Tesla & AI Comments Lift Stocks, But...
Here comes the October Flash PMI - watching Treasury yields and the dollar
Equity futures point to a mixed market open later this morning with the S&P 500 and Nasdaq being led higher in part by the pre-market surge in Tesla (TSLA) shares. Better than expected September quarter earnings are one factor in the shares moving higher but so is the company’s outlook for the current quarter. Tesla shared that it expects to sell more vehicles in 2024 than the prior year, implying deliveries of at least 515,000 vehicles in the current quarter compared to 490,000 vehicles projected by Wall Street.
Confirmation of ongoing AI adoption offered by IBM (IBM) is also helping to lift tech stocks this morning. IBM shared that its book of AI business was more than $3 billion in the September quarter, a $1 billion-plus sequential improvement. This follows Apple’s (AAPL) release last night of a beta version of its upcoming iOS 18.2 that includes new Apple Intelligence features and anticipated ChatGPT integration. Very recent comments from Verizon (VZ) andAT&T (T) suggested we have yet to see the much-touted iPhone upgrade cycle for Apple’s latest models, but AT&T CEO John Stankey summed up what we’re likely to see pretty well in our opinion:
“We're still waiting, obviously, for the software release and whether or not that software release drives interest in the consumer base to accelerate that remains to be seen, I don't know. I've given you my point of view that says, I think some of these things are going to be a little bit more graceful ramp-up in consumer interest as opposed to a big bang. Software oftentimes tends to be that.”
Getting back to this morning, while the market runs through quarterly results from a few dozen companies lurking in the background there are renewed questions over the pace of Fed rate cuts. We’ve discussed how recent updates to the Atlanta Fed’s GDPNow model point to the economy being more robust than many expected back in July and August. With hits Flash October PMI data at 9:45 AM ET this morning, S&P Global (SPGI) will bring the first hard look at the US economy in the current quarter. Should these initial figures show continued strength in the economy and job creation on solid footing, the odds of the market continuing to recalibrate rate cut expectations are likely. This week alone, we’ve already seen the number of expected rate cuts between now and the Fed’s June meeting soften to 4.5 from 5 exiting last week.
As you digest that S&P’s findings, we would suggest you guage the impact not only in the CME’s FedWatch Tool but also in the 10-year Treasury Yield and the dollar relative to other currencies. On its earnings call last night, IBM called out the recent strengthening in the dollar, indicating it will be a headwind to revenue growth.
Model Musings
Artificial Intelligence
“Artificial intelligence is fueling explosive growth in the tech industry, with companies from chip manufacturers to security startups reporting soaring revenues and attracting significant investment. Taiwan Semiconductor Manufacturing Co. posted a 54% jump in quarterly profits on strong AI chip demand, while AI security firm AITX saw a 348% revenue surge. Governance platform Relyance AI secured $32.1 million in funding to help enterprises navigate the complex landscape of AI implementation and data protection.” Read more here
“Vodafone, a major proponent of generative artificial intelligence (GenAI) technologies to support operational and service improvements, has just signed a new deal with Google that it clearly hopes will enable it to stand out from the crowd. The U.K.-based operator and Google on Tuesday said they had deepened their existing strategic partnership with a 10-year, billion-dollar-plus deal to bring the tech giant’s GenAI-powered devices to more Vodafone customers across Europe and Africa, supported by Google Cloud and Google’s Gemini (formerly Bard) models.” Read more here
“Google Gemini, the flagship generative AI from Alphabet, is is being tapped by Honeywell to provide insights across the industrial giant’s massive data set that can lead to reduced maintenance costs, increased productivity and opportunities to upskill employees.” Read more here
“Southern land-grant scientists are utilizing artificial intelligence to help farmers save on labor costs and time through research on precision spraying, disease detection, food quality control, animal health and wheat production.” Read more here
“Chipotle has introduced a new artificial intelligence hiring platform created by Paradox that the company said will make the onboarding process simpler, faster, and more automated for its more than 3,500 restaurants. The system, called Ava Cado, comes as Chipotle ramps up its fall hiring efforts – its second largest hiring period of the year behind“Burrito Season,” which is from March to May.” Read more here
“We continue to see great momentum in AI as our models are trusted, fit-for-purpose, and lower cost, with performance leadership,” he said in a statement, calling out that IBM’s book of business for generative AI amounts to more than $3 billion, marking a $1 billion-plus sequential improvement.” Read more here
Artificial Intelligence, Digital Infrastructure
“At the end of the day, the data centers are going to have to add a lot more fiber-rich interconnects to accommodate the large language models that enable artificial intelligence to come true… Our initial estimates are at least five times more optical connections are going to be required in a data center as a result of the applications are going to access and want to use artificial intelligence… the reason for all this new fiber is the need to create an entirely new network to connect the AI servers to one another.” Read more here
Cash-Strapped Consumer
“A predicted slide in Halloween consumption is the latest blow for heavily-indebted retailers battling mounting overheads and the trend of consumers trading down to cheaper products. US spending for the holiday will drop by 5% to $11.6 billion this year, according to the National Retail Federation. Sales of greeting cards and costumes are likely to see the greatest decline, a hit to merchants reliant on seasonal splurges in what’s already been a tough year for the industry. Read more here
“… people still haven’t gotten over how much higher prices are today than in 2020. People find it unsettling that price tags don’t look like they did before inflation took off during the pandemic, surging to the highest level in four decades. Even though the growth in prices has eased significantly, prices themselves aren’t getting lower.” Read more here
Cybersecurity
“Japanese electric motor manufacturer Nidec has confirmed that various types of business and internal documents were stolen in an August 2024 ransomware attack. The incident, the company says, impacted its Vietnam-based subsidiary Nidek Precision (NPCV), and was discovered after the attackers contacted Nidec to demand a ransom payment.” Read more here
Digital Infrastructure
“Maine, in an apparent first, has decided to provide free Starlink terminals to its hardest-to-reach residents and businesses under a new program set to launch next month.” Read more here
Digital Lifestyle
“A little over a year after being acquired out of bankruptcy and reopening 11 physical stores, BuyBuy Baby has announced plans to become a digital-first brand and close all its brick-and-mortar locations by the end of this year, according to the retailer’s website.” Read more here
Homebuilding & Materials
“A massive housing crisis in the United States is brewing mostly centered around the unavailability of homes in the largest metros of the country. The shortage of homes in metropolitan regions clearly shows the true picture of a housing crunch in the US, which is a big problem for the federal administration to address in the coming months. The pandemic, inflation and elevated interest rates have all contributed to the growing housing crisis in the US.” 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 below.