Futures for the S&P 500 and especially the Nasdaq Composite are being lifted by the marketโs strong response to quarterly results last night fromย Amazon (AMZN)ย andย Meta Platforms (META). Those contracts would be even stronger were it not forย Apple (AAPL)ย shares trading off in response to its December earnings report also issued last night.ย
The outlook for indexes could either strengthen or weaken depending on what is found in theย January Employment Report that will be out at 8:30 AM ET.ย Following Fed Chair Powellโs comments earlier this week that quashed a March rate cut, the market is once again trying to determine when the central bank is likely to begin its rate-cutting cycle. Should the economy continue to surprise to the upside, it gives the Fed that much more justification in taking a measured approach to start that effort.
This meansย the current market mindset is that bad news is good news.ย
Why?ย
If the data points to the economy slowing or grinding to a halt, so long as inflation data continues to fall toward the Fedโs 2% target, it could spur the Fed into action sooner rather than later. Understanding that mindset, should the January Employment Report fall meaningfully short of the 180,000 jobs the market expects it to report, the market is likely to view that in a positive light. A far stronger jobs figure or a stronger year-over-year print for average hourly earnings would support the Fed not having to rush into an easing cycle.ย
Appleย (AAPL)ย topped consensus expectations for its December quarter and sharedย thatย it sees its total revenue as well as its iPhone revenueย comparableย to the March 2023 quarter. That suggests a sequential decline of roughly 20%, roughly in line with the $95.6 billion consensus forecast. For the December quarter, iPhone and Services revenue surprised to the upside relative to Wall Street expectations but those gains were mitigated year-over-year declines for iPad and Wearables, Home, and Accessories. Exiting the quarter, Appleโs install base surpassed 2.2 billion and over 1 billion paid subscriptions across its platform.ย
Amazonย (AMZN)ย also topped consensus expectations for its December quarter with its bottom line aided by stronger-than-expected operating income and a pick-up in Amazon Web Services revenues. Advertising sales across the companyโs platform were also strong, rising 26% to $14.65 billion, ~9% of total sales for the quarter. For the current quarter, Amazon sees revenueย in the range of $138.0-$143.5 billion compared to the $142.01 billion consensus with operating income in the $8-$12 billion range, which bookends the $10.3 billion consensus. On the earnings call, Amazon shared it isnโt done driving cost out of the business but does see its capital spending rising compared to the $48.4 billion spent in 2023 as it continues to invest in AWS, generative AI, and large language models.
Metaย Platformsย (META)ย reportedย quarterlyย earnings of $5.33 per share,ย beating analystsโ estimates by $0.51. Revenues rose 24.7%ย YoYย to $40.11 billion versusย the $39.12 billionย consensusย outlook.ย The companyโs daily active usersย (DAUs)rose 6% YoY to an average of 2.11 billion for the quarter while ad impressions delivered across Family of Apps increased by 21% YoY and the average price per ad increased by 2% year-over-year. For its March quarter, Meta sees revenue of $34.5-$37 billion, ahead of the $39.3 billion consensus. Management indicated it will continue to invest heavily in AI, the Metaverse, servers, and data centers with expected 2024 capita spending of $30-$37 billion compared to total 2024 forecasted expenses of $94-$99 billion.ย The company took the step of announcing its first-ever dividend, declaring a $0.50 per share dividend for both class A and B shares of common stock. Holders of record as of February 22, 2024, will receive payment on March 26. Meta also announced a $50 billion increase to its share repurchase program.ย
For more, be sure to read our Daily Markets column published each day by Nasdaq.
Model Musings
Artificial Intelligence
โNvidia Corp. Chief Executive Officer Jensen Huang said countries around the world aiming to build and run their own artificial intelligence infrastructure at home will drive up demand for his companyโs products. Nations including India, Japan, France and Canada are talking about the importance of investing in โsovereign AI capabilities,โ Huang said in an interview Thursday with Bloomberg Television. โTheir natural resource โ data โ should be refined and produced for their country. The recognition of sovereign AI capabilities is global.โ Read more here
โAmazonย has beta launched a new generative artificial intelligence (AI)-powered shopping assistant.ย Dubbed โRufus,โ the assistant is now available to a small subset of customers using the Amazon mobile app and will be rolled out to more customers in the U.S. in the coming weeksโฆโ Read more here
Digital Infrastructure & Connectivity
โGrowing demand for digital experiences means more and bigger data centres. Amazon, Google, Meta and Microsoft used 72 terawatt-hours of electricity in 2021, more than double their usage in 2017, according to the International Energy Agency. By 2022 these four companies accounted for nearly 80% of global hyperscale data-centre capacity. A fair chunk of the rest is in China. Several hyperscale data centres are under construction in the remote northern city of Hohhot in the region of Inner Mongolia, on tracts as large as 140 football pitches. Huawei, a Chinese tech giant and cloud provider, is among the operators, along with major state-owned companies China Telecom and China Mobile. Outside China, the pace of data-centre construction has been taxing resources to the point that some governments have felt compelled to slow it down.โ Read more here
Homebuilding & Materials
โU.S. construction spending increased more than expected in December amid a surge in single-family homebuilding, and further gains are likely as mortgage rates decline.โ Read more here
Rebuilding America
โNonresidential building starts gained 37% in December from November to a seasonally adjusted annual rate of $479 billion. Manufacturing starts gained 75%, and commercial starts rose 48%, with all categories seeing sizeable gains. Institutional starts rose 22% with increases in education, public buildings, and recreation, offsetting a decline in healthcare starts.โ Read more here
The strategies behind our Thematic Models:
Aging of the Population -ย Capturing the demographic wave of the aging population and the changing demands it brings with it.
Artificial Intelligence โ 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.
CHIPs Act โ Capturing the reshoring of the US semiconductor industry and the $52.7 billion poised to be spent on semiconductor manufacturing.
Cloud Computing โ Companies that provide hardware and services that enhance the cloud computing experience for users, such as co-location, security, and edge computing.
Consumer Inflation Fighters -ย Companies poised to benefit as consumers stretch the disposable spending dollars they do have.
Core Holdings โ 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.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities,ย and Equipment.
Data Privacy & Digital Identity -ย Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
EV Transition - Capturing the transition to EVs and related infrastructure from combustion engine vehicles.
Guilty Pleasure โ 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 โ 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 โ 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.
Luxury Buying Boom -ย Tapping into aspirational buying and affluent buyers amid rising global wealth.Market Hedge Model โ ย 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 โ Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Precision Ag & Agri Science โ Companies that look to address shrinking arable land by helping maximize crop yields utilizing technology, science, or both.
Rebuilding America -ย Turning the focused spending on rebuilding US infrastructure into revenue and profits.
Safety & Security โ Targeted exposure to companies that provide goods and services primarily to the Defense and security sectors of the economy.
Space Economy โ Companies that focus on the launch and operation of satellite networks.
The strategies behind our Dividend Income Models:
Monthly Dividend Modelย โย Pretty much what the name says โ this model invests in companies that pay monthly dividends to shareholders.
ETF Dividend Modelย โย High-yielding ETFs that provide a range of exposures from domestic equities, international equities, emerging market equities, MLPS, and REITs.ย
ETF Enhanced Dividend Modelย โย A group of high-yielding ETFs that utilize options to enhance yield through collecting option income.