Fed Heads, FOMC Minutes, and Nvidia Earnings
Nvidia's earnings and guidance will be a barometer between AI hopes and reality
US equity futures indicate a weak start to the trading day and are being influenced by several disappointments relative to consensus earnings reports last night, including Palo Alto Networks (PANW) (more below). More companies are reporting this morning, but the market’s attention will be more on what three Fed speakers have to say although we expect them to stick to the Fed’s current playbook. This afternoon brings the Fed’s January meeting minutes at 2 PM ET, but our thinking is the comments will be only modestly constructive given the recent spate of figures showing inflation remains far stickier than many thought it would. Still, comments on what economic conditions could spur the Fed to start cutting interest rates could be helpful, but here too, so far, the US economy continues to defy expectations even with Fed policy in restrictive territory.
After today’s market close, following the parabolic move in its shares, the market will be laser-focused on quarterly results and guidance from Nvidia (NVDA). Consensus expectations have the company guiding 2024 EPS to $22.07 up from $12.42 in 2023 and $3.34 in 2022. Given its weighting in both the S&P 500 and the Nasdaq Composite, 4.24% and 5.03%, respectively, the market reaction to Nvidia’s result and guidance will undoubtedly trigger a healthy amount of aftermarket activity and set the tone for tomorrow’s trading. For the company that has been able to pivot from strength (video gaming) to strength (cryptocurrency mining) over the past decade, today’s earnings will serve as a barometer between AI hopes and reality.
Amazon (AMZN) will join the Dow Jones Industrial Average (DJIA) before the start of trading on Feb. 26, replacing Walgreens Boots Alliance (WBA) in the first change in the 30-stock index since 2020.
Shares of Palo Alto Networks (PANW) fell in aftermarket trading last night as downside guidance overshadowed the company’s January quarter top and bottom line beat. For 2024, the company sees EPS of $5.45-$5.55 on revenue between $7.95-$8.00 billion compared to the consensus forecast of $5.52 on $8.19 billion in revenue. Full-year bookings are targeted between $10.10-10.20 billion, down from Palo Alto’s prior guidance of $10.70-$10.80 billion. On the company’s earnings call, management shared it expects weakness in its US Federal government business to continue in the coming quarters but “the threat landscape continues to challenge our customers with increasing scale and sophistication of attacks.”
For more, be sure to read our Daily Markets column published each day by Nasdaq.
Model Musings
Artificial Intelligence
“Adobe is adding a new generative AI experience to its Acrobat PDF management software, which aims to “completely transform the digital document experience” by making information in long documents easier to find and understand. Announced in Adobe’s press release as “AI Assistant in Acrobat,” the new tool is described as a “conversational engine” that can summarize files, answer questions, and recommend more based on the content, allowing users to “easily chat with documents” to get the information they need. It’s available in beta starting today for paying Acrobat users. The idea is that the chatbot will reduce the time-consuming tasks related to working with massive text documents — such as helping students quickly find information for research projects or summarizing large reports into snappy highlights for emails, meetings, and presentations.” Read more here
“Apple's next-generation A18 and M4 chips for future iPhone and Mac models will feature an upgraded Neural Engine with "significantly" more cores, according to a report today from the Taiwanese publication Economic Daily News… On an earnings call this month, Apple CEO Tim Cook said the company was working on generative AI and would share details "later this year." iOS 18 should be announced at Apple's annual developers conference WWDC in June.” Read more here
CHIPs Act
“Washington is prepared to pump funds into Vietnam's chip sector to shore up supply chains and wants the country to "take advantage" of its bid to reduce reliance on China, a visiting U.S. envoy said. The U.S. is targeting seven countries for part of its CHIPS and Science Act, which includes $500 million for improving semiconductor training, cybersecurity and business climates globally, said Jose Fernandez, U.S. undersecretary of state for economic growth, energy and the environment.” Read more here
Consumer Inflation Fighters
“For the fiscal fourth quarter, comparable store sales — those from established stores and online operating over the past 12 months — rose 4%, slower than the 4.9% for the Walmart U.S. division for the previous quarter. They rose 6.4% in the second quarter. Global e-commerce sales were up 23%, compared to 15% in the previous quarter. But the average ticket— how much shoppers spent per trip— slipped 0.3% in the latest quarter from a year ago even as the number of transactions rose 4.3%. It's good news that inflation is coming down, but that means Walmart and other retailers have to do more work to sell more items.” Read more here
“Having been burdened by rising prices across the economy for several years, bargain-hunting consumers — and even higher-income households — remain on the lookout for deals. Customers had “immediately responded” to Walmart’s moves to lower the price of a rotisserie chicken by $1 and “roll back” the price of French bread to $1, said chief financial officer John Rainey.” Read more here
EV Transition
“Ford Motor Co. cut the price of its electric Mustang Mach-E by as much as $8,100 after its sales tumbled 51% in January when the automaker had to stop offering tax incentives on the plug-in model. The automaker lowered prices on multiple versions of the 2023 model Mach-E by a range of $3,100 to $8,100, according to an emailed statement Tuesday.” 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.
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.
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.
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.