June Retail Sales and Housing Starts - Tea Leaves for These Models
Prime Day 2024 and competing offers bode well for a different model
Stocks were buoyed yesterday by comments from Fed Chair Powell reiterating the Fed won’t wait until inflation is down at 2% to start cutting interest rates. Powell also shared that data received during the June quarter “add somewhat to confidence” that the pace of inflation is moving lower on a sustained basis. Reading between those comments it suggests the Fed still wants to see more “good data” before embarking on rate cuts.
While the market does not see a rate cut when the central bank concludes its next policy meeting in roughly two weeks, the market will be looking to see what is said in the corresponding policy statement and Powell’s tone during the post-policy press conference when it comes to its expectation for a September rate cut. As of this morning, the CME FedWatch Tools puts the odds of a September 25-basis point rate cut at 87.6%. It also shows the market expecting two additional rate cuts before the end of 2024.
About Powell’s comment that he does not see a hard landing for the US economy, today’s economic data will focus on June Retail Sales giving us a snapshot of the consumer and where they have been opening up their wallets. Today is also the start of Amazon’s (AMZN) 2024 Prime Day and yes, there are competing efforts out there from Walmart (WMT)and others. Adobe (ADBE) Analytics sees spending on Amazon’s two-day event rising 10.5% year over year to roughly $14 billion, but we see it as the latest confirmation point for our Digital Lifestyle model. We are likely to see consumers captured by our Cash-Strapped Consumer model lean into Amazon’s event, likely pulling forward Back-to-school shopping.
Tomorrow brings the June Housing Starts report, which we see as the next data point for our Homebuilding & Materialsmodel, one that has rebounded sharply in recent days amid growing expectations for rate cuts. Not-seasonally adjusted single-family housing starts, which don’t reflect the Census Bureau hocus pocus seasonality math, showed single-family housing starts bottomed in December and have been rising steadily since with activity for May 2024 up year-over-year. This suggests a pick-up in activity even as the market waits for the start of rate cuts, something that could give some further lift to that data.
Model Musings
Aging of the Population
“A growing number of undocumented immigrants are hitting retirement age without savings or the cushion of Social Security or Medicare, making up a contingent of baby boomers who are financially insecure and poised to strain community services.” Read more here
Aging of the Population, Artificial Intelligence
“Cambridge scientists have developed an artificially intelligent tool capable of predicting in four cases out of five whether people with early signs of dementia will remain stable or develop Alzheimer's disease. Dementia poses a significant global health care challenge, affecting over 55 million people worldwide at an estimated annual cost of $820 billion. The number of cases is expected to almost triple over the next 50 years.” Read more here
Artificial Intelligence
“CFOs and other C-suite executives are scrambling to keep pace with rapid advancements in the area of AI that are expected to boost the U.S. economy in coming years. Generative AI in particular could enable automation of up to 70% of business activities across almost all occupations by 2030, adding trillions of dollars in value to the global economy, according to McKinsey. The results of a Gartner survey announced Tuesday revealed that 62% of CFOs and 58% of CEOs believe that AI will have the most significant impact on their industries in the next three years.” Read more here
Artificial Intelligence, Safety & Security
“Growing conflicts around the world have acted as both accelerant and testing ground for AI warfare, experts say, while making it even more evident how unregulated the nascent field is. The expansion of AI in conflict has shown that national militaries have an immense appetite for the technology, despite how unpredictable and ethically fraught it can be. The result is a multibillion-dollar AI arms race that is drawing in Silicon Valley giants and states around the world.” Read more here
Cash-strapped Consumer
“In second-quarter results on Friday, JPMorgan Chase, Citigroup, Wells Fargo and BNY cautioned about consumers grappling with lower savings and higher prices… Profits at Citi’s US consumer lending business, which includes credit cards, plunged 74 per cent from a year ago. The bank’s chief financial officer, Mark Mason, said consumer spending was slowing overall, with account balances now lower than they were before Covid. US consumers were more cautious than they had been in a while, he added. “We are not seeing the same growth in consumer spending that we had in prior quarters,” said Mason. “There was less traffic in the retail venues that we partner with.” Read more here
“…among consumers who had purchased groceries in the previous month, 23% said that facing higher prices than other merchants was the top issue or challenge faced in the process. This share is greater than those who said the same in any other industry and greater than those who said the same of any other difficulty purchasing groceries.” Read more here
Cloud Computing
“Service providers, a group that includes cloud service providers, digital service providers, communications service providers, hyperscalers, and managed service providers, spent $32.2 billion on compute and storage infrastructure in Q1 2024, accounting for 68.7 percent of the total market. By comparison, non-service providers, such as enterprises and governments, spent $14.7 billion during the same period… As a result of this growth, IDC is forecasting that total cloud infrastructure spending will reach $138.3bn in 2024, up 26.1 percent from 2023, of which $108.3bn is expected to come from spending on public cloud infrastructure.” Read more here
Cybersecurity
“Hacktivist group NullBulge claims to have breached Disney, leaking 1.1 TiB of internal Slack data. The leak allegedly includes messages, files, code, and more. This comes amidst breaches affecting AT&T and Ticketmaster.” Read more here
“AT&T on Friday disclosed that hackers had accessed records of calls and texts of "nearly all" its cellular customers for a six-month period between May 1, 2022 to Oct. 31, 2022… The company said hackers downloaded the data "from our workspace on a third-party cloud platform… This data breach is separate from one disclosed earlier this year by AT&T…” Read more here
“Months after the so-called “mother of all breaches” was uncovered in January, another record-breaking leak has been posted online. According to the Cybernews research team, a password compilation containing nearly 10 billion unique plaintext passwords (9,948,575,739 to be exact) was published on a hacker forum on July 4th.” Read more here
EV Transition
“In the trade war between the West and China, a battle over electric vehicles (EVs) has begun. In May, as part of a broader volley against Chinese tech, America slapped a 100% duty on Chinese EVs. On July 2nd Canada launched a consultation on what it called “unfair Chinese trade practices” in the EV industry. Three days later a provisional tariff of up to 37.6% on Chinese EVs took effect in the EU. On July 10th, days after the symbolic swipe of opening an anti-dumping probe into European brandy, China’s Ministry of Commerce signaled it will not take the assault lying down. It says it will study whether the EU’s tariffs create barriers to free trade.” 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.