What Data Dependency Could Mean for the Fed's Economic Projections?
Data suggests the Fed will need to revise its GDP and core PCE Inflation expectations higher
Coming off last week’s market strength and the revised figure for 4Q 2023 GDP coming in at 3.2%, investors are taking a more cautious tone ahead of tomorrow’s January PCE Price Index data and Friday’s February Manufacturing PMI reports. The growing concern is the data will reinforce a slow path to the Fed’s 2% inflation target even though the economy continues to grow above trend.
As these data points are digested, the market will start contemplating potential revisions to the Fed’s Economic Projections, which in December called for GDP of 1.4% in 2024 with core PCE Inflation at 2.4%. Recent data suggests the Fed will need to revise that GDP forecast higher and potentially do the same for its core PCE inflation figure as well. Should tomorrow and Friday’s data reinforce that thought, it stands to reason market expectations for the start of rate cuts may slip further. Per the CME FedWatch Tool, the current thinking is the first rate cut will be in June, but we would point out that thinking is only by a modest margin.
Apple (AAPL) will wind down its team working on electric cars ending an effort to challenge Tesla (TSLA) and others. The company has other automotive-related projects, including its infotainment CarPlay software, which Apple says is installed on 80% of new vehicles. With that off the table, Apple can concentrate on applying AI to its current products, including the iPhone and iPad, and avoid falling further behind tech peers.
Taser maker Axon Enterprise (AXON) forecast full-year revenue ahead of Wall Street estimates, banking on strong demand for its software products and recently launched Taser 10. The company expects full-year 2024 revenue between $1.88 billion and $1.94 billion, compared with analysts' expectations of $1.88 billion, according to LSEG data.
For more, be sure to read our Daily Markets column published each day by Nasdaq.
Model Musings
Artificial Intelligence
“Deutsche Telekom on Monday showcased a futuristic smartphone concept that relies on artificial intelligence rather than applications (apps) to handle users' specific needs. Smartphones today typically use apps for everything from messaging and social media to video games and banking. The German company said the concept, which it is showcasing on its "T-phone" device, will have an app-free user interface developed in collaboration with partners Qualcomm and Brain.“ Read more here
Consumer Inflation Fighters
“Earnings at Bank of Montreal and Bank of Nova Scotia were marred by increasingly cash-strapped consumers and businesses amid a challenging economic landscape... On the mortgage front, soaring interest rates led to a wave of ultra-long home loans in Canada, hitting borrowers who have fixed monthly payments but variable interest rates. Many of those clients are no longer paying down any principal, extending the length of time it would take to repay their loans. When homeowners go to renew their mortgages, typically after five years, they are expected to face significantly higher payments.” Read more here
Digital Privacy
“Today, President Biden will issue an Executive Order to protect Americans’ sensitive personal data from exploitation by countries of concern. The Executive Order, which marks the most significant executive action any President has ever taken to protect Americans’ data security, authorizes the Attorney General to prevent the large-scale transfer of Americans’ personal data to countries of concern and provides safeguards around other activities that can give those countries access to Americans’ sensitive data.” 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.
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.