July 7: A Big, Beautiful Week? Pennsylvania Ave Visits Wall Street
This week - Big for sure, but beautiful? It could very well be for some sectors.
Recap
A quick recap of last week, as abbreviated as it was, is that the S&P 500 index hit successive all-time highs. The first came on the heels of a surprisingly poor ADP update which of course spurred speculation of potential Fed rate cut action. The announced completion of a trade deal with Vietnam which set future tariff rates at 20%, down from the proposed 46% but up from “15% or less” per the World Trade Organization also provided some immediate relief to consumer staples companies like Nike (NKE), and lululemon (LULU). While 20% is less than 46% we still have to see what this resolution will mean for future earnings. It’s clear that these costs will be, in some form, passed onto consumers but it will be only those that truly understand the dynamics of demand elasticity that will be able to accurately gauge the bottom line impact here. The second all-time high also came courtesy of an employment update but this time it was an unexpectedly high payroll number coupled with the unemployment rate dipping from 4.3% to 4.1% that reassured traders that actually, things are going okay and who need Fed rate cuts anyway?
What can we say?
Wall Street is gonna’ Wall Street.
The Bill at The Bell
As we gear up for this week, some market segments to keep an eye on for better or for worse include AI, Healthcare, Renewable Energy (except Nuclear), EV Manufacturers (especially Tesla (TSLA) given Trump’s recent threat to sic DOGE on Elon), Consumer Financials, and Gaming companies.
Now, given the near certainty that this piece of legislation was going to pass, we saw some directional trading in some names last week so we’re not saying that these moves are coming out of the blue.
In terms of hardest hit, we’d have to say its a toss up between Healthcare and Renewables/EV Manufacturers. $1 trillion of proposed cuts (over 10 years) to healthcare funding will not only have serious impacts on patients but also leave healthcare companies with the added drag of what has been described as uncompensated care costs. Additionally, costs associated with rural healthcare service buildouts will now be borne entirely by providers. One final thorn in providers’ sides is the top and bottom line impacts of the sheer number of former customers now priced out due to affordability. On the Renewables and EV Manufacturer side of things, the elimination of tax breaks for Renewable projects (solar and wind) after 2027 and the September 2025 elimination of the EV tax credit will provide a pain point for those market segments including EV Transition (EVTRANS). It should be noted that while Renewable Energy projects are getting shortchanged that Nuclear Energy, while still being “Alt Energy”, gets a pass here. In fact, despite a roughly 24% budget cut to the Office of Nuclear Energy it remains a centerpiece of the Administration’s solution to anticipated AI and Data Center power demands, something that we think will continue to be a particularly stiff tailwind for Nuclear Energy & Uranium (NUKE).
The Gaming sector is where things start to look up. While there are no changes that directly impact names like DraftKings (DKNG) and casino operators like MGM Resorts (MGM), Wynn Resorts (WYNN) a change in the tax code effective in 2026 allowing gamblers to claim up to 90% of losses against winning is expected to spur the industry, from penny slots to high stakes tables. Another industry where the concept of being “right” at least 51% of the time comes into play is Financial Services, which will continue to benefit from the ongoing dismantling of consumer advocacy groups and other protections. The bump here comes in the form of reduced regulatory and compliance costs as well as the benefit of not having to simplify or otherwise moderate certain product and/or service fee structures.
The largest and maybe slightly confusing tailwind will be the 10-year moratorium on state-sponsored regulation of AI. This clause made headlines a week or so ago, but those headlines implied an outright ban on any regulation of AI. As it turns out, this clause seems to have been inserted as a preemptive measure to avoid ending up with yet another patchwork quilt of state laws gumming up the execution of what some assumedly anticipate to be just the right balance of national security and personal freedoms in a federally mandated AI policy. There are those who are anticipating yet another boon for the likes of Nvidia (NVDA), Microsoft (MSFT) and other infrastructure providers/developers. Our take is that it will be those companies that already have access to Petabytes (PB) and Exabytes (EB) of consumer and other data like Meta Platforms (META) and Palantir Technologies (PLTR) who will be the true beneficiaries of this part of the bill. If what we think the Administration’s AI goals are come to fruition, these companies’ software developers will be encouraged to “move fast and break stuff” with as much data as their systems can handle.
As for the balance of markets, tariffs are scheduled to go into effect July 9. As this is being written, futures are trading down about 0.30% across the board, so there is some trepidation around tariff outcomes. Given Trump’s penchant for “keeping them guessing”, the words of Yogi Berra ring as true as they ever did when he plainly stated that “it ain’t over until its over.”
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 Consumers - 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.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
Digital Infrastructure & Connectivity - Companies that are integral to the development and the buildout of the infrastructure that supports our increasingly connected world.
Digital Lifestyle - The companies behind our increasingly connected lives.
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.
Nuclear Energy & Uranium – Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.
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 indicates – 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 above.