The Week Ahead and Fresh Model Musings
February 12, 2024
We start the week at a slow pace but that will quickly morph into a data-filled week that has the potential to reset GDP expectations for the current quarter and give the Fed additional reasons to slowly walk its way to dialing back monetary policy. And with the Kansas City Chief winning the Super Bowl, no doubt there will be some looking to see if the Super Bowl theory that if an American Football League team wins the big game will face some turmoil.
Hopefully you aren’t one of the ~45 million people expected to be less productive today following the Super Bowl, according to estimates from UKG's survey data. That's roughly a third of America's full-time workforce!
Not to be superstitious coming off the Super Bowl, but as we head into tomorrow’s CPI report, one that is preceded by several inflation data points moving in the wrong direction, the S&P 500, the Nasdaq Composite, and Nasdaq-100 are all back in overbought territory with Relative Strength Readings over 70. Factor in investor sentiment running even higher than last week, flashing “Extreme Greed” per the Fear & Greed Index, negative surprises in this week’s data could challenge the near persistent move higher over the last several weeks as it would give the Fed another data point to push back the start of its rate cutting cycle.
Earnings Reports
Roughly two-thirds of the S&P 500 have reported during this earnings cycle and the results have largely been ahead of Wall Street expectations. Inside those reports have been comments about falling input costs and improving transportation expenses as margin levers in 2024. This is helping the market get more comfortable with EPS expectations for the coming year as well as allowing room for the S&P 500 to run past the psychological 5000 level that it broke through last week. If this trend continues for the remaining one-third of the S&P 500 companies, it would be an added boost to those comfort levels.
There are, however, no high-profile, market-moving earnings reports this week, but those that are published will provide insight into other market sectors outside of Big Tech. Investors will be drilling into quarterly results from Cisco (CSCO), Equinix (EQIX), and Digital Realty Trust (DLR) for comments on networking and data center demand following Ai-related spending comments from Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Meta Platforms (META).
When InterDigital (IDCC) reports, comments on the smartphone market for this year will be of interest as will progress on the next generation of wireless technology that, with little surprise, will be called 6G. From Shake Shack (SHAK) and Wendy's (WEN), the market will be interested in what they say about input costs but also California's upcoming fast food worker wage hike.
Coming off favorable non-residential construction data owing to stimulus spending out of Washington, quarterly results from Martin Marietta (MLM) and Vulcan Materials (VMC) should be solid but it will be their guidance the market zeroes in on. Do they see winter weather impacting the current quarter and what is their expectation for the housing market in the coming quarters?
Finally, because we are in a presidential election year, comments on advertising spending compared to last year will be an area of interest when The Trade Desk (TTD) reports. We will also be listening for Trade Desk’s comments on the digital advertising competitive landscape given further inroads by Amazon (AMZN), Apple (AAPL), Uber (UBER), and others. For example, in the December quarter, Amazon’s Advertising Services business rose 27% year over year to $14.7 billion. During its earnings call, Apple CFO Luc Maestri commented that the company hit an all-time revenue record for advertising during the December quarter. While digital advertising spend continues to take share from print, radio, and TV, the size of those gains suggests more than usual market share movements are happening.
Economic Data
As we noted above, we start the week off with no market moving data but that will change very quickly. We have a fresh wave of GDP-influencing data as well as a few key pieces of January inflation data arrive. Setting the stage for that, the Atlanta Fed GDPNow model was revised to 3.4%, still above what is considered trend growth, and its next update won't land until February 15.
That means the January data stream of Retail Sales, Industrial Production and Housing Starts should be factored into that next update. Based on what we saw in the various January PMI reports and the January Employment Report, the aggregate data could surprise to the upside for both the economy as well as the January CPI and PPI data. If that happens, it will reaffirm the Fed's slow walk to start cutting interest cuts.
Moving past the aggregate take, the market will be parsing those reports to determine which parts of the economy and stock market are performing better than expected. While the January Retail Sales report will showcase consumer spending for that month, it will also contain a trailing look back at consumer spending between November 2023 and January 2024, providing a handy benchmark as quarterly earnings shift to focus on retailers and the holiday shopping season.
Single-family housing starts will be the focal point in the January Housing Starts report with the market looking to gauge how the impact of falling mortgage rates. Should that January figure not show a demonstrative pick-up, it will likely stoke comments about housing affordability. Coming off the January manufacturing PMI data from S&P Global (SPGI), the January Industrial Production report should confirm those findings, but the overall figure could be swayed by warmer weather and its impact on the utility sector.
For more, be sure to read our Daily Markets column published each day by Nasdaq.
Model Musings
CHIPs Act
“President Joe Biden’s administration plans to launch a $5 billion semiconductor research consortium to bolster chip design and hardware innovation in the US and counter China’s efforts to capture the cutting edge of the industry.” Read more here
Consumer Inflation Fighters
“Millennials in their 30s sank deeper into credit card debt toward year-end, a new report found, as US credit card debt continued to climb to new heights… The data comes months after the federal student loan pause ended in October, a source of financial strain for many younger adults. Additionally, interest rates on credit cards remain at near 38-year highs, making it harder to pay off climbing debts, which tend to tick higher during the holiday season.” Read more here
Safety & Security
“The US moved ahead with a $23 billion sale of F-16 warplanes, missiles and bombs to long-time ally Turkey after Ankara’s ratification of Sweden’s membership in NATO. Congress approved Turkey’s acquisition of as many as 40 Lockheed Martin Corp. F-16 Block 70 aircraft and 79 upgrade kits to modernize its fleet as well as hundreds of missiles and bombs.” Read more here
“The Senate on Sunday pushed a $95 billion emergency aid bill for Ukraine and Israel past a critical hurdle, with a bipartisan vote that kept it on track for passage within days. The vote was 67-27 to move forward on the package, which would dedicate $60.1 billion to helping Kyiv in its war against Russian aggression, send $14.1 billion to Israel for its war against Hamas and fund almost $10 billion in humanitarian assistance for civilians in conflict zones, while addressing threats to the Indo-Pacific region. In a rare Sunday session, 18 Republicans joined Democrats to advance the measure, which leaders hope the Senate will approve as early as Tuesday.” Read more here
Space Economy
“There could be a “gold rush” in space, says Tim Marshall, author of The Future of Geography and a former diplomatic and foreign affairs editor at Sky News. Just as miners in the 19th century ventured into the lawless frontiers of North America, the presence of rare materials on the moon and elsewhere might fuel a race to harness the opportunities of outer space.” Read more here
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.
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.
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.
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.