Gloomy Guidance, December PCE Price Index on Deck, Model Musings
January 26, 2024
US equity futures point to a weak market open as investors digest weaker-than-expected guidance from Intel (INTC), Visa (V), and others.
Following yesterday’s eye-popping GDP print for 4Q 2023 which was significantly stronger than market and even regional Fed GDP forecasts, this morning’s stream of data includes the December PCE Price Index. Both the market and the Fed will be particularly eyeing what it shows for the core PCE Price Index compared to its November reading of +3.2% YoY. Puzzling through yesterday’s GDP report implied that the December figure should be around 3.0%. Another data point depicting a continued step down in one of the Fed’s preferred inflation metrics, but one that is still distant from the central bank’s 2% target.
Should the reported December figure come in around that implied level, paired with the initial 4Q 2023 GDP print of +3.3%, the market should prepare itself for what Fed Chair Powell will say following the conclusion of next week’s monetary policy meeting. Odds are it will be a message the Fed isn’t in a rush to begin cutting interest rates and that any cuts this year are likely to be more in line with the forecast it laid out in its December economic projections. In other words, roughly half of what the market has been calling for.
Shares of Intel (INTC) are selling off in pre-market trading this morning following meaningfully weaker-than-expected guidance for the current quarter. For its December quarter, Intel delivered EPS of $0.54, ahead of the $0.45 consensus, on revenue that rose 9.7% YoY to $15.4 billion, besting the consensus forecast. Management sees a sharp sequential drop in March quarter EPS to $0.13, well below the $0.34 consensus.
Visa (V)’s consensus topping December quarter results were overshadowed by the company’s slightly weaker-than-expected payments volume in Q1 2024 and increased its expense growth guidance for FY2024. Visa now anticipates annual operating expense growth in the low double digits, up from its previous guidance of high single digits. The company also revised its annual net revenue growth forecast to the low double digits, compared to the prior range of high single digits to low double digits. This combination should place some pressure on margins, but management reiterated it sees Visa’s EPS growing in the low teens year over year.
The Florida House of Representatives passed a bipartisan legislation that bans minors under the age of 16 from creating social media accounts. The bill, known as HB 1, also requires social media platforms to terminate existing accounts of such minors and verify the ages of account holders. The bill now goes to the state's Senate for approval, before heading to Governor Ron DeSantis' desk. If cleared, it would go into effect in July.
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Model Musings
Consumer Inflation Fighters
“63% of U.S. adults say inflation is causing them to save less for unexpected expenses, while 45% say the same of rising interest rates. However, 19% of people say rising interest rates are causing them to save more for unexpected expenses.” Read more here
Digital Infrastructure & Connectivity, Precision Ag & Agri Science
“John Deere announced this week a partnership with SpaceX to allow their precision agriculture products to connect via satellite. The deal billed as the first of its kind will allow farmers to install satellite terminals on their equipment and connect through SpaceX’s Starlink system when unable to connect to a cell or other internet signal. Mike Kool, senior product manager with John Deere’s Connected Fleet, says the service will begin to roll out to John Deere’s equipment in the second half of this year.” Read more here
Luxury Buying Boom
“Luxury goods group LVMH posted a 10% rise in fourth quarter sales, as growth edged up from the previous quarter, driven by resilient demand - including from Chinese buyers - for its high end fashion over the all-important end-of-year period. Sales at the world's biggest luxury group, which owns labels including Louis Vuitton, Dior and Tiffany, came to nearly 24 billion euros ($26 billion) in the final three months of the year, stripping out currency fluctuations and acquisitions. That was just ahead of analysts' expectations for 9% growth, according to a consensus cited by HSBC. Sales had grown by 9% in the third quarter, and by 17% in both the first and second quarters.” 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.
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.