What Will Powell Say on Inflation and Tariffs Today?
👀January CPI and PPI as well as reciprocal Trump tariffs on the horizon
Market Wrap
Increasingly, Broadcom (AVGO) seems to be inching its way to replacing Tesla (TSLA) as the 7th pillar in the MAG 7, if only because of its continued appearance in the top 10 contributors to S&P 500 index returns and Tesla showing up in the bottom of that particular barrel. That aside, yesterday was a positive day for broad equity indexes as technology names figured heavily into that equation. The Russell 2000 gained 0.36%, the Dow added 0.38%, the S&P 500 rose 0.67% and the Nasdaq Composite closed 0.98% higher.
Still, with equities rising, Bitcoin and Ether posting gains, the 10-year treasury remaining essentially flat and the VIX closing below 16, gold continues to climb higher, closing in on $3,000/oz. While equity traders and investors alike continue to push valuations higher on what has so far shaped up to be a stronger-than-expected earnings season, gold is sending a warning sign of sorts. Larger institutions and sovereigns seem to be helping gold reclaim its historical position as a safe haven investment as those players look to hedge themselves against potential global geopolitical uncertainties.
The Tematica Model Suite saw a generally positive day yesterday led by Space Economy, AI, and Cloud Computing while EPS Diplomats and Nuclear Energy & Uranium continue to do well on the aforementioned so far strong earnings quarter, and the data center/AI energy play, respectively. EV Transition continues to lag as the fallout from Trump’s directive to end funding for the national EV Charging Network continues.
What Will Powell Say on Inflation and Tariffs Today?
Futures suggest equity markets could give back some of yesterday’s move higher when they open later this morning. Soon after the opening bell, Fed Chair Powell starts two days of semiannual testimony at 10 AM ET today, and you can bet the market will be interested in his comments about the economy, inflation, monetary policy, and any tidbits he may drop about tariffs. Based on recent January data that showed inflation pressures are, at a minimum remaining sticky, we suspect Powell will largely reiterate his recent post-policy Fed meeting presser comments - the need to see inflation data move back toward the Fed’s 2% target on a sustained basis. As we discussed in this week’s The Week Ahead video, “sustained” is the word to focus on.
That’s why we think Powell’s comments on Wednesday at 10 AM ET will be much more interesting since they follow the January Consumer Price Index out at 8:30 AM ET that day. As of this writing, the market consensus sees the sequential reading on core inflation rising other than 0.3% from 0.2% in December, but on a year-over-year basis, the January figure is expected to dip to 3.1% from 3.2% the month before. Here’s the thing, while the year-over-year core CPI data improved considerably in the first half of last year from 3.9% in January to 3.2% in July, it’s been stuck between 3.2%-3.3% ever since. Should we see a higher-than-expected print on Wednesday for annualized core CPI, our thinking is it will likely push the expected timing for the Fed’s next rate cut into 2H 2025. Currently, the market is vacillating between that next cut being in June or July.
Escalating tariffs could complicate the inflation picture and rate cut timing. And either today or tomorrow President Trump is expected to announce the reciprocal tariffs he mentioned on Friday. We already have China’s retaliatory tariffs in force as of yesterday, which range from 10% to 15% and are applied to crude oil, liquefied natural gas, farm machinery, and select other US products. The Trump reciprocal tariffs would impose import duties on products in cases where another country has levied duties on US goods. France and Germany have already shared they would replicate any imposed tariffs. Needless to say, we’ll need to see how this plays out and we suspect this is probably what Powell will say today and tomorrow on the subject.
On the earnings front, AutoNation (AN), Coca-Cola (KO), DuPont (DD), GlobalFoundries (GFS), Marriott (MAR), Shopify (SHOP), and SolarWinds (SWI) all release their quarterly results this morning. We’ll be interested in comments from GlobalFoundries about its end market exposure and capital spending plans given our Digital Lifestyle, Digital Infrastructure, and CHIPs Act models.
After the market close, we’ll get more fodder for our Digital Lifestyle model with quarterly results from DoorDash (DASH), IAC Inc. (IAC), and Lyft (LYFT). On the Aging Population front, we’ll be interested in utilization levels and expansion plans at Welltower (WELL), while for our Guilty Pleasure one it will be what’s shared by Red Rock Resorts (RRR). Given the direction of coffee and cocoa prices, and strength in travel bookings perhaps Red Rock and others like it are the guilty pleasure of choice these days… the earnings report will indicate if that line of thinking is on the money.
Model Musings
Aging Population
By 2040, 22 percent of Californians will be 65 or older, up from 14 percent in 2020. The older population (aged 65+) will increase by 59 percent, while the working-age population (aged 20–64) will remain largely unchanged and the child population (aged 0–17) will decrease by 24 percent. This shift will result in an old-age dependency ratio of 38 older adults per 100 working-age adults, up from 24 in 2020, and the highest ever recorded. Read more here
Artificial Intelligence, Cybersecurity & Data Privacy
Italy’s business elite has been roiled by a scam that used an artificial intelligence-generated voice mimicking Italian defence minister Guido Crosetto to ask tycoons to wire millions to overseas bank accounts to help pay ransoms to free Italian journalists kidnapped overseas… Investigators said the calls appeared to come from telephone numbers belonging to the defence minister’s staff — which they believed had been cloned. Read more here
Artificial Intelligence, Digital Infrastructure
As Nvidia’s most important AI server maker, Hon Hai’s performance is a bellwether for the AI infrastructure build-out. It said first-quarter sequential growth, or the increase from the December quarter, would be “better than the average level” of the past five years. That’s a rosier projection than the “roughly similar levels” the company teased last month. Read more here
Spending by the four leading US tech companies surged 63 per cent to historic levels last year. Now executives are vowing to accelerate their AI investments, dismissing concerns about the vast sums being bet on the nascent technology. Microsoft, Alphabet, Amazon and Meta have reported combined capital expenditure of $246bn in 2024, up from $151bn in 2023. They forecast spending could exceed $320bn this year… Read more here
Major tech companies including Microsoft Corp., Alphabet Inc., and Meta Platforms Inc. have all announced plans to invest tens of billions of dollars this year in AI and appeared unfazed by the success of the seemingly lower-cost models from Chinese startup DeepSeek. Amazon.com Inc. alone is aiming to spend $100 billion on AI. Read more here
Cash-Strapped Consumer
US consumer debt outstanding unexpectedly surged by the most on record in December, reflecting massive increases in credit-card balances and non-revolving credit. Total credit jumped $40.8 billion after a revised $5.4 billion decrease a month earlier, according to Federal Reserve data released Friday. Read more here
The Happiest Place on Earth has long felt like one of the most expensive spots on the planet for many Americans—but the allure of a magical family vacation kept visitors streaming in. Then, as postpandemic demand soared, Disney put price hikes into overdrive, putting vacations at its theme parks out of reach for many American families. Attendance growth has slowed over the past few years, and even some families that were once regulars are canceling their pilgrimages.
One-day adult passes to Disneyland broke the $200 mark for the first time in October. It now costs $206 on the most popular days at the theme park, more than $100 more than the price of admission on the lowest-cost day. Read more here
Cash-Strapped Consumer, Homebuilding & Materials
Nationwide, 17.2% of U.S. homeowners with mortgages have an interest rate greater than or equal to 6%, the highest share since 2016, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That’s up nearly five percentage points from 12.3% in the third quarter of 2023. If this growth rate were to continue, which is feasible, the share of homeowners with a rate of at least 6% would nearly double in the next three years. Read more here
Cybersecurity
Lee Enterprises, one of the largest newspaper groups in the United States, says a cyberattack that hit its systems caused an outage last week and impacted its operations. In a Friday filing with the U.S. Securities and Exchange Commission(SEC), the company said the February 3 cyberattack was behind the outage that impacted its business operations. Read more here
Digital Lifestyle
Consumers in the U.S. are increasingly mobile-first shoppers. Reaching for their phones has become a normal part of their shopping experience. This goes beyond just making online purchases. The average U.S. shopper conducts one digital shopping activity on their phones almost every day. 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 Consumers - 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.
Digital Infrastructure & Connectivity - Companies that are integral to the development and the buildout of the infrastructure that supports our increasingly connected world.
Digital Lifestyle - The companies behind our increasingly connected lives.
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.
Nuclear Energy & Uranium – Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.
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 indicates – 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 above.