PPI, Powell, and Google’s IO Event
And a slew of fresh model signals
Equity futures are essentially unchanged as we get ready for the trading day ahead. Unlike the last few trading days that were rather quiet, we are back to business today with a slate of events, some of which could reshape Fed rate cut timing expectations.
NFIB’s Small Business Optimism Index rose by 1.2 points in April to 89.7, marking the first increase of this year but the 28th consecutive month below the 50-year average of 98. Twenty-two percent of owners reported that inflation was their single most important problem in their business, down three points from March but still the number one problem for small business owners. The report also found that 56% of owners reported hiring or trying to hire in April, and of those hiring or trying to hire, 91% of owners reported few or no qualified applicants for the positions they were trying to fill.
At 8:30 AM ET, the April Producer Price Index (PPI) report will be released and the market is expecting to see headline PPI tick higher to 2.2% YoY from 2.1% in March. Core PPI, however, is forecasted to match March’s 2.4% increase on that basis. Following the surge found in prices paid data in April PMI reports, we would not be surprised if the April PPI data came in ahead of market expectations. If that occurs, it would not only be another data point questioning the market’s expectation for a September rate cut, but we are likely to see some re-jiggering of expectations for tomorrow’s April CPI report. We would suggest readers watch the yield on 10-year Treasuries, gold prices, the dollar, and equity futures to gauge the market’s reaction to this report.
Soon after the April PPI report is published, Federal Reserve Governor Lisa Cook will be speaking at a Federal Reserve Bank of New York event. No doubt, investors will be interested in her remarks following recent consumer inflation expectation data and this morning’s April PPI report. However, the market is likely to take its cues from Fed Chair Jay Powell when he participates in a Foreign Bankers Association event at 10 AM ET.
This afternoon brings Google’s (GOOGL) IO event, its developer conference. The running joke is the event should be renamed “Google AI” because Gemini is likely to be center stage, but AI is likely to be a factor in many if not all of the company’s presentations. We also expect to see the latest developments for Android as well as Wear OS, Android TV, and Android Auto.
In terms of quarterly earnings this morning, we will be picking over comments from Home Depot (HD) about new construction spending as well as consumer spending. What we’re looking to see is whether Home Depot’s spring selling season is expected to reflect the more selective consumer spending described by restaurants and other consumer-facing companies. When Jack in the Box (JACK) reports, the focus will be on that as well as what impact it expects from the recent minimum wage boost to $25 per hour for California fast food workers. About 43% of Jack’s US locations are in California.
Model Musings
Artificial Intelligence
“IBM has introduced a new service that will help enterprises integrate generative artificial intelligence (AI) copilots into their organizations. Offered by IBM Consulting, the new IBM Copilot Runway will assist enterprises with creating, customizing, deploying and managing these copilots, including those powered by Copilot for Microsoft 365…” Read more here
“In the battle for the future of shopping, Sam’s Club is betting on artificial intelligence. Since January, the Walmart-owned retailer has rolled out AI-powered checkout technology at over 120 stores. Using a combination of AI, computer vision and digital tech, Sam’s Club’s system identifies what’s in a shopping cart, confirming customers have paid for their items without requiring an associate to check their purchases before leaving the store. The technology, first unveiled at the Consumer Electronics Show, promises to transform the grocery shopping experience.” Read more here
CHIPs Act
“South Korea is preparing a program to provide more than 10 trillion won ($7.3 billion) to strengthen the country’s pivotal semiconductor industry... Korea, the world’s biggest memory chip producer, is striving for dominance by investing $470 billion in a semiconductor “mega cluster” outside of Seoul as the US-China rivalry complicates supply chains.” Read more here
Cloud Computing
“Microsoft Corp. plans to spend €4 billion ($4.3 billion) building cloud and AI infrastructure in France, announcing its latest major outlay on artificial intelligence technology… Earlier this year, Microsoft unveiled a partnership and €15 million investment into Mistral AI, a Parisian startup competing with OpenAI. France has made developing AI a key area of focus, with national funds and local billionaires backing Mistral and Kyutai, an AI research nonprofit, which both formed last year.” Read more here
Cybersecurity
“In response to a recent cyberattack that exposed the data of 100 million Americans, the Biden administration reportedly intends to require hospitals to meet minimum cybersecurity standards. Deputy National Security Advisor for Cyber and Emerging Technology Anne Neuberger said Thursday (May 9) at the Bloomberg Tech Summit that the administration plans to issue a notice of proposed rulemaking in the coming weeks… “ Read more here
“The City of Helsinki is investigating a data breach in its education division, which it discovered in late April 2024, impacting tens of thousands of students, guardians, and personnel… The accessed drive contained tens of millions of files, most devoid of personally identifiable information (PII). Still, some included usernames, email addresses, personal IDs, and physical addresses. Additionally, the exposed drive contained information about fees, childhood education and care, children's status, welfare requests, medical certificates, and other highly sensitive information.” Read more here
Data Privacy & Digital Identity
“Vermont’s legislature on Friday passed one of the country’s strongest comprehensive data privacy laws, with language allowing individuals to sue companies for violating their privacy rights — an unprecedented provision among similar existing state laws. The bill includes data minimization requirements, which significantly constrain what personal data companies can gather and use and bans companies from selling consumers’ sensitive data, allowing individuals to sue if they believe businesses have done so.” Read more here
“Maryland Governor Wes Moore signed the Maryland Online Data Privacy Act of 2024 (MODPA) into law on May 9, 2024. This new law establishes transparency, assessment, and consumer rights requirements for organizations that fall within its scope, and much like the state laws that have come before it, the MODPA includes its own unique provisions that will add additional complexities to an organization's compliance efforts and data use strategy.” Read more here
EV Transition
“Tesla plans to spend more than $500 million to expand its electric-vehicle charging network this year, Chief Executive Elon Musk said, days after the carmaker signaled plans to slow down the build-out of its Supercharger network by laying off much of the team responsible for the work… Musk had said Tesla still planned to increase its charging network, but at a slower pace for new locations and would be focusing on the expansion of existing sites.” 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.
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.
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.