US equity futures are well in the red, pointing to a down market open later this morning, as the market recalibrates rate-cut expectations. Times like this are why we developed our Market Hedge model - more on that below.
Speaking yesterday, Federal Reserve Governor Christopher Waller said the central bank should not rush to cut its benchmark interest rate until it is clear lower inflation will be sustained. That fueled an upward move in Treasury yields while the dollar jumped to a one-month high as investors curbed expectations of an interest rate cut by the Federal Reserve in March. Earlier today, European Central Bank President Christine Lagarde shared the bank could cut interest rates in the summer, not as soon as March or April expected by the market. Following Lagarde’s comments, the market expectations lopped off one rate cut this year to five quarter-point cuts.
Before the market opens, the December Retail Sales report will be published at 8:30 AM ET and it will reveal the degree to which consumers opened their wallets for the holiday shopping season. The consensus forecast is retail sales ex-autos rose 0.2% MoM, the same as in November. Given the pull forward in holiday shopping due to events like Amazon’s (AMZN) Prime Deal Days in October, the trailing three-month data contained in today’s Retail Sales report will provide far more insight. That trailing three-month data also sets the bar for companies as they report their December quarter results.
At 9 AM ET, Michael Barr, the Fed’s Vice Chair for Supervision, and Fed Governor Michelle Bowman will be making the rounds, and they are likely to reiterate a slower path to Fed rate cuts.
As tensions in the Red Sea and the risk of Israel's war in Gaza spreading in the Middle East escalate, the US is expected to redesignate the Yemeni Houthi militant group as a foreign terrorist organization. This is likely to turn up the flame of geopolitical tensions, adding to current market anxiety.
China’s economy grew by a seasonally adjusted 1.0% in 4Q 2023, matching market expectations but moderating from an upwardly revised 1.5% increase in 3Q. On a YoY basis, the Chinese economy expanded 5.2% in 4Q 2023, faster than 4.9% growth in 3Q but less than market forecasts of 5.3%. The country’s 2024 GDP growth target will be announced at an annual parliamentary meeting in early March.
China's retail sales increased by 7.4% year-on-year in December 2023, missing market consensus of 8.0% and slowing from a 10.1% jump in November. For 2023, the country’s retail sales rose 7.2% compared to 2022.
For more, be sure to read our Daily Markets column published each day by Nasdaq.
Model Musings
Digital Infrastructure & Connectivity - “The internet works because of this expansive physical footprint containing underwater fiber optic pipelines, giant routing facilities and last-mile local connections working in harmony. To transport the massive amounts of data generated by a growing internet population and rising demand for highly advanced technologies like AI and IoT, institutions require more fiber networks and capacity. Behind the scenes, digital infrastructure providers are continuously working to build and advance these networks for uninterrupted holiday streaming, surfing, smart home connectivity, and more.” Read more here…
EV Transition - “America’s ability to charge future electric vehicles got a jolt Thursday as the Biden administration announced recipients of $623 million in infrastructure funds, with a focus on disadvantaged communities and freight trucks. The announced grants, split between 22 states and the territory of Puerto Rico, aim to fill numerous and wide gaps in the national EV charging network.” Read more here…
Precision Ag & Agri Science - “Today, a combination of bespoke cameras, cutting-edge cloud computing, artificial intelligence, robotics, and state-of-the-art engineering is putting farms on the verge of a digital revolution. In coming years, farmers may be managing millions of plants individually using autonomously controlled, data-gathering machinery.” 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.
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.