Fed Speakers, Bank Stress Tests, Micron Earnings
and the road to Friday's May PCE Price Index data
Coming off the Nasdaq Composite’s worst day in the last few months, Nasdaq futures point to a higher open this morning as do those for the S&P 500. Some of that lift is due to the pre-market rebound in Nvidia (NVDA) shares following their double-digit slide in recent days. But even after that recent fall, NVDA shares are still up considerably year-to-date, helping power our EPS Diplomats model and having a positive effect on our Digital Infrastructure and AI models as well. The arguable silver lining for NVDA’s move lower is it pulled both the Nasdaq Composite out of overbought territory and did the same for the S&P 500 but to a more modest degree.
Other than June Consumer Confidence out at 10 AM ET today and May New Home Sales tomorrow at 10 AM ET, the market will likely take its cues from the latest parade of Fed speakers as it gets ready to close the books on the current quarter. Even though rolling GDP forecasts like that published by the Atlanta Fed do not incorporate last week’s June Flash PMI data from S&P Global, it found the US economy growing above trend, more jobs being added and further progress on inflation. This, along with the May CPI and PPI data, suggest we’re going to hear Fed speakers this week say that yes, signs are encouraging but we will still need to see more progress.
As we discussed in yesterday’s The Week Ahead video, this sets up Friday’s May PCE Price Index data as a focal point in what is a pretty dull market week outside of earnings from FedEx (FDX), Micron (MU), and Nike (NKE). Comments and guidance from Micron after Wednesday’s market close, are a potential catalyst for NVDA shares as well as those tied to the PC, data center, and smartphone markets.
Before we get to that report and its implications, folks invested in or closely watching banks and related financial companies are waiting for the Fed to publish the results for its latest round of bank stress tests late Wednesday afternoon. Under the "stress test" exercise, the Fed tests big banks' balance sheets against a hypothetical scenario of a severe economic downturn, the elements of which change annually. The scenarios change each year but this year it will likely include a slump in the commercial real estate market and a global stock market shock. Once the findings of these stress tests are known, banks and related companies have made new dividend announcements and in some cases updated share repurchase programs.
Model Musings
Aging of the Population
“Amazon.com's (AMZN.O), opens new tab pharmacy unit said on Tuesday it is expanding eligibility for its monthly subscription service, which covers a range of generic drugs, to those enrolled in government-backed Medicare insurance plans… With the expansion, Amazon said over 50 million more people will be eligible to use the service, known as RxPass, which was launched for U.S. Prime members in January 2023 and is priced at $5 a month.” Read more here
Artificial Intelligence
“Citigroup, the global investment firm concluded that the banking industry will be the hardest-hit by the deployment of AI, with $54% of roles at risk for AI-led job displacement. Additionally, another 12% of banking jobs could be potentially augmented by AI.” Read more here
“Google announced on Monday that it’s bringing its AI technology Gemini to teen students using their school accounts, after having already offered Gemini to teens using their personal accounts. The company is also giving educators access to new tools alongside this release.” Read more here
“The Recording Industry Association of America said it filed twin lawsuits Monday against Suno AI and Uncharted Labs Inc., the developer of Udio AI, on behalf of Universal Music Group NV, Warner Music Group Corp. and Sony Music Entertainment. The complaints allege the companies are unlawfully training their AI models on massive amounts of copyrighted sound recordings. The RIAA, a trade group for record labels, is seeking damages of as much as $150,000 “per work infringed.” That could amount to potentially billions of dollars.” Read more here
Cash-Strapped Consumer
“A recent GOBankingRates survey revealed that many Americans are struggling to pay their utility bills, with 44% stating that they have had trouble keeping up with their payments for gas, electric, heating and/or internet bills over the last six months to a year. Electric bills are causing the most financial stress, with 35% of Americans stating that these bills have been the hardest to keep up with amid the ever-rising cost of living.” Read more here
“Back-to-school sales are getting earlier and earlier, as brands and retailers look to beat their competition to the punch… A survey from LTK found that a third of consumers have begun back-to-school shopping by late June, and nearly half have started by early July.” Read more here
“One in ten U.S. consumers has an annual income of $50,000 or less, lives paycheck to paycheck and says they have issues paying their monthly bills. Not that they won’t eventually pay them, but each month becomes a game of bill-pay roulette as consumers decide which biller can wait a little longer. Interestingly, of all household bills, utilities, insurance, mobile phones and credit cards make the monthly cut — the billers that carry a big downside risk if not paid.” Read more here
Cloud Computing
“Amazon.com Inc., the world’s largest provider of cloud computing services and data storage, said it will invest an additional €10 billion ($10.7 billion) into its cloud infrastructure and logistics network in Germany as the technology giant expands its network of data centers globally. The latest plans include €8.8 billion to build and maintain its cloud infrastructure for the AWS cloud computing business in the Frankfurt region by 2026…” Read more here
Cybersecurity
“And with the news that car dealership software-as-a-service (SaaS) platform CDK Global suffered an additional breach Wednesday (June 19) night just as it was starting to restore systems shut down in a Tuesday (June 18) cyberattack, the simple fact that trouble with a key infrastructure provider can result in a butterfly effect of industry disruptions is top of mind for businesses relying on external software solutions.” Read more here
“Consumer data from LendingTree subsidiary QuoteWizard was reportedly stolen by hackers, who are selling it to the highest bidder on cybercriminal forums. The theft and subsequent sale of stolen data may be part of the incident in which hackers accessed cloud database accounts hosted by Snowflake…” 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.