The US Economy - Good For Earnings But...
Not so good for rate cut expectations
Equity futures indicate the market could give back some of its recent gains when it opens later this morning. On the one hand, investors will be digesting quarterly earnings beats from General Motors (GM), PulteGroup (PHM), 3M(MMM), GE Aerospace (GE), Danaher (DHR), and others. Other higher-profile earnings reports on deck this morning include those from Lockheed Martin (LMT), and Norfolk Southern (NSC).
Coming into this week, consensus 2H 2024 EPS for the S&P 500 was revised lower yet again, rising just 5.3% compared to 1H 2024. Back in July, that expectation was above 11%, but the US economy is also on far stronger footing than was thought at that time. With only a few September data points remaining, the Atlanta Fed’s rolling GDPNow model iscalling for 3Q 2024 at 3.4% compared to 2.0% in mid-August. That suggests those EPS expectations for 2H 2024 may have been a tad excessive for some parts of the economy.
While potentially good for the current earnings season, that stronger economy is leading traders to pare back bets on aggressive easing by the Federal Reserve. More cautious comments from Fed officials over the pace of future rate decreases are also influencing this latest rate cut cadence re-think. That includes Minneapolis Federal Reserve President Neel Kashkari hinting yesterday the central bank may take a more modest approach from here.
We have just a few more Fed speakers between today and tomorrow, but the latest edition of the Fed’s Beige Book out tomorrow afternoon, and Thursday morning’s Flash October PMI data from S&P Global (SPGI) will provide the next snapshot of the economy. Should they bring more evidence of a strengthening economy, the more likely we’ll see the 10-year Treasury yield tick higher, rate cut expectations slow, and a valuation-stretched stock market sag. Cue the music for our Market Hedge model…
Model Musings
Artificial Intelligence
“Microsoft Corp. is launching a set of artificial intelligence tools designed to send emails, manage records and take other actions on behalf of business workers, expanding an AI push that intensifies competition with rivals like Salesforce Inc.” Read more here
“Founded by New York-based serial entrepreneur Willem Simons, Daze offers a freestyle messaging app that takes its clues from social media. Similar to crafting an Instagram story using a variety of fonts, styles, graphics, and more, users’ chats are no longer limited to blue and green bubbles. Instead, multi-colored messages can float across the screen complemented by photos, graphics, stickers, GIFs, drawings, decorated backgrounds, and more. In addition, the app is currently leveraging AI to help power some of its creative tools; it plans to deeply integrate more AI-based technology in the future.” Read more here
Artificial Intelligence, Data Privacy
“The Biden administration is mulling new policies for federal agencies that buy data on Americans from commercial data brokers, citing increased risks posed by the increased use of artificial intelligence in government IT systems.” Read more here
Cash-Strapped Consumer
“Nearly 30% of middle-class homeowners have bought homes with monthly payments encompassing more than 30% of their income for 2022, a share that has more than doubled over the past 10 years. This trend is leaving more and more households with less money to spend on necessities, maintain their homes and save for emergencies.” Read more here
Cash-Strapped Consumer, Digital Payments
“Prescription savings platform GoodRx and its partner retail pharmacies will begin offering Affirm’s pay-over-time option directly to consumers in the coming months. With this new offering, approved consumers will be able to select an Affirm payment option for select medications at participating retailers on the GoodRx platform… “ Read more here
Cloud Computing, Digital Infrastructure
“The UK government has announced that four US cloud technology and data center operators—ServiceNow, CoreWeave, CyrusOne, and CloudHQ—will invest a total of up to GBP6.3 billion (approx. US$8.2 billion) in the development of related infrastructure… “ Read more here
Digital Infrastructure
“Scientists have sent data through the air at speeds of up to 938 gigabits per second (Gbps) — setting a new record for wireless transmission speeds. The new record, closing in on 1 terabit per second (Tbps), is the equivalent of downloading a 30 gigabyte (GB) 4K Ultra HD movie in 0.26 seconds. In comparison, using the download would take approximately 17 to 29 minutes using average 5G connections in the U.S, which range from 140 to 230 megabits per second (Mbps).” Read more here
“According to a report by the Economic Daily News, U.S. chip giant Marvell Technology has announced that it will raise prices across its entire product line starting January 1 next year, marking the first major price hike in the optical communications sector.” Read more here
Digital Payments
“One key advantage of mobile payment solutions is the ability to integrate personalized experiences, such as loyalty program benefits or personalized product recommendations, into the checkout process. For instance, if a customer frequently buys a certain product, a business can offer targeted discounts or suggest complementary items, enhancing the overall shopping experience.” Read more here
EV Transition
“In a significant leap forward for electric vehicle (EV) technology, Taiwanese battery tech company ProLogium has revealed its latest breakthrough—a 100% silicon composite anode battery. The company announced the fast-charging battery at the Paris Motor Show, and it could completely revolutionize the state of EV batteries with its energy density and charging rate.” 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.