The July Retail Sales Report - Not The Indicator You Think It Will Be
Pull forward spending from Amazon's 2024 Prime Day and competing events may skew the data
Coming off back-to-back days that contained favorable July inflation data that supports the start of Fed rate cuts, today’s data shifts the focus back onto the strength of the economy. What hangs in the balance is the market’s thought the Fed could deliver a 50-basis point rate cut following its September policy meeting. While the continued progress on the inflation front gives the Fed the all-clear to start a rate-cutting cycle, the latest update for the Atlanta Fed GDP Now model that puts 3Q 2024 GDP at 2.9% pushes back such a sizable first cut.
Because the GDPNow model is a rolling forecast, it will be updated as new data is published and that includes today’s July Retail Sales and Industrial Production report. The consensus forecast is for July Retail Sales ex-autos to rise just 0.1% compared to June, but remembering Amazon’s (AMZN) 2024 Prime Day was held July 16-17 and was bookended by competing retailer events, that expected sequential increase could be… conservative. That should spike non-store retailer sales, but comparing that figure against the other report categories will give a better indication of overall spending in July. While the report’s headline figures should be good for GDP revisions in the very near term, the pull forward in spending those shopping events created could result in softer sequential comparisons when the August Retail Sales report is published in mid-September.
If our thinking is correct about the July Retail Sales report, it could take some of the recent wind out of the market.
If we’re wrong, and the report is weaker than expected, there will be renewed concerns about the consumer and the speed of the economy. In the vein of bad news is good news, that could fan the flames for those looking for a larger rate cut in September.
When it comes to getting a more accurate read on the consumer and spending, quarterly results and guidance from Walmart(WMT), Tapestry (TPR), and Dillard’s (DDS) will be more insightful. To that, we can add what’s to be gleaned from Estee Lauder (EL), Macy’s (M), Target (TGT), TJX Companies (TJX), and Ross Stores (ROST)when report next week. Odds are what we hear will be constructive for our Cash-Strapped Consumer model, but to the extent these companies issue conservative or otherwise underwhelming guidance, it means another round of downward revisions for expected 2H 2024 EPS for the S&P 500. This could revive investor contemplation over the current market multiple as we close out August.
Getting back to today, we’ll also be digging into what Deere (DE) and Applied Materials (AMAT) have to say, and those comments are potential fodder for our Precision Ag & Agri Science and CHIPs Act models.
Model Musings
Artificial Intelligence
“A California bill that could impose restrictions on artificial intelligence has tech companies, investors and activists scrambling to explain what the first-of-its-kind legislation could mean for their industry in the state. The bill is still winding its way through the state capital in Sacramento. It is expected to reach the California state assembly appropriations committee on Thursday before facing a vote by the full assembly.” Read more here
“… it’s evident that CFOs are maintaining a conservative approach to IT spending, with relatively tepid IT growth coming in just above Gross Domestic Product. Despite this, CEOs are putting pressure on their teams to develop high-impact AI strategies that can significantly enhance productivity. Generative AI is notably reshaping budget allocations, with 44% of customers indicating that these initiatives are cannibalizing other areas of investment.” Read more here
Artificial Intelligence, Digital Lifestyle
“At the ongoing Made by Google event, Google unveiled its latest flagship smartphone series, Pixel 9. This includes the new Pixel 9, Pixel 9 Pro, Pixel 9 Pro XL, and Pixel 9 Pro Fold smartphones. The series boasts advanced AI capabilities through Gemini and showcases a range of new features designed to enhance photography, productivity, and overall user experience.” Read more here
“Shipments of AI-capable PCs represented 14% of all PCs shipped in the quarter. With all major processor vendors’ AI-capable PC roadmaps now well underway, the stage is set for a significant ramp-up in device availability and end-user adoption in the second half of 2024 and beyond, the researcher said. The market performance of AI-capable PCs has largely aligned with expectations and the industry remains on track to ship around 44 million units in 2024 and 103 million units in 2025, according to Canalys forecasts.” Read more here
CHIPs Act
“TSMC's board of directors has approved a significant capital budget of US$29.615 billion aimed at enhancing the company's advanced process capacities and upgrading packaging technology and specialty processes.” Read more here
Cybersecurity
“Monitoring evolving DDoS trends is essential for anticipating threats and adapting defensive strategies. The comprehensive Gcore Radar Report for the first half of 2024 provides detailed insights into DDoS attack data, showcasing changes in attack patterns and the broader landscape of cyber threats. Here, we share a selection of findings from the full report. The number of DDoS attacks in H1 2024 has increased by 46% compared to the same period last year, reaching 445K in Q2 2024. Compared to data for the previous six months (Q3–4 2023), it increased by 34%.” Read more here
Data Privacy & Digital Identity
“Google says it is taking a privacy-minded approach to the integration of AI features on Android devices, implementing end-to-end protection to secure data in transit while keeping the most sensitive data locally on the device. The data that reaches Google's cloud infrastructure for processing is protected by state-of-the-art encryption, access controls, and tight unauthorized access monitoring.” Read more here
Digital Infrastructure & Connectivity
“Digital infrastructure company Equinix Inc. said today it’s raising a number of key metric forecasts for the full year, betting on higher demand for its data center operations services amid the rising adoption of generative artificial intelligence technologies… The company says it has seen increased demand for its data center services, as more businesses look to incorporate generative AI into their products and transition their workloads to the cloud. Generative AI processing needs high-powered servers to train large language models and these servers should ideally be located in data centers with advanced cooling systems and infrastructure to maintain smooth operations.” Read more here
Luxury Buying Boom
“The Luxury Goods Market has experienced significant expansion due to economic growth in the Asia-Pacific and LAMEA (Latin America, Middle East, and Africa) regions. Rising consumer expenditure and improved living standards have driven the demand for luxury goods. Increased consumer preference for premium products over cost-effective alternatives and advancements in online marketing and digital media have further fueled market growth.” Read more here
Safety & Security
“Millions of K-12 students are heading back to school this week, and many will encounter or soon be encountering enhanced security technologies, policies, and procedures. In Las Cruses, New Mexico, each public middle school and high school will install two AI weapons detectors this year, reports KFOX14. The installation of the equipment was prompted by a recent incident involving two students who allegedly were found with handguns at Organ Mountain High School. A school security grant will pay for the detectors, which will cost approximately $1,500,000.” Read more here
“The Biden administration on Tuesday approved more than $20 billion major arms sales to Israel, including new F-15 fighter jets and tens of thousands of tank and mortar shells.” 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.