NFIB & Inflation, Mulling Apple Intelligence
Treading water until tomorrow's May CPI report and the Fed
Equity futures point to a lower open for stocks later this morning. The lone piece of fresh economic data out today, the May reading for the NFIB’s Small Business Optimism Index, hit a 2024 high at 90.5 but remains well below the historical average of 98. Echoing findings across the May PMI reports, 22% of owners reported that inflation was their single most important problem in operating their business, unchanged from April and the top business problem among owners.
It also seems that wage and inflation pressures are poised to continue. A net 18% of owners plan to raise compensation in the next three months, down three points from April and the lowest reading since March 2021. Forty-two percent(seasonally adjusted) of all owners reported job openings they could not fill in the current period. The net percent of owners raising average selling prices was unchanged from April at a net 25% seasonally adjusted. Price hikes were the most frequent in retail (55% higher, 6% lower), finance (50% higher, 3% lower), construction (42% higher, 9% lower), manufacturing (42% higher, 12% lower), and services (37% higher, 6% lower) sectors.
Investors will mull those findings over as well as the implications of yesterday’s Apple’s (AAPL) WWDC as we wait for tomorrow’s May CPI report and the outcome of the Fed’s policy meeting. Included in the Fed’s post-policy meeting materials will be its updated set of economic projections. While many are focused on implied rate cuts for 2H 2024, we will also be focused on what these latest projections say about 2025 rate cuts.
Apple and Apple Intelligence
Apple’s WWDC keynote revealed the next wave of updates to its various software platforms as well as its AI efforts, which it is referring to as “Apple Intelligence.” Based on the post-event movement in the shares, it’s fair to say the market was underwhelmed by what it heard, likely because much was covered in pre-event chatter, but there is little question Apple Intelligence will foster a device upgrade cycle. We say this because customers have to upgrade to the iPhone 15 Pro, and Pro Max that Apple began selling in September 2023, or wait for the next iteration of iPhone models.
With an estimated 270 million iPhones that have not been upgraded in four years, Apple Intelligence and the shift to USB-C adapters are likely to foster an upgrade cycle. That should benefit several chip companies housed in our Digital Infrastructure model, while the growing use of AI, including Apple Intelligence, should tighten existing network capacity and give rise to another wave of capital spending. We see that as a medium to longer-term driver for our Digital Infrastructure model.
Model Musings
Aging of the Population, Consumer Inflation Fighters
“Following three years of elevated inflation, 30% of retirees say they are considering working a temporary job (between one and three shifts per week), according to a new report from Indeed Flex, a job search app. Many of these people are worried about outliving their retirement savings. “Increased cost of living is the driving force behind why the aging population is considering un-retirement,” Indeed said in the report, noting that 71.6% of retirees cite inflation as the reason that going back to work is on their mind.” Read more here
Artificial Intelligence
“As Amazon and Walmart compete for retail dominance, the two industry giants are implementing generative artificial intelligence across the supply chain to cut costs and boost profits.” Read more here
“A new AI platform called Apple Intelligence was the highlight of the company’s Worldwide Developers Conference presentation on Monday, which also included updates to the iPhone maker’s operating systems. The technology will help summarize text, create original images and retrieve the most relevant data when users need it. The push also includes a revamped version of Siri, the company’s once-pioneering digital assistant.” Read more here
CHIPs Act
Consumer Inflation Fighters
“A survey by Uswitch.com has found 43% of 18 to 24s – or GenZs – do not have a credit card with one in three perceiving them as ‘potential debt traps’. The research also found only one in five of the Gen Zs quizzed said they had ‘no concerns regarding credit card usage’. But the remaining 80% revealed they had concerns about overspending, high interest rates, annual fees, impact on credit scores and fraud.” Read more here
“Dollar Tree Chairman and Chief Executive Officer Rick Dreiling credited the decline to lower discretionary spending as consumers — many living paycheck to paycheck — cut back. The retailer saw an average decline of 1.1% in ticket size across both its stores.” Read more here
“PYMNTS Intelligence surveyed more than 2,300 U.S. consumers to understand how inflation and increasing retail prices changed their shopping behavior. The study found that among the 43% of consumers who used secondhand channels to make retail purchases last year, 1 in 5 did so to buy furniture. That share jumped to 38% for bridge millennials (older millennials and younger members of Generation X) and 34% for millennials.” Read more here
Data Privacy
“The rise of consumer-permissioned data in the U.S. promises to expand the credit landscape. And for the “connectors”and the “collectors” of that data — which includes bank account level information that helps would be lenders follow the money, we’re seeing the emergence of new business models. These go-betweens, which link the bank account or payment information to the lenders who want to gain a holistic insight into the consumers’ credit-worthiness — where the data includes everything from rental payments to mobile phone payments to on-time utility payments — are monetizing that data.” Read more here
“Part of what Apple calls "a brand new standard for privacy and AI" is achieved through on-device processing. Federighi said "many" of Apple's generative AI models can run entirely on a device powered by an A17+ or M-series chips, eliminating the risk of sending your personal data to a remote server.
When a bigger, cloud-based model is needed to fulfill a generative AI request, though, Federighi stressed that it will "runon servers we've created especially using Apple silicon," which allows for the use of security tools built into the Swift programming language. The Apple Intelligence system "sends only the data that's relevant to completing your task" to those servers, Federighi said, rather than giving blanket access to the entirety of the contextual information the device has access to.” 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.
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.