More Bank Earnings, Housing Starts, Waiting on Israel and Powell
Following the Chicago Board Options Exchange Volatility Index ((VIX) closing at its highest level since late October, equity futures are mixed this morning. The market is balancing the latest wave of earnings from United Health (UNH),Bank of America (BAC), Morgan Stanley (MS), and others against weaker-than-expected China economic data while waiting for Israel’s next move following Iran’s recent attack. Yesterday’s stronger-than-expected March Retail Sales data lifted Atlanta Fed GDPNow’s model expectations for the March quarter to 2.8%, and today brings the March reports for Housing Starts and Industrial Production. While the Industrial Production data should confirm manufacturing activity found in the March Manufacturing PMI reports, eyes will be on single-family housing starts to see the rebound that began in February continued. If the data shows that it would be a positive for those companies found in our Rebuilding America model.
We will be watching those data sets to see if they merit yet another leg up in the March quarter GDP. If so, it would signal the economy is handling the Fed’s restrictive monetary policy well. That paired with the not-good inflation data from last week, could renew questions about rate cut prospects this year. It’s a good thing, and yes that is sarcasm you are hearing, that we have Fed Vice Chair Philip Jefferson on deck at 9 AM ET and Fed Chair Powell at 1:15 PM today. We would not be surprised to see Powell reference the Middle East conflict as a new uncertainty and one the Fed will be watching. And why wouldn’t he given the market is watching it as well.
If you‘re looking for us, we will be digging through those morning earnings reports and data but we will also be keeping close tabs throughout the day on the market’s reaction through the lens of 10-year Treasury yields. Early this morning, that yield hit 4.65%, the highest level since early November and the 3.86% figure at the end of last year. This tells us the market is wrapping its collective head around the prospect of far fewer rate cuts than it originally expected coming into 2024. We will now need to see the economy’s strength translate into the earnings growth expected by the market. If that expectation is not met, it’s a good thing we have our Market Hedge model, which by the way, is the best-performing model quarter-to-date.
And lest we forget, there’s the China data we quickly referenced above:
China’s economy grew 5.3% in the first quarter compared with a year ago, faster than the 4.6% growth expected by economists polled by Reuters. China’s industrial output for March grew 4.5% year-on-year, missing Reuters’ expectations of a 6% expansion.
China’s manufacturing industry grew 5.1% while its mining industry grew 0.2%, according to the National Bureau of Statistics. The country’s retail sales grew 3.1% YoY, less than expectations for 4.6% growth. The reading also slowed from the prior month’s figure of 5.5% growth.
Model Musings
Aging Population
“The US healthcare system is at a crossroads. With an aging population requiring more care and a strained system facing workforce shortages, capacity issues, and fragmentation, innovative solutions and policy reforms are needed.” Read more here
"Older Americans are aging in place because it makes financial sense but also because it's human nature to avoid thinking about challenging scenarios such as needing help as you get older," Redfin Chief Economist Daryl Fairweather said. "In reality, many homeowners and renters will need to move somewhere that better meets their needs as they age, like a senior-living community or a one-story home in an accessible neighborhood." Read more here
Artificial Intelligence
“Enterprises are hoarding more data than ever to fuel their AI ambitions, but at the same time, they are also worried about who can access this data, which is often of a very private nature. PVML is offering an interesting solution by combining a ChatGPT-like tool for analyzing data with the safety guarantees of differential privacy. Using retrieval-augmented generation (RAG), PVML can access a corporation’s data without moving it, taking away another security consideration.” Read more here
“Adobe is in the early stages of allowing third-party generative artificial intelligence tools such as OpenAI's Sora and others inside its widely used video editing software, the U.S. software maker said on Monday… But Adobe also said on Monday that it is developing a way to let its users tap third-party tools from OpenAI, as well as startups Runway and Pika Labs, to generate and use video within Premiere Pro. The move could help Adobe, whose shares have fallen about 20% this year, address Wall Street's concerns that AI tools for generating images and videos put its core businesses at risk.” Read more here
Artificial Intelligence, Cybersecurity, Data Privacy
“Generative artificial intelligence bellwether OpenAI in late March announced a preview of what it dubbed Voice Engine, technology that with a 15-second audio sample can generate natural-sounding speech "that closely resembles the original speaker. While OpenAI touted the technology for the good it could do - instantaneous language translation, speech therapy, reading assistance - critics' thoughts went immediately to where it could do harm, including in breaking that once ideal authentication method for keeping fraudsters out. It also could supercharge impersonation fraud fueling "child in trouble" and romance scams as well as disinformation.” Read more here
CHIPs Act
“Samsung Electronics has announced it will invest $40 billion to build a semiconductor cluster across a number of locations in Texas. The company will receive $6.4bn in direct funding under the US Chips and Science Act to support the development.” Read more here
“The artificial intelligence boom, which demands the most advanced chips to train and run AI algorithms, has only added more urgency to calls from industry and national security leaders to expand U.S. chip-making capacity.” Read more here
Cybersecurity
“Dutch chipmaker Nexperia confirmed late last week that hackers breached its network in March 2024 after a ransomware gang leaked samples of allegedly stolen data. Nexperia is a subsidiary of Chinese company Wingtech Technology that operates semiconductor fabrication plants in Germany and the UK, producing 100 billion units, including transistors, diodes, MOSFETs, and logic devices.” Read more here
“The Daixin Team ransomware gang claimed a recent cyberattack on Omni Hotels & Resorts and is now threatening to publish customers' sensitive information if a ransom is not paid. The hotel chain was added to Daixin Team's dark web leak site over the weekend, two weeks after a massive outage brought down the company's IT systems and impacted reservation, hotel room door lock, and point-of-sale (POS) systems.” 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.