Fed Quiet Period, Tech Earnings on Deck, April Flash PMI
All that and some fresh model musings as well
While the Fed is in its quiet period ahead of the May 1 conclusion of its next policy meeting, the volume of quarterly earnings reports rachets higher today and will continue to do so later this week. By the end of it, roughly 40% of the S&P 500’s basket of companies will have not only reported but will have also updated their guidance. Following last week’s Super Micro (SMCI) lack of a positive pre-announcement, something that spooked investors about the AI market, comments this week from Alphabet (GOOGL), Amazon (AMZN), and Meta Platforms (META) will determine whether Big Tech rebounds or continues to correct. After today’s market close, Tesla (TSLA) will report and with the shares under pressure amid EV price cuts, slowing EV sales, and slashing the price of its Full Self-Driving (FSD) assisted driver software, the earnings call could be quite the spectator event.
Recent appearances by Fed officials before the current quiet period pushed back further on the expectations for interest rate cuts. The reason? The “lack of progress” this year on inflation. At the same time, recent data lifted the Atlanta Fed’s GDPNow model forecast for the March quarter to +2.9%, a quicker pace compared to its early April figure.
Today, the Flash April PMI report will give us an initial look at the inflation pressures and the speed of the economy entering 2Q 2024. Should the report’s findings mimic those in the February and March reports, it will indicate that inflation remains sticky and the economy remains on firm footing. That would be another reason for the Fed to take an even more conservative stance next week.
Our thinking is the market will eventually come around to the likelihood that the soonest we could see a rate cut would be in the last two months of the year. But recent comments from Minneapolis Fed President Neel Kashkari that rate cuts may wait until 2025, suggests some at the Fed are contemplating that possibility. To us, it reinforces our view that Powell’s “more good data” was designed to let the market slowly realize the shrinking prospect of rate cuts. It also reminds us to follow the data and parse the Fed Chair’s words for his meaning, not the meaning we want to see in them.
Model Musings
CHIPs Act
“Memory chipmaker Micron looks set to be the next recipient of US government subsidy cash with $6.1 billion heading its way to help fund new-build semiconductor plants. The Boise, Idaho company is one of the three largest memory chip suppliers in the world, so was always a prime candidate for Washington's CHIPS and Science Act handouts aimed at boosting semiconductor production on US soil. Now, a report in the Associated Press claims that Micron's award has been confirmed by Senate Majority Leader Chuck Schumer. He is Senator for New York State, where Micron plans to build a "mega fab" for memory chip production.” Read more here
Consumer Inflation Fighters
“As Mr Dimon points out, nearly 40% of Americans do not have $400 in savings to deal with emergency payments such as medical bills or car repairs.” Read more here
Digital Infrastructure & Connectivity
“Indeed, northern Virginia is known as the data center capital of the world. Loudoun County, less than an hour from Washington DC, is referred to as “data center alley” and has more than 29 million square feet of data center space. Dominion cites that the load from data centers peaked at 2.8GWs in 2022; it is expected to surpass 7GWs by 2032, far more than any other region.” Read more here
Digital Privacy & Digital Identity
Jadoun is busy. He is on the frontline of the largest election in human history, involving India’s 968 million registered voters, and a cacophony of political parties and campaigns across 28 states. His artificial intelligence-powered creations — deepfake videos, conversational bots, personalized messages and holograms — can go viral to millions of voters in dozens of languages within hours. And have never been in such high demand. Some of that is from legitimate sources seeking help to target voters via translations, but there are concerns about the technology being abused.” Read more here
Space Economy
“NASA announced April 3 it picked teams led by Intuitive Machines, Lunar Outpost, and Venturi Astrolab for its Lunar Terrain Vehicle (LTV) Services contract. The contract covers work to design and develop rovers that would be used by astronauts on Artemis missions starting with Artemis 5 at the end of the decade. The rovers would be provided by the companies to NASA as a service, in much the same way the agency is procuring spacesuits and lunar landers.” 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.
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.