June 23: How Our Models Stack Up Against the S&P 500 QTD
This week - watching Iran, June Inflation data, Powell's Testimony, Trump's Bill
We could be seeing a false sense of calm in the stock market this morning following President Trump’s unexpected weekend strike on Iran’s nuclear facilities. Reports as to how effective that strike was are mixed, and while the conflict between Iran and Israel continues, we are waiting to see how Iran carries out vowed retaliation. Per reports, Iran’s parliament called for the closure of the Strait of Hormuz, a key artery for 20%-25% of the world’s oil and natural gas, which makes it a potential chokepoint if disrupted. Whether or not that happens will hinge on Iran’s Supreme Leader Ayatollah Ali Khamenei.
After initially jumping to a five-month-high early this morning in response to that potential closure and the possibility of an expanded conflict in the Middle East, oil prices have tempered their gains. So far, Iran has yet to retaliate against the US or its allies in the region, and that is fueling our comment about a potential false sense of calm this morning. While diplomatic efforts are in motion to prevent a more heated conflict, we would not be surprised to see Iran look to save face on the global stage with some retaliatory efforts.
How much of an effort and whether that escalates tensions further remains to be seen.
For us, that means remaining vigilant as we get ready for today’s Flash June PMI report from S&P Global and Fed Chair Powell’s Semiannual Monetary Policy Report to Congress that begins tomorrow morning. We doubt the Fed Chair will alter his comments following the Flash June PMI data, but we will be examining it closely to see what it says about inflation pressures and demand patterns.
We also have what is likely to be a crucial week for President Trump’s big, beautiful bill”, which looks to be getting a bit smaller as it winds its way through the Senate. As we understand it, Senate GOP leaders are aiming to hold a vote in the coming days and send it back to the House, with the aim of getting it to Trump’s desk by July 4.
We’re also moving closer to Trump’s July 9 tariff deadline. Rumblings out of the European Union point to the US demanding “unbalanced, unilateral concessions.” Those same rumblings indicate the EU is also readying countermeasures subject to what happens on July 9. What we are likely to see emerge is an agreement on principles that would allow the negotiations to continue beyond the July deadline.
As you can see, we have multiple spinning plates to keep tabs on this week as we march toward the end of the June quarter and the start of the June quarter earnings season. As each of these market dominos falls, we’ll factor the repercussions into our thinking as we get ready to rebalance our thematic and targeted exposure models.
How Our Models Stack Up Against the S&P 500 QTD
Speaking of those models, with six trading days left to go in the current quarter and the S&P 500 up 1.47% YTD and 6.3% QTD, it’s fair to say multiple Tematica models are kicking the snot out of the market. Nuclear Energy and Uranium leads the way by a country mile, but there is little to quibble with the gains registered by Cybersecurity, Safety & Security, Space Economy EPS Diplomats, and AI.
What’s pleasing to us is those gains and others correspond to the ripped-from-the-headline signals we share with you. To us that speaks to thematic investing done right unfolding in the world around us. We’ll continue to heed those signals, and if you’re not, maybe you should.
As far as those models that are lagging the market, we’re not surprised based on the lack of positive signals and economic data. And we’ve always said that not all themes work all the time. Another reason to heed the signals we do get and share.
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.