Home Depot’s Comp Sales Cut, July PPI on Deck
All eyes AI at this afternoon's Google Made By event
Ahead of this morning’s July Producer Price Index (PPI) report, equity futures are mixed. The market expects the PPI data is expected to show core PPI falling to 2.7% from June’s 3.0% print. On a sequential basis, July core PPI is forecasted to slow to 0.2% from 0.4% the month before. Such figures would be more of that “good data” the Fed is looking to see, especially following the upward trend in the year-over-year data since March’s 2.1% print.
There is room for some disappointment in these July core PPI figures because ISM’s July Service PMI pricing sub-index rose to 57 from June’s 56.3 reading, while its corresponding report for July Manufacturing put its pricing sub-index at 52.9, up from June’s 52.1 figure. To the extent the July PPI data is warmer than expected, it could raise an eyebrow about the 100 basis points of rate cuts the market expects across the Fed’s remaining three policy meetings. Greater pushback would happen if tomorrow’s July core CPI data comes in greater than the market expects and if that’s what we get, readers should expect more market volatility to come with it.
Home Depot cuts comp sales outlook
We kick off this week’s bout of retailer earnings with this morning’s quarterly results from Home Depot (HD). The big box retailer topped consensus expectations for its July quarter despite declines in the number of customer transactions and average ticket size. However, the company’s updated outlook calls for weaker-than-expected EPS growth and for its full-year comp sales to fall 3%-4% year over year vs. 3.25% during the first half of the year. Previously it expected comparable sales to decline about 1%.
The July quarter included six weeks of recently acquired SRS Distribution and how that factors into management’s guidance for the balance of the year will be fodder for this morning’s earnings call. Odds are it means the base Home Depot business is a wee bit softer than the comp sales guidance implies.
Eyes on AI at Google’s Made By event
This afternoon, Alphabet’s (GOOGL) Google will have its latest Made By event during which it is expected to show its new Pixel 9 smartphone, the Pixel 9 Pro Fold, and take the wraps off Android 15, its latest OS. Between this new smartphone hardware and others that may be introduced tomorrow, the big question is how Google’s Gemini AI will be in the mix. If the event shows some compelling AI-infused applications that drive productivity, it has the potential to re-energize the market about the rebounding smartphone market and the AI upgrade cycle.
Our medium to longer-term thinking remains that AI uptake across the enterprise and the adoption of AI on devices (PCs, smartphones, tablets) will lead to the next explosion in digital content creation and consumption. That in turn will pressure existing network capacity levels, translating into spending for additional digital infrastructure capacity.
Model Musings
Artificial Intelligence, Safety & Security
“At this weekend’s DEF CON conference, the Defense Advanced Research Projects Agency convened 90 teams and asked them to build autonomous agents to probe open-source code bases, find vulnerabilities and automatically fix them. Building technology capable of doing so represents a white whale of AI development: a highly difficult-to-achieve technological breakthrough that could deliver massive gains in cybersecurity.” Read more here
Cash-Strapped Consumer
“On Monday, the Federal Reserve Bank of New York reported that Americans’ expectations of how much they’ll spend in the next 12 months has declined — and so has their outlook for inflation. Consumers expect their spending to grow 4.9% in the coming year, according to a survey by the New York Fed. That is the lowest such reading since April 2021, when inflation was beginning to surge.” Read more here
“Despite decreases in inflation rates, consumers continue to perceive that the cost of everyday essentials, including groceries and retail products, are on the rise. This is especially true among struggling paycheck-to-paycheck consumers. In addition, 7 in 10 consumers believe that their income has not matched inflation. As a result, from groceries to retail, many consumers are trading down. If they’re buying at all, many are buying cheaper or lesser quality alternatives.” Read more here
“Well, in our consumer base of 60 million customers spending every week, what you're seeing is they're spending at a rate of growth of this year over last year, for July and August so far, about 3%. That is half the rate it was last year at this time. And so the consumer has slowed down. They have money in their accounts, but they're depleting a little bit. They're employed, they're earning money, but if you look at- they've really slowed down.” Read more here
Cybersecurity, Data Privacy & Digital Identity
“Almost 2.7 billion records of personal information for people in the United States were leaked on a hacking forum, exposing names, social security numbers, all known physical addresses, and possible aliases. The data allegedly comes from National Public Data, a company that collects and sells access to personal data for use in background checks, to obtain criminal records, and for private investigators. National Public Data is believed to scrape this information from public sources to compile individual user profiles for people in the US and other countries.” Read more here
“Attackers impersonating the Security Service of Ukraine (SSU) have used malicious spam emails to target and compromise systems belonging to the country's government agencies. On Monday, the Computer Emergency Response Team of Ukraine (CERT-UA) disclosed that the attackers successfully infected over 100 computers with AnonVNC malware.” Read more here
Digital Infrastructure, Nuclear Energy & Uranium
“Across the U.S. East Coast, nuclear power plant owners are proposing marriages to tech giants who are both desperate for electricity to fuel their massive data-center expansion plans and publicly committed to using clean energy. The proposals go like this: Build data centers that connect directly to our round-the-clock, carbon-free nuclear power, and secure long-term financial and clean-energy benefits for the both of us.” 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.
Cash Strapped Consumer - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.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.
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.
Digital Lifestyle - The companies behind our increasingly connected lives.
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.