Walmart Earnings, Housing Starts, and Post CPI Fed Heads
Plus a bevy of signals for our model strategies
Slightly cooler April inflation data buoyed markets yesterday, pushing all major equity indexes to post gains north of 1% except for the Dow (0.88%), which was held back by declines in names like Traveler’s Companies (TRV), Walt Disney (DIS), and familiar laggard Boeing (BA). As Technology sat atop the sector leaderboard, the Nasdaq Composite ended the day 1.40% higher, setting the broad equity index pace. The consumer trailed as Staples (0.15%) and Discretionary (0.06%) held the bottom 2 spots.
Technology-focused models had a strong day, with Cloud Computing, CHIPs Act, and Artificial Intelligence filling in three of the top five slots. Still, it was Homebuilding & Materials that topped the list as holdings filled 4 of the top 10 returns across all holdings in the entire suite of 20 models. Also making a place in the top 5 models was Rebuilding America, at #4. For more, see the model table below. ⬇️
This morning brings quarterly results from Walmart (WMT), Canada Goose (GOOS), and Under Armour (UAA), with Applied Materials (AMAT) and Take-Two (TTWO) on deck after today’s market close. When we dig into Walmart’s results, we’ll be interested in management’s comments about consumer spending patterns, basket size, average ticket, and indications if shoppers are leaning into private label brands. The answers should be constructive for our Consumer Inflation Fighters strategy, especially if Walmart’s same-store sales point to the retailer winning consumer wallet share. Quarterly sales figures from Canada Goose and Under Armour will add another dimension to consumer spending patterns.
With funds starting to flow from the US CHIPs Act and similar efforts underway in the eurozone, Japan, and now Korea (see Model Musings below), the outlook provided by Applied Materials should be bright. We also suspect ramping AI, data center, and soon AI-on-device chip demand will lead the semi-cap company to paint a favorable capital spending picture. All that bodes very well for our CHIPs Act strategy and model, which as you can see below is significantly outpacing the S&P 500 so far this year.
In terms of fresh economic data, we have the April Housing Starts report out at 8:30 AM ET, and the market forecast calls for total housing starts to reach 1.42 million units, up from 1.321 million in March. In the report, because of the potential multiplier effect on the economy, the focus will remain on the single-family housing market and how the April figure stacks up against the 1.022 million March figure. Later in the morning, April Industrial Production will be reported, adding another view on the manufacturing economy. Once these figures are out in the wild, the Atlanta Fed will update its GDPNow model for the current quarter, which was revised yesterday to 3.8% from 4.2% following the release of April CPI, PPI, and Retail Sales data.
Today also sees another wave of Fed speakers including Richmond Fed President Tom Barkin (10:00 AM ET), Fed Vice Chair for Supervision Michael Barr (10:00 AM ET), Cleveland Fed President Loretta Mester (12 PM ET), and Atlanta Fed President Raphael Bostic (3:50 PM ET). Coming off yesterday’s April CPI report that showed core CPI improved to 3.6% on a year-over-year basis and softer than expected April Retail Sales, the market warmed to the idea of a September rate cut.
However, 3.6% is still far from the Fed’s 2% target. And while we don’t expect the Fed will wait until that target is reached to begin dialing back currently restrictive monetary policy, we see a high probability today’s Fed speakers will signal the central bank will need to see “more good data” before embarking on a rate cutting cycle. Our thinking is the Fed will want to see core CPI move sustainably below the 3% level before it softens its language on rate cut timing.
Model Musings
Aging of the Population
“…a record number of Americans are turning 65 this year — about 11,000 a day, according to the Alliance for Lifetime Income’s Retirement Income Institute, which coined the term “Peak 65.” This demographic trend has sparked conversations about the longevity of work, healthcare, financial planning and housing… The Allianz study also found that 68% of Americans say people should expect to work later in life so they will have enough money to retire. What’s more, 61% say people should expect that they’ll need to work in retirement to survive. Most Americans expect to live nearly 30 years in retirement, the study found.” Read more here
Artificial Intelligence
“OpenAI on Monday launched a new AI model and desktop version of ChatGPT, along with an updated user interface, the company’s latest effort to expand use of its popular chatbot. The update brings GPT-4 to everyone, including OpenAI’s free users, technology chief Mira Murati said in a livestreamed event. She added that the new model, GPT-4o, is “much faster,” with improved capabilities in text, video and audio. OpenAI said it eventually plans to allow users to video chat with ChatGPT.” Read more here
CHIPs Act
“Superpowers led by the US and European Union have funneled nearly $81 billion toward cranking out the next generation of semiconductors, escalating a global showdown with China for chip supremacy. It’s the first wave of close to $380 billion earmarked by governments worldwide for companies like Intel Corp. and Taiwan Semiconductor Manufacturing Co. to boost production of more powerful microprocessors.” Read more here
Consumer Inflation Fighters
“Rising housing costs and stubbornly high inflation are battering many consumers and the hit to their wallets is now hurting America’s low-cost restaurants. Chains including Red Lobster, which is considering a bankruptcy filing, and TGI Friday’s Inc. are becoming even more distressed as their labor expenses increase and more diners opt to eat at home.” Read more here
“Private brands in food and beverage accounted for nearly 26% of the overall market share in the number of units in that category sold last year, up from 24.7% during the previous year, according to market research firm Circana. That compares with 74.5% for national brands last year, down from 75.3% in 2022.” Read more here
“The latest estimates of overall pandemic excess savings remaining in the U.S. economy have turned negative, suggesting that American households fully spent their pandemic-era savings as of March 2024. However, consumer spending has remained strong in recent months, which raises an important question: What’s next?” Read more here
“The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the April 2024 Survey of Consumer Expectations, which shows that inflation expectations increased at the short-term and longer-term horizons, while decreasing at the medium-term horizon." Read more here
Cybersecurity
“On the eve of a marquee week of modern and contemporary art auctions that begin Monday night, Guillaume Cerutti, the chief executive of Christie’s, confirmed that all the company’s live auctions would proceed as scheduled, with bidding in person and by phone, despite a hack that has sidelined its official website since last Thursday. The hack is testing the loyalty of its ultrawealthy clients amid its spring auctions, with sales that account for nearly half of Christie’s annual revenue.” Read more here
“The Ascension breach is the latest example of hackers disrupting the US health-care system. Last week, Andrew Witty, chief executive officer of UnitedHealth Group Inc., faced punishing congressional hearings over a February breach at a subsidiary, Change Healthcare, that delayed billions of dollars of payments to doctors and hospitals and saw hackers make off with data on as many as one in three Americans.” Read more here
“The data theft incident, which Dell described as a sophisticated cyberattack, potentially exposed customers’ personal information, including names, email addresses and hashed passwords. The breach not only highlights the vulnerabilities that exist within even the most technologically advanced companies, but also serves as a reminder of the consequences of inadequate cybersecurity measures.” Read more here
Nuclear Energy & Uranium
“Some 440 reactors around the world supply about 10% of the planet’s electricity, a share that will have to triple by 2030 to head off the most extreme effects of climate change, according to the International Energy Agency, an intergovernmental research organization. An increasing number of Americans seem to agree: In 2023, 57% supported the use of more nuclear power in the US, up from 43% in 2020, according to a poll from the Pew Research Center.” 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.
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.
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.
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.