Multiple Data Points to Go Before a Santa Claus Rally
The Fed's next meeting, updated economic projections, Retail Sales and more
Equity futures point to the stock market giving back some of its post-November Consumer Price Index (CPI) report pop this morning. Whether those futures turn around may hinge on the data found in this morning’s November Producer Price Index (PPI) report, which is expected to show core PPI for the month tick higher to 3.2% YoY but inch lower to 0.2% on a MoM basis.
Should the sequential core PPI come in as expected, it would support the market’s growing view the Fed will deliver another 25-basis point rate cut next week. However, other recent data, including yesterday’s core CPI reading of 3.3% YoY for the third consecutive month, that renews the view inflation remains sticky suggests next week’s updated set of Fed economic projections will be the item to watch.
Rate cuts were also a topic emanating from China this morning. Top officials led by President Xi Jinping vowed to deliver rate cuts and lower the reserve requirement for banks during a two-day huddle of the Central Economic Work Conference in Beijing. Despite the call for more stimulus by economists, odds are a more detailed plan won’t be unveiled until March during the annual legislative sessions.
Investors will pick over quarterly results this morning from Ciena (CIEN), but odds are we’ll see greater emphasis on those from Broadcom (AVGO) and Costco (COST) after today’s market close. As they thumb through these results, we suspect a close eye will be kept on the market’s technical setup, especially with the Nasdaq Composite once again back in overbought territory following yesterday’s strength in the Mag 7 stocks. But we can’t rule out further upside in the S&P 500 as market seasonality dynamics come into play.
Data shows that since 1950, the S&P 500 has generated an average return of 1.3% during December. With last night’s close, the S&P 500 is up 0.9% month to date. And with the days ticking down until the Christmas holiday, we’re already hearing chatter about the potential for a Santa Claus rally.
The term, coined by trading expert Yale Hirsch in 1972, refers to a higher-than-usual rise in stock prices around Christmas. Typically, it includes the final five trading days of a calendar year plus the first two days after New Year’s Day. Per data from Dow Jones, since 1950, the broad-based S&P 500 has had gains 78% of the time, with an average increase of 1.3% over the seven days.
Let’s not forget we still have to get through several pieces of November economic data before we get there, including next week’s Retail Sales and PCE Price Index reports. To that list, we can also add quarterly results from Micron (MU), FedEx (FDX), and Nike (NKE) and what they may say that could influence expectations for 2025.
Model Musings
Artificial Intelligence
“Meta is pushing forward with plans to develop its artificial intelligence offering to businesses, as the social media platform rolls out a new AI tool internally that aims to boost productivity. The AI software, called Metamate after the internal name for the group’s employees, is built on the tech giant’s large language model, Llama, and is used for coding, conducting research, as well as drafting communications internally and externally." Read more here
Artificial Intelligence, Cybersecurity & Data Privacy
“The fifth annual Deloitte “Connected Consumer” survey reveals that consumers have a positive perception of their technology experiences and are increasingly embracing GenAI. However, they are determined to seek balance in their digital lives and expect trust, accountability, and transparency from technology providers.” Read more here
“Cognizant and Zscaler are expanding their partnership with the goal of helping enterprises across industries simplify and transform their security posture with an advanced, AI-enabled zero trust cloud security platform to address evolving cyber threats.“ Read more here
Artificial Intelligence, Digital Infrastructure
“Amazon, Google, Meta and Microsoft expanded such investments by 81 percent year over year during the third quarter of 2024, according to an analysis by business consultancy Dell'Oro Group, and are on track to have spent $180 billion on data centers and related costs by the end of the year. The push to expand and develop infrastructure among major technology companies is believed to have been prompted by the goal to enhance AI model training…” Read more here
Cash-Strapped Consumer
“According to the report, 76% of consumers choose to use BNPL options before making a purchase, emphasizing the importance of presenting these options upfront. Specifically, 27.1% of consumers said they would be more likely to purchase higher-priced items if pay later options were available early in the shopping process.” Read more here
Cybersecurity
“Ransomware hackers have continued an assault on National Health Service trusts across the United Kingdom by compromising multiple hospitals, exposing sensitive patient data, and disrupting emergency services. Inc Ransom, a prolific Russia-linked ransomware group that claimed responsibility for an attack on NHS Scotland earlier this year, now claims to have breached the Alder Hey Children’s Hospital Trust, one of Europe’s largest children’s hospitals.” Read more here
“Rules for boosting the security of connected devices have entered into force in the European Union… The CRA applies to connected devices broadly — meaning products that connect directly or indirectly to another device or network — with exceptions in the case of products that are covered by other existing E.U. rules, such as medical devices, cars, and some open-source software.” Read more here
Digital Infrastructure, Safety & Security
“…the National Defense Authorization Act (NDAA) includes $3 billion to cover expenses incurred by operators that need to rip out Chinese equipment and replace it with gear that’s deemed secure…. While the rip and replace program targets smaller operators that installed Chinese equipment, the FCC last week drafted a Declaratory Ruling, triggered by the Salt Typhoon cyberattack, that calls for all U.S. telecom networks to secure their networks from unlawful access or interception of communications. AT&T, T-Mobile and Verizon were identified as victims of Salt Typhoon.” Read more here
Digital Lifestyle
“Television viewing reached a nine-month high in November, increasing 5% compared to October, according to Nielsen’s Gauge report. Streaming accounted for a record 41.6% of TV viewing, with viewership rising 7.6% during the month… YouTube led streaming platforms with a record 10.8% share, followed by Netflix at 7.7%, which peaked at 8.5% during the Jake Paul vs. Mike Tyson boxing match… Broadcast viewing rose 3%, accounting for 23.7% of total TV time.” Read more here
Digital Payments
“By the end of 2024, Bank of America corporate clients will have made over $1 Trillion in payment approvals on the bank’s CashPro App, the mobile application that companies use to manage their treasury operations. This will represent a more than 25% year-over-year increase in payments approved via the app, illustrating that clients are further utilizing the technology for its enhanced security and convenience.” 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.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
Digital Lifestyle - The companies behind our increasingly connected lives.
Digital Payments - This model focuses on companies benefitting from the accelerating structural adoption of digital payments and financial technology (FinTech).
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.
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 above.