Will CPI Revisions Alter the Fed’s Policy Path?
February 9, 2024
As we get ready to close out the week, we are adding our newest model to our lineup of thematic and targeted exposure models. We give you:
EPS Diplomats: Profitable large capitalization companies proven to produce above-average EPS growth and provide investors with the benefit of multiple expansions. So far in 2024, this model is up 5.22% vs. 4.78% for the S&P 500.
With that PSA out of the way, proceed!
With the S&P 500 continuing to flirt with the 5,000 level, the market will be contrasting several earnings reports out this morning with those from Cloudflare (NET), Affirm (AFRM), and Pinterest (PINS) last night. So far this earnings season, almost 81% of the companies that have reported in the S&P 500 have delivered better-than-expected results, significantly higher than the average beat rate of 67% since 1994.
That helps to explain the extended move higher in recent weeks even though Fed Chair Powell and recent economic data have taken a March rate cut off the table. Ahead of next week’s January Consumer Price Index report, the Bureau of Labor Statistics will publish revised CPI index figures as seasonal adjustment factors are recalculated to reflect price movements from the just-completed calendar year. Following last year’s significantly higher revision to CPI data, the market will review the data and what it could mean for Fed policy. If those revisions put the pace of inflation improvement at a slower pace, the market will be very interested in what Dallas Fed President Lorie Logan says at 1:30 PM ET today.
Japan's trade ministry plans to spend up to 45 billion yen (around $301 million) to back a research group, including domestic chip company Rapidus, to advance semiconductor technology. Taiwan Semiconductor (TSM) will build a second chip fabrication facility in Japan with help from Sony (SONY), Denso, Toyota (TM), and the Japanese government.
Sam Altman, CEO of artificial intelligence pioneer OpenAI, is in talks with investors to raise as much as $5-$7 trillion for a major project that would boost the world's chip-making capacity and its ability to power AI.
There has been an “almost wholesale exodus” of larger container ships from the Red Sea and the adjoining Suez Canal… Those ships, which ferry everything from trainers to mobile phones from manufacturers in Asia to customers in Europe, have been taking longer routes to avoid the area.
That exodus is a big deal: The Suez Canal, which connects the Red Sea to the Mediterranean Sea, accounts for 10-15% of world trade, which includes oil exports, and for 30% of global container shipping volumes.
For more, be sure to read our Daily Markets column published each day by Nasdaq.
Model Musings
Artificial Intelligence
“Google is jumping into the tech industry’s latest craze: subscription chatbots. The search giant will begin charging $19.99 a month for its most powerful chatbot, Gemini Advanced, as part of a subscription plan that also grants access to extra file storage and other perks. Gemini Advanced is the latest update to the chatbot Google released a few months after the sudden rise of OpenAI’s ChatGPT… “ Read more here
Data Privacy & Digital Identity
“A New York Senate panel on Tuesday advanced legislation (S365B) that would impose rules on how businesses collect, buy, and sell consumer data, joining a rush of other states passing similar measures. The Senate Consumer Protection Committee approved the bill, the New York Privacy Act, and referred it to another committee, which is also expected to pass the bill and send it to the full chamber.” Read more here
“Following months of arduous debate, Maine lawmakers are nearing agreement on a proposal opposed by Big Tech and retail giants like L.L. Bean that would give Maine the strongest data privacy protections in the country… California passed a comprehensive consumer data privacy law in 2018, with 13 states since enacting varying legislation that followed models initially drafted by industry giants such as Amazon, per the Electronic Privacy Information Center and U.S. PIRG Education Fund.” Read more here
Guilty Pleasure
“According to new research from CoBank’s Knowledge Exchange, U.S. consumers are paying more for chocolate products as confection manufacturers raise prices in response to the soaring cost of cocoa. Cocoa prices are nearly 65% higher than they were one year ago, and New York futures prices are at a 46-year high. While consumer demand has remained relatively strong, higher retail prices are poised to take a bigger toll on volume sales and stifle category growth through much of 2024.” 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 expansions.
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.