Powell - Don’t Expect Much Today About Rate Cut Timing
Following yet another record close for the S&P 500 and the Nasdaq Composite, both market barometers remain in overbought territory ahead of Fed Chair Powell’s semiannual address to Congress that kicks off at 10 AM ET later this morning. Those hoping for Powell to break something new on the monetary policy front, odds are, will be disappointed. More likely the Fed chief will acknowledge recent data that points to the economy slowing and inflation improving, reiterating the Fed wants to see more data before making its first move to cut rates. With the June CPI and PPI reports out later this week, readers should not expect Powell to comment on the two rate cuts the market increasingly sees for this year depicted in the CME FedWatch Tool.
While folks wait for Powell and his comments, the NFIB Small Business Optimism Index for June reached its highest level of the year at 91.5. The takeaway from the report - “Increasing compensation costs has led to higher prices all around. Meanwhile, no relief from inflation is in sight for small business owners as they prepare for the uncertain months ahead.” On the jobs front, 37% of all small business owners reported job openings they could not fill in their current period, down five points from May. Of the 60% of owners hiring or trying to hire in June, 85% reported few or no qualified applicants for the positions they were trying to fill.
Between now and our next edition of Thematic Signals on Thursday, no market-moving earnings reports are expected, but investors will be on the lookout for earnings pre-announcements, both bad and good. Yesterday’s positive June quarter pre-announcement from Corning (GLW) was a positive data point for generative AI as well as our Artificial Intelligence and Digital Infrastructure models.
Tomorrow brings Samsung’s Unpacked 2024 event, which is expected to showcase the company’s latest foldable smartphones, its Galaxy AI, and refreshed wearables. Chair Powell will also return to Capitol Hill tomorrow continuing two days of back-to-back testimony. Alongside those comments, several other Fed heads will be making the rounds but the market will correctly focus on the Fed chief’s remarks.
Because the market is overbought and the S&P 500’s P/E valuation is stretched, we are seeing market strategists at bulge bracket firms adopt a more cautious tone for the next several weeks. That may prompt some readers to revisit the description of our Market Hedge model below.
Model Musings
Artificial Intelligence
“A recent Gartner, Inc. poll of more than 1,800 executive leaders, revealed that 55% of organizations have an AI board. The poll also indicated 54% of organizations have a head of AI or an AI leader that orchestrates activities.” Read More Here
“Almost half of companies in the make, move and sell industries perceive escalating costs as the foremost challenge confronting their supply chains. That’s according to a newly-published study from Epicor and Nucleus Research, which discovered the majority are using artificial intelligence (AI), automation or machine learning (ML) for at least one supply chain management application in order to address these concerns.” Read more here
“We expect second-quarter core sales to exceed our previous guidance and mark a return to year-over-year growth,” Corning CEO Wendell Weeks said in the press release. “The outperformance was primarily driven by the strong adoption of our new optical connectivity products for Generative AI.” Read more here
Cash Strapped Consumer
“The path U.S. inflation is expected to follow over coming years generally softened in June, amid retreating projections of price increases for a wide array of consumer goods and services, a Federal Reserve Bank of New York report released on Monday said.” Read More Here
“Discount retailers are closing shop as financially constrained consumers pull back their spending, with Big Lots the latest to take a hit. The discount chain is closing stores by the dozens. Per a recent filing with the Securities and Exchange Commission highlighted by the New York Post, the retailer expects to open three new stores and shutter 35 to 40 of its roughly 1,400 stores this year, following 52 closures last year.” Read more here
Cybersecurity
“Russian hackers who broke into Microsoft's (MSFT) systems and spied on staff inboxes earlier this year also stole emails from its customers, the tech giant said on Thursday, around six months after it first disclosed the intrusion.” Read More Here
“Infosec circles are awash with chatter about a vulnerability in Ghostscript some experts believe could be the cause of several major breaches in the coming months. Ghostscript is a Postscript and Adobe PDF interpreter that lets users of *nix, Windows, MacOS, and various embedded OSes and platforms view, print, and convert PDFs and image files. It is a default installation in many distros, as well as being used indirectly by other packages to support printing or conversion operations.” Read more here
EV Transition
“Ford Motor (F) on Wednesday joined General Motors (GM) in reporting that its U.S. auto sales grew slightly in the second quarter, despite headwinds. Both the carmakers saw EV sales surge in Q2, a hopeful sign that production of newer electric vehicles may be ramping up after supply issues. Ford also reported record quarterly sales of hybrid vehicles.” Read More Here
“Lucid Motors delivered 2,394 EVs in the second quarter of 2024, a new record for the company and a positive sign amid its struggle to establish a foothold in the still-growing market for electric vehicles. That number easily clears Lucid’s prior record, which it set in the first quarter of the year when it shipped 1,967 of its luxury sedans.” Read more here
Homebuilding & Materials
“Get ready for a bonanza of rate cuts from the Federal Reserve that starts in a few months and extends all the way into next summer, according to analysts at Citi Research. In a note on Friday, the bank cited fresh signs of a slowing economy for its view that the Fed will trim rates by 25 basis points eight times, starting in September and extending to July 2025. That will lower the benchmark rate by a whopping 200 basis points, or from 5.25%-5.5% now to 3.25%-3.5%, where they will remain for the rest of 2025, the note said.” Read more here
Luxury Buying Boom
“A resurgence in tourism and appetite for luxury experiences has facilitated stable growth, but brands will need to rethink their value propositions to remain relevant despite growing competition” Read More Here
Nuclear Energy & Uranium
For anyone interested in taking a slightly closer look at this segment, follow the link for comments from Christopher Hanson, Chair of the United States Nuclear Regulatory Commission that he delivered at this year’s Nuclear Energy Security Summit. 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.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
Digital Lifestyle - The companies behind our increasingly connected lives.
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.