Middle East Tensions, Kashkari Comments, The March Jobs Report
Will more Fed speakers turn hawkish?
Yesterday, the stock market started in rally mode following a string of lower closes, but the major averages swung to a loss. The catalysts for what was one of the worst trading sessions in the past year, with all the major market benchmarks falling 1.23%-1.55% on the day was the jump in oil prices amid rising Middle East tensions and comments from Minneapolis Fed President Neel Kashkari who questioned the need for rate cuts if progress on inflation stalls. Coming off the inflation findings in the data had so far this week and comments from Atlanta Fed President Raphael Bostic earlier this week that he sees only one rate cut late in 2024, Kashkari’s comments were a wake-up call to those who have not been paying attention to the data.
These rate-cut sobering developments follow two back-to-back moves of more than 10% for the S&P 500 in the last two quarters as well as the market’s recent overbought condition that was accompanied by exuberant investor sentiment. Coming into this week as well, it was hard to argue the forward multiple on the S&P 500 wasn’t stretched. While many, including us, have enjoyed that cumulative move in the market, we’ve also been in the camp that a market pullback or as some would call it, a period of “digestion” or “consolidation” would be a healthy event for the market. Who wouldn’t want to buy shares of quality companies with superior EPS growth prospects at better prices?
The combined comments from Bostic and Kashkari will place an even greater focus on this morning’s March Employment Report, the only major economic data point in a morning without any major corporate earnings reports. The market forecast for that Employment Report is a gain of 200,000 jobs, down from 275,000 in February and 229,000 in January, with average hourly earnings expected to fall to 4.1% year over year vs. February’s 4.3% figure. Based on the insights provided by the March PMI reports and ADP’s March Employment Report, the odds of this morning’s report surprising to the upside are high.
While good for the economy and consumer spending, a strong upside surprise in the data would be another round of not “good data” for the Fed and rate cuts. With another round of four Fed speakers today, if the March Employment Report comes in as the other data suggests, the market will be looking to see they adopt a more hawkish tone. Should that be the outcome, with the S&P 500’s relative strength index at ~49 coming into today’s trading and technical support starting at 5,076, the market could fall a bit further as we close out the week.
Model Musings
Cybersecurity
“At least 68 cyberattacks last year caused physical consequences to operational technology (OT) networks at more than 500 sites worldwide — in some cases causing $10 million to $100 million in damages. Unsurprisingly, these weren't Stuxnet-like events, but the opposite. According to a new report from industrial control system (ICS) vendor Waterfall Security Solutions, which studied real-world cyberattacks on OT organizations, most of the hackers known to be targeting the OT sector these days are hacktivists. And the majority of disruptions are not caused by such direct manipulation of OT systems but are downstream consequences of IT-based attacks, most often involving ransomware.” Read more here
EV Transition
“The Elon Musk-fronted EV maker announced a shocking drop in quarterly sales on Tuesday, according to The New York Times. The company said it delivered 383,000 vehicles globally through the first three months of the year, which is 8.5 percent less than it moved in the same period last year. The delivery figure, which is the closest thing we have to sales data for Tesla, caught both industry analysts and investors off guard.” Read more here
Nuclear Energy & Uranium
“The government has set out plans for what it claims will be Britain’s biggest nuclear power expansion in 70 years, despite concerns about faltering nuclear output and project delays… Ministers published a roadmap on Friday that recommits the government to building a fleet of nuclear reactors capable of producing 24GW by 2050 – enough to meet a quarter of the national electricity demand. Approval will be given for one or two new reactors every five years from 2030 to 2044…” Read more here
Space Economy
“The global satellite data services market, valued at US $6 billion in 2020, is projected to skyrocket to $45 billion by 2030.1 Dominated for decades by a few public and private entities with limited and costly entry points, the space sector is rapidly expanding. And this maturation of space infrastructure is creating new opportunities for many companies to capitalize on the value of space data.” 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.
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.
Consumer Inflation Fighters - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.
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.
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.
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.
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.