Why the Market May Limp to a 1Q 2024 Close
With no major economic data today, one Fed speaker after today’s market close, and just a few companies reporting their quarterly results, with almost the same tomorrow, odds are the market will drift ahead of being closed on Friday.
We are, however, getting indications China’s economy is turning a corner (see more below), and consumers are poised to feel a sharper pinch at the gas pump (see Model Musings below), something that adds to inflation headwinds and, at the margin, saps consumer spending power.
Yesterday’s bridge collapse in Baltimore, one of the busiest ports on the US East Coast, will disrupt supply chains, another factor that could slow inflation’s retreat.
That tees up Friday’s February PCE Price Index as well as an appearance by Fed Chair Powell. Given the above as well as the inflation findings in the Flash March US PMI data, it’s hard to see Powell’s tone not cooling on the topic of 2024 rate cuts. Comments to that effect may cause the market to soften as we begin the new quarter this coming Monday. However, with the market narrative having shifted to one about the strength of the economy and earnings growth from one all about rate cuts, next week’s data from S&P Global, ISM, ADP, and the March Employment Report could make any weakness short-lived.
Between now and then we expect the flow of AI-related headlines will continue. But for those that remember the Dot com bubble, Scope Carbon (SCPCF) has changed its name from Scope Carbon Corp. to… wait for it… Scope AI Corp. and its new website will be scopetech.ai. Just saying…
Profits earned by China's industrial firms rose by 10.2% YoY to CNY 914.06 billion in the first two months of the year, suggesting China’s economic turnaround, supported by stimulus measures, gained momentum. Notable strength in the private sector was called out for the computer industry, communications and other electronic equipment, and electricity.
Programming note: With the US stock market closed for Good Friday and because of the Easter holiday, the next edition of Thematic Signals will be published on Monday, April 1 (and we’re not foolin’ you).
Model Musings
Artificial Intelligence
“Through a strategic expansion of its relationship of more than 20 years, Accenture (NYSE: ACN) has been selected by Adobe (Nasdaq: ADBE) to co-develop industry-specific solutions using Adobe Firefly, Adobe’s family of creative generative AI models, to help organizations create personalized content at scale and accelerate the transformation of their content supply chains. Accenture will integrate Adobe Firefly Custom Models into marketing services offered by Accenture Song, to provide clients with the industry-specific insights required to train bespoke models on their proprietary data and brand guidelines.” Read more here
CHIPs Act
“South Korea’s SK Hynix plans to invest roughly $4 billion to build an advanced chip-packaging facility in West Lafayette, Ind., according to people familiar with the matter, a boost to the Biden administration’s ambitions to restore America’s standing as a semiconductor power.” Read more here
Cloud Computing
“The Army plans to introduce an improved cloud infrastructure in the coming weeks that will streamline how users are able to access secure cloud capabilities, according to the service’s chief information officer. The new version of the Army’s cloud services infrastructure — dubbed cArmy 2.0 — aims to build upon the foundations of recent cloud modernization efforts and make key improvements to them, Army CIO Leonel Garciga said Tuesday during a webinar broadcasted by Federal News Network.” Read more here
Consumer Inflation Fighters
“US pump prices are likely to climb to the highest since the summer of 2022 — to $4 a gallon — as oil rises amid supply concerns, according to the AAA automobile club… The hike at the pump likely will force Americans to make lifestyle changes and be a focus in November’s presidential election, said Devin Gladden, a spokesperson for AAA, which tracks gasoline prices.” Read more here
EV Transition
“Decades after helping establish Houston's reputation as the Energy Capital of the World, oil and gas giant Shell is shifting its focus. The company recently published its Energy Transition Strategy 2024 report and announced it will be getting rid of about 1,000 gas stations over the next two years and funneling resources to expanding services for electric vehicles (EVs)…” Read more here
Homebuilding & Materials
The housing shortage in the U.S. could be addressed through deregulation, according to an industry executive… The focus should be on ramping up supply and ensuring "affordable housing for the next generation." Read more here
“According to the US Census Bureau, while February new home sales came in lower than expected month over month, they are up almost 6% from a year ago. In an interview with Yahoo Finance, Federal Reserve Bank of Chicago President Austan Goolsbee claims that housing inflation is the biggest pain point for the Fed.” Read more here
Luxury Buying Boom
“Higher gold prices have significant implications for the luxury goods market, where the precious metal is a key input cost for jewelry and watch manufacturers. Specifically, the 14% surge in gold prices since last fall appears to be crimping demand.” Read more here
Rebuilding America
“The bridge collapse Tuesday that shut the Port of Baltimore and closed a major highway will cause weeks or months of transportation disruptions in the Mid-Atlantic region and accelerate a shift of cargo to the US West Coast as importers and exporters try to avoid potential bottlenecks at trade gateways from Boston to Miami… That also means companies and consumers may face a repeat of one of the big supply chain lessons of the Covid pandemic: that a sudden 10% or 20% increase in volumes through a port “is enough to cause massive backlogs, congestion, ships waiting offshore and all sorts of delays that can compound on themselves…” 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.