Powell Sees a “More Cautious Fed” Ahead of the November Employment Report
Why we're focusing more on the report's wage data findings than job figures
The continued grind higher in the stock market has landed relative strength index (RSI) levels for both the S&P 500 and the Nasdaq Composite in overbought territory as they hit fresh record highs. Meanwhile, the Dow Jones Industrial Average, which isn’t our favorite stock market benchmark because it is comprised of just 30 stocks, crossed the 45,000 mark and is close to joining the S&P 500 and Nasdaq Composite in overbought territory. Other indicators, including the Citibank Panic/Euphoria model, point to FOMO spirits back in the market as seasonal strength for stocks runs high.
However, comments from Fed Chair Powell yesterday that the US economy is strong enough for the Fed to move carefully on rate cuts should raise questions about the Fed delivering another 25-basis point rate cut later this month. In addition to the economy being stronger than the Fed expected back in September, Powell conceded inflation is running higher, which is evident by looking at September and October inflation data as well as the upward climb in ISM Service PMI pricing data over the last several months.
With a thin economic calendar today, and only one Fed speaker on the docket, the market will likely tread water as investors contemplate the market’s current technical setup and prepare for Friday’s November Employment Report. The consensus forecast sees 214,000 jobs added in November with the Unemployment Rate rising to 4.2%. We’ll be pouring over the report like we usually do but this time around we’ll be paying closer attention to revisions for the September and October nonfarm payroll figures. The initial collection of data for both was impacted by Hurricanes Helene and Milton, and the revised figures will factor into our analysis of job market strength and the economy.
The potentially larger fly-in the rate cut ointment could be the November average hourly wage gains. We say given the sequential year-over-year jump found in ADP’s (ADP) November National Employment Report on Wednesday. That data revealed year over year pay gains for job stayers rose for the first time in 25 months while pay gains for job changes jumped to 7.2% from 6.2% in October. “Stubborn wage growth” was called out in S&P Global’s(SPGI)November Services PMI report on Wednesday, while the Fed’s final Beige Book of 2024 found “Job growth and wage growth for entry-level positions and skilled trades were an exception, rising robustly and expected to grow further through next year.”
Should the November wage data come in hotter than the expected 3.9% year-over-year figure, it would be the latest data point suggesting the Fed is more likely to deliver a monetary policy pause on December 18 than another rate cut. With the stock market overbought, that outcome could lead to profit-taking, especially for higher-flying stocks even as we approach the seasonally strongest time of the year for stocks - the year-end melt up. Of course, we’ll need to see the reported number of jobs not fall out of bed for November, but figures from ISM, S&P Global, and ADP suggest that shouldn’t be the case… but then again, the October Employment Report surprised everyone and didn’t align with findings from those three firms. The market consensus calls for 200,000 jobs being added in November.
While we wait for that report, we’ll be parsing quarterly results from discount retailers, including Dollar General (DG), Dollar Tree (DLTR), and Five Below (FIVE) sizing them up against recent comments from Costco (COST),Walmart (WMT), Target (TGT), and shopping data for the Black Friday-Cyber Monday shopping weekend. We’re looking for insights for our Cash-Strapped Consumer model as well as for Digital Lifestyle - you can find more about them in the table, Model Signals and model descriptions below.
Model Musings
Artificial Intelligence
“ChatGPT now has over 300 million people using the AI chatbot each week. OpenAI CEO Sam Altman revealed the milestone during The New York Times’ DealBook Summit on Wednesday, which comes just months after ChatGPT hit 200 million weekly users in August.
“Our product has scaled ... now we have more than 300 million weekly active users,” Altman said. “We have users sending more than 1 billion messages per day to ChatGPT.” Read more here
Artificial Intelligence, Digital Infrastructure, Nuclear Energy & Uranium
“Facebook-parent Meta said on Wednesday it plans to invest $10 billion to set up an AI data center in Louisiana, in what would be the tech company's largest data center in the world. The hyperscaler data center, which is planned in Richland Parish, is designed to process huge amounts of data required to support digital infrastructure, including artificial intelligence workloads. The development comes a day after Meta said it was seeking proposals from nuclear power developers to help meet its AI and environment goals, adding that it wanted to add 1 to 4 gigawatts of new U.S. nuclear generation capacity starting in the early 2030s.” Read more here
Cash-Strapped Consumer
“One thing has remained consistent in 2024 with cable TV bills going up…again. Both Comcast and Spectrum, two of the nation’s largest cable providers, have announced significant price increases, leaving many customers feeling gouged and frustrated. They are joined by many smaller cable TV companies and satellite TV companies like DIRECTV, raising their prices in 2024. For some, the increases could add up to $20 a month, translating to a whopping $240 extra per year.” Read more here
Cybersecurity
“Chinese government hackers have compromised telecommunications infrastructure across the globe as part of a massive espionage campaign that has affected dozens of countries, a top U.S. security official said Wednesday.” Read more here
“A new set of 15 SpyLoan Android malware apps with over 8 million installs was discovered on Google Play, targeting primarily users from South America, Southeast Asia, and Africa.
The apps were discovered by McAfee, a member of the 'App Defense Alliance,’” Read more here
“A popular open-source game engine called Godot Engine is being misused as part of a new GodLoader malware campaign, infecting over 17,000 systems since at least June 2024… It's no surprise that threat actors are constantly on the lookout for new tools and techniques that can help them deliver malware while sidestepping detection by security controls, even as defenders continue to erect new guardrails.” Read more here
“The first UEFI bootkit specifically targeting Linux systems has been discovered, marking a shift in stealthy and hard-to-remove bootkit threats that previously focused on Windows. Named 'Bootkitty,' the Linux malware is a proof-of-concept that works only on some Ubuntu versions and configurations rather than a fully fledged threat deployed in actual attacks.” Read More Here
“Cybersecurity researchers have uncovered a sophisticated phishing campaign that leverages Microsoft Word’s file recovery functionality to bypass email security systems. This newly observed tactic involves sending intentionally corrupted Word documents as email attachments. These attachments evade detection due to their damaged state, though they remain recoverable within the Word application.” Read More Here
Data Privacy & Digital Identity
“Hackers are using artificial intelligence to mine unprecedented troves of personal information dumped online in the past year, along with unregulated commercial databases, to trick American consumers and even sophisticated professionals into giving up control of bank and corporate accounts.” Read more here
Digital Infrastructure
“Windstream is definitely seeing demand for lit fiber, such as the deal with Hurricane Electric, he said. It's getting requests for multiple 400 gig services between data centers and to new data center campuses, as well. “We’reexpanding our network to meet that demand, whether new routes, more capacity or lighting certain data centers being constructed,” he said. Windstream Wholesale is also seeing more demand for dark fiber.” Read more here
“The 6G air – or radio – interface will be one of the crucial aspects of the new cellular standard, the development of which is going to start to be studied in the second half of 2025… In 2028 and 2029, the lab tests will move into field trials in preparation of a commercial 6G launch in 2030… 6G will be designed with more spectral efficiency, more coverage and capacity.” Read more here
Luxury Buying Boom
“Bulgari is expanding its footprint in India to take advantage of strong growth and favourable demographics, Bulgari chief executive officer Jean-Christophe Babin said in an interview with Bloomberg TV. The brand’s website lists 13 boutiques or official retailers in India. “We see more luxury to come in the coming months or years, which will propel India, if not in the top three, but probably to the top five or top eight market worldwide,” Babin said. Read more here
Safety & Security
“Russian President Vladimir Putin has approved a record-breaking defense budget, setting aside a staggering third of the government’s total spending as the war in Ukraine drains resources from both sides nearly three years on. The budget for 2025, which was published Sunday, allocates about $126 billion (13.5 trillion rubles) to national defense – amounting to 32.5% of government spending.” 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.