-time data through app-based platforms. [2] AI has transformed how we collect, process and analyze information.” Read more here
Consumer Inflation Fighters
“According to the San Francisco Fed, households burned through the last of their $2.1trn of pandemic-era excess savings in March. The drawdown has pushed more and more to rely on credit cards to meet their outgoings, and some are now struggling to repay debts. Paul Siegfried of Transunion, a credit bureau, estimates that since April last year, 440,000 credit-card holders have been downgraded to subprime status. Accounts are becoming delinquent at a pace last seen in 2011.” Read more here
“A CNET Money survey revealed 188 million American adults have postponed significant purchases as inflation and higher prices take a continued toll on their wallets… Milden notes essentials like groceries and gas are the main drivers of consumers' strained wallets, according to the survey. She notes Americans are continually "surprised by what they're having to pay for essentials," forcing them to cut back on savings for "longer-term goals." Read more here
Cybersecurity
“TikTok reportedly dealt with a recent security breach when hackers targeted well-known brands and celebrities on the platform. The hackers sent malicious links through private messages to hijack prominent accounts on the ByteDance-owned social media platform…” Read more here
“Cisco announced a series of new security offerings at Cisco Live 2024, designed to establish itself as a leader in defense capabilities powered by artificial intelligence (AI)… Two of the announcements concerned the capabilities of Cisco’s new Hypershield security platform. Unveiled at the RSA Conference 2024 show in April, Hypershield is a security architecture that the company describes as “designed to defend modern, AI-scale data centers.” Read more here
“The average breach now costs $4.45 million, according to IBM, a 15 percent increase over the past three years. Those costs include any ransom paid to an attacker, plus injury to customer trust, stock price declines, intellectual property loss and more.” Read more here
Digital Infrastructure
“In our world of unceasing connectivity, the reliance on data center operations is skyrocketing, magnifying the indispensability of the resources they provide every moment.” When the construction boom is complete, the total number of data centers in operation will have increased by 57 percent, according to the report, with each respondent operating 22 data centers on average, up from 14 today.” Read more here
Safety & Security
“Retail giant TJX, the parent of TJ Maxx, Marshalls and HomeGoods, said it’s equipping some store employees with body cameras to thwart shoplifting and keep customers and employees safe. TJX finance chief John Klinger disclosed the body-camera initiative on an earnings call last month. “It’s almost like a de-escalation, where people are less likely to do something when they’re being videotaped,” he said. TJX isn’t alone. In a survey of major chains by the National Retail Federation last year, 35% of US retailers said they were researching body cameras for employees.” 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.