June CPI On Deck But Keep An Eye on the Earnings Ball
A favorable core CPI print could stretch the market even further, calling into question its valuation
Comments from Fed Chair Powell over the last two days have rekindled market expectations for rate cuts even though Powell, in rather plain English, shared he was not signaling anything when it came to monetary policy. Those market vibes helped push the S&P 500 and Nasdaq Composite higher, which were also spurred on by the 40% year-over-year jump in June quarter revenue reported by Taiwan Semiconductor (TSM). Following lifted June quarter guidance from Corning (GLW) earlier this week was the latest confirmation point for AI and data center demand.
Rounding things out, Bloomberg reported Apple (AAPL) expects to ship 90 million iPhone 16 models in 2H 2024, an 11% increase compared to iPhone 15 volumes shipped in 2H 2024. Why? The company’s thinking is based on expectations for Apple Intelligence. Findings from research firm Canalys showed the PC market rebound continuing in the June quarter, with Apple taking some market share from other vendors. But as Canalys shares, AI along with the expected Windows 11 refresh cycle is expected to drive continued growth in the PC market over the coming four quarters.
The wind-up?
Both the S&P 500 and Nasdaq Composite are even deeper in overbought territory with relative strength readings above 80. Should this morning’s June CPI report show further progress when it comes to inflation, we could see the market push higher again fueled by rate-cut optimism. However, past a certain point, the market’s valuation of 23.1 expected 2024 EPS will come to the forefront of investor thinking. In our view, this will place a lot of pressure on 2H 2024 earnings expectations for the S&P 500. We’d remind you that over the last 22 years, the S&P 500 peaked at 24.0x current year EPS.
To put it plainly, to see more P in the S&P 500’s P/E ratio, we will need to see more E from that basket of companies in 2H 2024 than the market currently expects. If the start of the June quarter earnings season suggests that may not be the case, a repeat of the April fall in the market is a potential scenario. We’re not ones to tell you what to do, but while folks are enjoying the continued move in some of our targeted exposure models, like Artificial Intelligence and the CHIPs Act, maybe they should revisit and become familiar with the Market Hedge as well.
Model Musings
Aging Population
“The world’s population is getting older in what the United Nations calls an “irreversible global trend,” driven by longer lives and smaller families. The number of people aged 65 and older is expected to more than double to 1.6 billion globally by 2050, according to a UN report published last year. In Japan, this change is threatening one of the world’s largest economies as the percentage of older people grows and fewer couples have children.” Read more here
Cybersecurity
“The king is dead. Long live the king. Cybernews researchers discovered what appears to be the largest password compilation with a staggering 9,948,575,739 unique plaintext passwords. The file with the data, titled rockyou2024.txt, was posted on July 4th by forum user ObamaCare.” Read more here
“Ticketmaster hackers leak 30,000 ticket barcodes for top upcoming events, including music concerts. They also share a DIY counterfeit tutorial on making physical tickets from the leaked barcodes and other ticketing data.” Read more here
Data Privacy & Digital Identity
“EU regulators and legislators have been grappling with the problem of digital identity for years. It's a key enabler in delivering other policy objectives, such as removing barriers to cross-border trade, boosting confidence in electronic transactions and accelerating the growth of the digital economy.” Read more here
“The Senate Commerce Committee will hold a hearing Thursday centered on privacy-related concerns stemming from the rise of artificial intelligence (AI), the committee announced Monday. The hearing will examine how AI has “accelerated the need for a federal comprehensive privacy law,” according to the committee announcement.” Read more here
Digital Infrastructure
“In the first quarter of 2024, the global adoption of 5G connections continued its steady climb, reaching nearly two billion with an addition of 185 million new connections, according to data from 5G Americas and Omdia… Global 5G connections are projected to reach 7.7 billion by 2028, with North America forecast to boast an impressive 700 million 5G connections by the same year.” Read more here
“Nine billion cellular smartphone and IoT devices with embedded and integrated SIMs (eSIMs and iSIMs) will be in the market by 2030, reckons Counterpoint Research.” Read more here
“Here is a question to ponder. Will traditional wireline broadband be extinct in ten years? In what seems like a massive blow to existing wireline broadband providers like the cable television and telephone companies, there is speculation that the industry is rapidly moving to wireless.” Read more here
Digital Lifestyle
“… new data from Precise TV shows kids are widely turning to social video and UGC for entertainment — further chipping away at traditional streaming’s dominance… In terms of consumption preferences, YouTube was the top video platform of choice among those surveyed, a majority that increased by 9% between 2023 and 2024.” Read more here
Safety & Security
Italy is planning to spend just under 7.5 billion euros ($8.1 billion) over the next 11 years on 24 new Eurofighter jets, according to a document by the Ministry of Defence seen by Reuters on Monday. The procurement will renew the fleet of Italy's air force given the necessary decommissioning of aging Eurofighter and Tornado jets at a time of increased defence spending by NATO alliance members caused by heightened geopolitical uncertainty.” Read more here
“Drone as First Responder (DFR) dominated the conversation. DFR initiatives continue revolutionizing emergency response protocols by integrating drones into the 911 dispatch system. Instead of merely reacting to emergencies, drones equipped with live 911 capabilities can immediately respond to incoming calls. With pilots standing by in a hot ready state, drones can take off within seconds of a received call, often arriving at the scene within seconds.” Read more here
“The global public safety and security market size was USD 394.40 billion in 2023. The market is projected to grow from USD 583.47 billion in 2024 to USD 1,197.49 billion in 2032, exhibiting a CAGR of 9.4% during the forecast period.” 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.