Powell Signals a No-Go in March; Apple, Amazon & Meta Earnings
February 1, 2024
Yesterday afternoon Fed Chair Powell threw cold water on the market’s expectation for a March rate cut. Powell reiterated the Fed’s message that even though it expects to embark on a rate cutting cycle “sometime” this year, the Fed needs to see further confirmation inflation is on a sustainable path to its 2% target. Powell conceded a deep slide in the US economy could spur the Fed into action potentially sooner, however, he doesn’t give that a high probability of happening. Rather, the longer the economy continues to surprise to the upside, the longer the Fed can wait to begin cutting rates. Those comments put the market back in “watch the data” mode as it attempts to determine when the Fed will begin that rate cutting cycle.
Investors will pay close attention to fresh data out this morning that includes 4Q 2023 Productivity & Unit Labor Cost, S&P Global’s final US Manufacturing PMI for January and ISM’s January Manufacturing Index. In that mix of data, the market will be looking to determine not only whether inflation continued to cool on a year-over-year basis but also if the economy is weakening enough that it could get the Fed to initiate its rate-cutting cycle sooner rather than later. These potential answers will come soon after today’s market open when S&P publishes its final January Manufacturing PMI at 9:45 AM ET with ISM’s to follow at 10 AM ET.
Market and Fed watchers will also gather comments from those reports about job creation as they prepare for tomorrow’s January Employment Report and get ready for Big Tech earnings to continue. After today’s market close, Apple (AAPL), Amazon (AMZN), and Meta Platforms (META), also known as 12.5% of the S&P 500 and 22% of the Nasdaq Composite, will report their December quarter results.
Qualcomm (QCOM) delivered better than expected December quarter EPS of $2.75 vs. the $2.37 consensus as revenue rose 4.9% YoY to $9.92 billion topping the $9.51 billion consensus. Handset revenue rose 16% to $6.69 billion, and Automotive grew 31% to $598 million, while loT fell 32% to $1.14 billion. During the earnings call, Qualcomm called out it extended a multiyear agreement with Samsung (SSNLF) relating to Snapdragon platforms for flagship Galaxy smartphone launches starting this year and it also extended a global patent license agreement with Apple (AAPL) for an additional two years, that takes the agreement through to March 2027. For the current quarter, Qualcomm sees EPS of $2.20-$2.40 compared to the $2.25 consensus with revenue in the range of $8.9-$9.7 billion vs. the $9.28 billion consensus. For calendar 2024, Qualcomm estimates global handset units will be flat to slightly up on a year-over-year basis with 5G handsets growing by a high-single digit to low double-digit percentage.
RF chip company Qorvo (QRVO) bested December quarter expectations led by the 44.5% YoY increase in revenue to $1.07 billion. Management shared that for calendar 2024 it expects total smartphone units to grow in the low-single digits, with 5G units growing over 10%. During the company’s earnings call, management also shared it sees healthier channel inventories and improving smartphone unit demand in China. For the current quarter, Qorveo guided EPS to $1.20, compared to the $1.16 consensus with revenue in the range of $900-$950 million compared to the $910.68 million market forecast and $1.07 billion in the December quarter.
Even though December quarter revenue fell 17.6% YoY to $1.64 billion, homebuilder Meritage (MTH) delivered results that came in ahead of consensus forecasts. New orders for the quarter came in at 2,892 homes, down from 3,474 in the September quarter. Entry-level made up 88% of total sales orders in the fourth quarter of 2023, relatively consistent with the prior-year quarter.
For more, be sure to read our Daily Markets column published each day by Nasdaq.
Model Musings
Artificial Intelligence and Digital Infrastructure & Connectivity
“Samsung is optimistic about a resurgence in demand for mobile devices this year. The company told investors that it anticipates the smartphone market to rebound in 2024, particularly with the rollout of new products, such as AI-powered smartphones, set “to drive an improvement in demand.” Read more here
Data Privacy & Digital Identity
““China’s hackers are positioning on American infrastructure in preparation to wreak havoc and cause real-world harm to American citizens and communities, if or when China decides the time has come to strike,” Wray told the House Select Committee on the Chinese Communist Party. Though cyber officials have long sounded the alarm about China’s offensive cyber capabilities, Wray’s dramatic public warning underlines the huge level of concern at the top of the US government about the threat Chinese hackers pose to critical infrastructure nationwide.” Read more here
Guilty Pleasure
“Cocoa prices on Tuesday continued their 16-month-long parabolic rally, with NY cocoa posting a 46-year high nearest-futures high and London cocoa posting a record high. Cocoa prices rallied Tuesday on concern that the seasonal Harmattan winds in West Africa are more extreme than average, drying out cocoa fields and reducing yields for the Ivory Coast's mid-crop in April, threatening to reduce global cocoa production further. Lower cocoa production in the Ivory Coast, the world's largest cocoa producer, is a major bullish factor for cocoa prices. Monday's government data showed Ivory Coast farmers shipped 1 MMT of cocoa to ports from October 1 to January 28, down -36% from the same time last year.” Read more here
Nuclear Energy & Uranium
“Global nuclear power generation is set to reach an all-time high next year, according to the latest forecasts from the International Energy Agency, marking a resurgence for the technology and boost for efforts to cut carbon dioxide emissions.” 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.
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.
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.