The Week Ahead
January 22, 2024
With little in the way of fresh news this morning, the stock market looks to continue the upward march that established a new all-time high for the S&P 500 on Friday. Last week, the S&P 500 hit a new all-time high as investor enthusiasm surged a new for AI and data center stocks. The degree to which those stocks influenced the market is revealed with the equal-weighted S&P 500 finishing 0.2% lower last week, leaving it down 1.3% so far this year as we begin the fourth week of trading for 2024. By comparison, the S&P 500 finished last week up 1.5% so far in 2024, lagging both the Nasdaq Composite and the Nasdaq 100.
While it will be a slow start, we are back to the regular grind with a full week of trading that brings over 430 companies issuing quarterly results and guidance, and three pieces of economic data that could throw some cold water on the market. Based on the latest swatch of company guidance, investors may re-think 2024 EPS expectations for the S&P 500, something that would trigger market valuation questions. As that guidance is being issued, this week’s economic data could support a more measured approach to rate cuts this year by the Fed.
Economic Data
We have three data points the market will be paying close attention to -- January U.S. Flash Manufacturing PMIs, the first report on Q4 2023 GDP, and the December PCE Price Index. Admittedly, the Q4 2023 GDP print will be somewhat backward-looking now that we are in 2024, but many will still be using it as a gauge for the economy. The consensus forecast sees it coming in at 2.0% for 4Q 2023, a far slower pace compared to 3Q 2023’s 4.9% print.
To us, the January U.S. Flash PMI data will be more insightful as GDP forecasts for the current quarter are formulated. Comparing those against 4Q 2023 GDP will signal whether the economy is slowing and if so to what degree. If the forecasts continue to show a resilient economy or suggest the pace of progress on inflation is slowing, we are going to see Fed official's position on rate cuts be one of caution.
We continue to see disruptions in the Red Sea (near both the Suez Canal and Gulf of Aden passages) being an issue not only for supply chains and corporate guidance but also for inflation. Maritime advisory firm Sea-Intelligence shared that disruptions to shipping from the Houthi attacks in the Red Sea already are more damaging to the supply chain than the early COVID-19 pandemic.
So far, the market has continued to shrug off Fed officials and their message that rate cuts aren't likely to kick off until 3Q 2024. This means this week’s December PCE Price Index and what it says about headline and core inflation progress will be a focal point. Given what is unfolding in the Red Sea with shipping rates and supply chain issues, we will be mindful of the December PCE price index data, but inflation comments found in the January Flash PMI data could be a better signal for upcoming January inflation data. The consensus forecast is for the core PCE Price Index to fall to 3.0% YoY in December from 3.2% in November.
Earnings
We noted there will be a strong upswing in the volume of earnings reports this week. Of the more than 430 companies on the docket, 75 are S&P 500 constituents, including 10 Dow 30 components.
Netflix's (NFLX) earnings will be a focal point with investors interested in advertising adoption and its impact on subscription plans at Netflix. Comments on content spending and management’s thoughts on streaming content competitive dynamics will also be worth noting. Tesla’s (TSLA) results and outlook will be a referendum on consumer EV adoption following comments from Ford Motor (F) and Stellantis (STLA)about cutting EV production levels. Timing for autonomous driving moving closer to becoming a mainstream auto technology may be a topic on Tesla’s as well as Mobileye’s (MBLY) earnings calls.
Following 2024 guidance from Taiwan Semiconductor (TSM) last week for sales to grow in the low- to mid-20% range, investors are looking for confirmation as well as gaming out implications. Forward guidance from Intel (INTC) will be sized up against TSM’s rosy outlook, as will its 2024 capital spending budget. Investors will be looking to determine chip industry capacity levels and what that could mean for spending on semiconductor capital equipment.
Contrasting TSM’s and Intel’s results and guidance, we have quarterly results from ASML (ASML) and Lam Research (LRCX) as well this week. On those earnings calls, we'll be looking for comments about chip industry capacity tightness as well as expectations for CHIPS Act funds in H1 2024.
Investors looking to assess prospects for enterprise spending this year should be listening to forward guidance from IBM (IBM) and SAP SE (SAP). On those earning calls, comments about cloud adoption, AI tools, and investment spend could be other data points that support TSM’s 2024 guidance.
With Congress coming together on the budget front and continued geopolitical tensions, investors will be digging into earnings from General Dynamics (GD) and Northrop Grumman (NOC). Further insight into consumer spending and related warning signs will be gathered from results and guidance from American Express (AXP) and Visa (V). Starbucks (SBUX) will speak to that as well, but it will also paint about consumer demand in China. Food companies will be curious about what the company says about coffee prices as well as expected wage increases in California, listening to see if additional price increases are on the menu.
Those looking for other indications of inflation pressures may want to listen in to Waste Connections (WCN) and what it says about residential sanitation rates for 2024. It should issue upbeat expectations for its non-residential end markets as infrastructure spending projects come on stream. Those same programs should drive upbeat comments from Caterpillar (CAT) on the North American construction equipment market.
For more, be sure to read our Daily Markets column published each day by Nasdaq.
Model Musings
Artificial Intelligence
Elon Musk’s artificial intelligence company, xAI, has secured $500 million in commitments from investors toward a $1 billion goal, according to people with knowledge of the talks. The company is discussing a valuation of $15 billion to $20 billion, though terms could still change in the coming weeks… “ Read more here
Consumer Inflation Fighters
“Inflation in the US and other major economies has slowed sharply over the past year as energy prices retreated from record highs. Yet the battle to tame rising prices is not yet won, and the risk that inflation could spike again is growing as disruption to one of the world’s main trade routes persists. Attacks by Iran-backed Houthi militants in the Red Sea mean many container ships, oil tankers and bulk carriers, which transport raw materials, have been forced to take a longer route around Africa, sending shipping and insurance costs through the roof.” Read more here
Data Privacy & Digital Identity
“Microsoft is revealing today that it has discovered a nation-state attack on its corporate systems from the same Russian state-sponsored group of hackers that were responsible for the sophisticated SolarWinds attack. Microsoft says the hackers, known as Nobelium, were able to access email accounts of some members of its senior leadership team late last year.” Read more here
Safety & Security
“Missile attacks in Syria, Lebanon, Iraq and Yemen on Saturday threw into sharp focus the increasing risk of the war in Gaza triggering a wider regional conflict pitting Iran and its allies against Israel and the United States.” Read more here
“Britain's Ministry of Defence said on Sunday it would spend 405 million pounds ($514 million) to upgrade a missile system now being used by the Royal Navy to shoot down hostile drones over the Red Sea.” 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.
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.