Fed Speakers, Market Dynamics, Waiting for Nvidia
But we have a fresh batch of signals to share
With the Nasdaq Composite hitting an all-time high yesterday, it’s fair to say the market is getting ready for Nvidia’s quarterly results after tomorrow night’s close. Helping boost those expectations and adding a fresh round of fuel for AI were the announcements from not only Nvidia and Dell (DELL) — see more below -- but Microsoft’s announcement of a Surface Laptop and a Surface Pro tablet with a Qualcomm (QCOM) chips that can run some AI tasks without an internet connection. Other computer makers like Lenovo (LNVGY), Dell, HP (HPQ), Asus (ASUUY), Acer (ACEYY), and Samsung (SSNLF) are also launching AI-ready PCs powered by Snapdragon chips from Qualcomm.
This points to an AI-on-device upgrade cycle for connected devices that turbocharger content creation and consumption, forcing incremental spending on digital infrastructure. In short, we see all of these as tailwinds for our Artificial Intelligence and Digital Infrastructure strategies.
Getting back to today, there are no major US economic data releases, but we will have at least six Fed speakers making the rounds. Ahead of Thursday’s Flash May PMI data, that group is likely to repeat Fed speaker messaging of the last few days - more data is needed to become comfortable that inflation is getting back on a downward slope on a sustainable basis. With copper and other commodities hitting their highest levels, in some cases in multiple years, there is reason to think the path to Fed rate cuts may not be as soon as September.
Should the market continue to melt up, both the S&P 500 and the Nasdaq Composite could enter overbought conditions with relative strength indicators crossing above 70. We’re already seeing folks question the current market multiple of 21.8x forward EPS, which almost matches the S&P 500’s peak P/E multiple of the last two years. Moving into overbought territory is likely to fuel even more such questions, putting the focus back on the economy and prospects for even stronger EPS generation than is currently expected.
With the Fear and Greed Index flashing “Greed” and Citi’s Panic-Euphoria model knocking on “Euphoria”, if Nvidia’s earnings and guidance or the Flash May PMI data fail to wow, we could see the market give back some of its high-single-digit gains notched over the last month. Perhaps it would be a good time to revisit our Market Hedge model?
Model Musings
Aging Population
“More Americans are turning 65 this year than ever before, and that number is set to creep even higher over the next few years. It’s fueling a huge rollout of new retirement products — but they’re not all golden tickets. An average of 11,200 Americans will reach that traditional retirement age each day in 2024, according to a recent report by the Alliance for Lifetime Income.” Read more here
Artificial Intelligence
“Bank of New York Mellon Corp., the longest operating company in New York, the oldest member of the S&P 500 and the first stock listed on the New York Stock Exchange, is doubling down on AI to help drive its expansion, according to its chief executive officer.
“It’s going to create great opportunities for our client-facing businesses,” Robin Vince said in an interview on Bloomberg TV. “We have the opportunity with our people to really help make their roles more efficient and to be able to focus them on serving our clients.” Read more here
“Dell Technologies Inc. is unveiling a new line of personal computers optimized for artificial intelligence tasks, betting that they will help rejuvenate a long-struggling business. “We’re going to be delivering them in volume” this year, Chief Executive Officer Michael Dell said in an interview. By next year, “it’ll be pretty standard.” Read more here
“Nvidia Corp. Chief Executive Officer Jensen Huang said its partnership with Dell Technologies Inc. will spread artificial intelligence to a wider range of customers, helping businesses and organizations create their own “AIfactories.” Read more here
Consumer Inflation Fighters
“Gen Z consumers ages 22 to 24 have higher debt levels and delinquency rates for a number of credit products — from credit cards to mortgages and student loans — than Millennials did at the same age a decade ago, according to a new report from credit bureau TransUnion. In fact, the average credit card balance for early twentysomethings was $2,834 in 2023. That’s 26% higher than the balance Millennials carried at the same age in 2013 after adjusting for inflation.” Read more here
“Roughly one in seven (15.3%) Gen Z credit card borrowers have maxed out their credit cards, according to new research from the Federal Reserve Bank of New York. (The NY Fed defined Gen Z as borrowers born between 1995 and 2011, though others mark the cut off as 1996 or 1997). By comparison, just 4.8% of Baby Boomer borrowers and 9.6% of Gen Xers have maxed out their credit cards, which can be a sign of a severely tight cash-flow problem.” Read more here
“Target will be lowering prices on at least 5,000 frequently shopped products across its assortment ranging from milk to diapers, the big-box retailer said on Monday, as it looks to attract budget-stretched customers.” Read more here
Cybersecurity
“For years security experts have warned that a technology at the heart of global communications is dangerously insecure. Now there is proof that it has been used to snoop on people in America. Kevin Briggs, an official at America’s Cybersecurity and Infrastructure Security Agency, told the Federal Communications Commission (fcc), a regulator, earlier this year that there had been “numerous incidents of successful, unauthorised attempts” not only to steal location data and monitor voice and text messages in America, but also to deliver spyware (software that can take over a phone) and influence American voters from abroad via text messages.” Read more here
EV Transition
“Lamborghini SpA is holding off for now on making its roaring sports cars fully electric as skepticism around the technology grows. While performance won’t be an issue in an EV, some emotional aspects — like the sound of the Huracan’s V10 engine — can’t be replicated, said Lamborghini boss Stephan Winkelmann. The Volkswagen AG-owned brand also remains open to use e-fuels if regulation becomes more favorable.” Read more here
“The world is facing a shortage of the minerals needed to make the electric vehicles, wind turbines, solar panels, and other clean energy technologies essential to ending its reliance on fossil fuels. The Paris-based International Energy Agency said in a report published Friday that steep drops in the prices of lithium, cobalt, nickel, and graphite last year were “good news for consumers” but discouraged investment in the mining of those critical minerals. The world is on track meet only 70% of global copper demand and 50% of lithium demand by 2035, the agency added.” 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.